Economic Development Department on Quarter 1 performance, with Minister and Deputy

Economic Development

05 September 2017
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Economic Development Department (EDD) presented its reports for the fourth quarter of 2016/17 and the first quarter of 2017/18. However, as the fourth quarter report had not yet been audited, the Minister focused on only some of the key areas, and then dealt with the first quarter in great detail.

A highlight of the fourth quarter was the Highveld Steel business rescue, where 1 700 jobs had been lost as a result of the shut down, and a range of structural steel previously produced by Highveld Steel was now being imported. The Department’s intervention had resulted in the establishment of Highveld Structural Mill, which had created 200 manufacturing jobs at the site and included 100% import replacement for heavy steel used in construction. The EDD also reported on the construction settlement, where a R1.4 billion fine was levied by the Competition Commission, as well as some of the companies involved selling equity to black investors and black-owned construction companies.

The first quarter statistics were impacted by the 0.7% annualised contraction in the gross domestic product (GDP), Coming after a contraction of 0.3% in the last three months of 2016, this meant the economy had gone into recession. The unemployment rate stood at 27.7%, with 113 000 jobs lost in the quarter, bringing the total number of unemployed to 6 177 000. Construction had been particularly hard hit, losing 110 000 jobs.  However, 2 452 000 jobs had been created since the adoption of the New Growth Path (NGP) in October 2010 to June 2017, of which 70% had been formal non-agricultural jobs. Government reported the highest percentage (30.8%) of jobs created, followed by business services (28.8%) and construction (11.3%). The manufacturing industry reported a decline in the creation of jobs over the period.

Other important issues involving the EDD in the first quarter included:

  • The courts had upheld the validity of the country’s regulations on the control of scrap metal exports;
  • The Coca Cola merger agreement would lead to increased black economic empowerment (BEE) shareholding and a R800 million fund for development of farmers and small businesses;
  • The Competition Commission would conduct a one-year market inquiry into the telecommunications sector to identify measures to reduce data costs;
  • The Industrial Development Corporation (IDC) Board took a decision that its members would not be entitled to access industrial funding from the IDC;
  • National Treasury had approved a budget for the Steel Development Fund (SDF) of R30 million for 2017/18, R30 million for 2018/19 and R35 million for 2019/20.

Members asked how tough it was to achieve a balance between public interest and investors’ interests when dealing with mergers; how government monitored and supported Highveld Steel so that it did not relapse; how it could monitor and track previous investments made on the continent; whether the Competition Advisory Council had been set up and convened; details of the SDF’s 20 project pipeline; the transfer of skills to small black farmers in relation to the R800 million trust; and how far the nominations were to fill the vacancies for Commissioner and Deputy Commissioner at the International Trade Administration Commission (ITAC). 

Meeting report

The Chairperson welcomed the members, Minister Ebrahim Patel, Deputy Minister Madala Masuku, and the delegation team from the Department. Before the proceedings of the day commenced, the Chairperson announced the oversight visit programme for the month of September and asked Members to indicate whether they would be available or not.

Economic Development Department: Q4 Report

The Minister briefly took the Members through this report, focussing only on the key areas such as the re-opening of Highveld Steel, an update on the construction industry settlement, and the National Skills Accord.

Highveld Steel went into business rescue and closed down in 2015. 1 700 jobs had been lost and a certain range of structural steel previously produced by Highveld Steel now had to be imported. The Department had intervened by assisting with an opportunity to promote investment, create jobs and develop beneficiation in the metal and steel value chain:

  • ArcelorMittal SA (AMSA) had the quality of steel required to make railway lines, but its structural mill was regarded as too small to produce the amount required;
  • Highveld Steel produced the larger sizes of railway lines, but could not produce the bloom needed to make these large sizes;
  • It was not economically feasible for either company to upgrade their existing facilities

The EDD had brought together the relevant parties – including AMSA, the Industrial Development Corporation (IDC) and Highveld’s business rescue practitioner – to facilitate development of a new venture. The result of this intervention was the establishment of Highveld Structural Mill. The plant makes a range of products for the construction and infrastructure markets, including bars, beams, rail sleepers, and columns. It is the only manufacturer of rail lines on the African continent, and had created 200 manufacturing jobs at the site. Its impact included 100% import replacement for heavy steel used for construction.

On the construction settlement, a R1.4 billion fine had been levied by the Competition Commission. A R1.5 billion additional settlement amount negotiated by the government was to be paid by the seven companies into the National Revenue Fund for administration by the Tirisano Trust to support development objectives, which would be allocated in 2018. R30.7 million had been paid as the first tranche to the National Revenue Fund. The settlement also included Murray & Roberts selling 100% of its civil engineering firm to a black-owned consortium. Lastly, Aveng would sell 45% of its equity in Aveng Grinaker-LTA to black investors and black-owned construction companies.

With regards to the National Skills Accord, the following key highlights for a five-year period were presented to the Members:

  • 103 817 artisans were trained in five years using existing training facilities;
  • TVET learners placed increased from 1 150 in 2011 to 23 200 in 2016;
  • Over 44 000 TVET graduates were placed;
  • University of Technology student placements more than doubled, from 4 800 in 2011 to 11 200 in 2016;
  • R1.3 billion was spent out of R1.4 billion allocated by the National Skills Fund (NSF) to 30 projects in support of skills consistent with the New Growth Path (NGP) jobs drivers;
  • 34 532 learners were skilled in the training linked to NGP job drivers (the target was exceeded by 11 082).

As for training in state-owned entities (SOEs), over 43 000 learners were trained over the five-year period.

Discussion

Dr M Cardo (DA) asked the Minister to update the Committee on the Competition Commission case regarding the banks’ currency exchange rate collusion.

Mr S Tleane (ANC) suggested that Members preserve their questions for the audited fourth quarter report. He believed that it would be best to engage the Department once the Auditor-General had audited that report.

The Chairperson asked the Members whether they agreed with Mr Tleane’s suggestion.

Members agreed. The Chairperson handed over to the Minister to respond to Dr Cardo’s question.

The Minister responded that the Competition Commission first investigates when it sees a potential case. When it had gathered all the relevant evidence, it then presents it to the Competition Tribunal. At this point, all parties were entitled to present their counter-arguments and present their own evidence. Once the Tribunal has considered the matter at hand, and makes a decision on it, the parties that are involved could appeal the decision at the Competition Appeal Court, which was the highest court to deal with competition appeals unless there was a constitutional question. The Supreme Court of Appeal did not deal with competition law because it was decided that competition law was very specialised and the jurisdiction was given to the Competition Court of Appeal.

With that being said, the Commission had been submitting evidence to the Tribunal about the matter in question, and the Minister was briefed accordingly and the process was virtually close to being wrapped up. However, no further details had been provided. Subsequently, some companies that were implicated had come forward and indicated their willingness to make information available about their own conduct that could be used in the wider processes. However, some companies had gone to the extent of taking legal points as to whether the Commission was obliged to furnish its evidence and information gathered to them before they could come to a decision whether they would submit themselves or not, and disclose the extent of their involvement. So the higher courts would have to decide, and the process should be given its opportunity to take its course.

The Minister proceeded with the Q1 report.

EDD on its 2017/18 Q1 report

The Minister provided the presentation with some economic context as at quarter one, alluding to the ratings downgrade of South Africa’s sovereign credit rating to sub-investment grade in the first week of April by both Standard & Poor and Fitch. On 6 June, the gross domestic product (GDP) results for the first three months of the year were announced, showing an annualised contraction of 0.7%, coming after a contraction of 0.3% in the last three months of 2016. This meant the economy had gone into recession.

With regard to unemployment, the unemployment rate for Quarter 1 was 27.7%. The statistics reported the following numbers:

  • 113 000 jobs were lost in the quarter, but unemployment also decreased by 37 000;
  • Total jobs at the end of the quarter were 16 100 000, and the total unemployed was 6 177 000;
  • Most new jobs were in trade (58 00), business services (17 000) and manufacturing (10 000);
  • There were job losses in seven of the 10 industries, with construction particularly hard hit and losing 110 000 jobs.

The Minister informed the Committee that second quarter GDP results would be released shortly.

In manufacturing, production volumes grew by an annualised 6.2% in Q1, with six of the 10 manufacturing divisions growing, and strong growth in food and beverages and motor vehicles, parts and accessories. In addition, manufacturing sales improved in this quarter with sales, amounting to about R10 billion more than in Q4. Retail sales grew by a real annualised 8.9% in Q1, an encouraging trend, supporting the credibility of the Quarterly Labour Force Survey (QLFS) result for jobs in this sector. Mining production volume, as well as sales value, was almost identical in Q1 compared to Q4.

Responding to the new economic conditions, the government would focus on infrastructure by boosting spending over the next three years, with steps to speed up new projects. It would look into increasing funding targets for the Industrial Development Corporation (IDC). Other areas included investment; stepping up measures in competition to ensure that it was fair across various industries; the confidence boosters (14 actions) as outlined by the Minister of Finance; renewed efforts to increase localisation; and initiating social dialogues between government and business.

Focus 1 of the presentation outlined the Department’s completed jobs report, exploring SA’s labour market trends since the adoption of the New Growth Path. In light of the impact of the global financial crisis in the context of the NGP, the highlights of the key findings were as follows:

  • The immediate impact of the global financial crisis was felt for just under two years (seven quarters), where SA lost approximately 1.1 million jobs, or around 8% of total jobs;
  • Total employment went from 14.8 million in Q4 of 2008, to 13.7 million in Q3 of 2010. 530 000 jobs were lost in one devastating quarter alone (Q3 of 2009);
  • The global financial crisis produced a large increase in discouraged work seekers. Discouraged work seekers more than doubled, from 1.1 million in Q3 of 2008, to 2.2 million in Q1 of 2011; and
  • It took five years for employment to get back to the level it was before the crisis.

As far as job creation was concerned in the context of the NGP, the broader picture reported that 2 452 000 jobs had been created from the adoption of the NGP in October 2010 to June 2017, of which 70% had been formal non-agricultural jobs. After a job loss of 8% through the global financial crisis period, jobs had increased by 18% to the present. Government reported the highest percentage (30.8%) of jobs created, followed by business services (28.8%) and construction (11.3%). The manufacturing industry reported a decline in the creation of jobs over the period.

Furthermore, substantiating the labour dynamics and the unemployment rate, the jobs report found that while SA had created almost 2.5 million jobs since the NGP was adopted to June 2017, the unemployment rate had also risen. One reason was the relationship between economic performance and “labour market hope”, and 2015 revealed this particularly well, as the highest number of jobs was created in that year since the GFC – 690 000, with jobs increasing by 3.9%. The response was that more discouraged workers -- people who had not been looking for jobs before -- started to look for jobs, expecting improved chances of getting a job. When they started looking for jobs, they began to be counted as ‘unemployed’ in the official ‘unemployed’ statistics. While 690 000 jobs had been created from Q4 2014 to Q4 2015, unemployment had increased by 5.4% and there were 298 000 more unemployed at the end of the year. Therefore, the unemployment rate was higher, at 25.4%, in the last quarter of 2015 than the 24.3% in the last quarter of 2014.

If the GDP grows steadily, getting to 23.8 million jobs and an associated unemployment rate of 15% by 2030 was attainable. To achieve this, there was a need to create 7.8 million jobs from the beginning of 2017, and reduce unemployment by 1.6 million people. By 2030, there would be 4.2 million people unemployed to achieve an unemployment rate of 15%. However, if GDP growth was very weak, or the average growth rate up to 2030 remained at 1.5%, 3.4 million more people would be unemployed, for a total of 9.6 million unemployed. Thus, the unemployment rate would be sitting at 34.1%.

The trade report recorded the trade relationship between South Africa and Kenya, showing that in 2016 the value of trade (exports plus imports) between South Africa and Kenya was R8.5 billion. However, most of this was South African exports to Kenya. In 2016, South Africa exported R8.2 billion and imported R300 million from Kenya, which meant that South Africa’s exports were almost 30 times the value of imports, and South Africa had a trade surplus of R 7.9 billion.

As for the Focus 3, there was a lot of research currently being conducted by South African universities on the Fourth Industrial Revolution – also known as Industry 4.0. The focus by competition authorities was centred on the challenges of regulating Big Data, and the Competition Commission had notably instituted a market inquiry into data costs.

Focus 4 looked into beneficiation – fighting for policy space, particularly the case of scrap metals. To provide some background to the case, the Minister of Economic Development had gazetted a Trade Policy Directive on 10 May 2013 on the export of scrap metal. The directive had provided that scrap metal could not be exported unless it had first been offered to domestic users of scrap at a discounted price. In October 2014, the SA Metal Group (SA Metal) had applied to the International Trade Administration Commission (ITAC) for a number of its applications to be exempted from the regulations. The reason given was that it would be in conflict with South Africa’s existing trade obligations. ITAC had decided not to exempt SA Metal’s applications from the Price Preference System, taking the position that it would not violate SA’s international trade obligations. The regulations had been challenged in court by the exporters, since October 2013 up until 2 August 2017, and the state had won all five court cases, bringing to an end almost four years of litigation, so the regulations on the control of scrap metal exports continue to be valid.

Focus 5 covered the Coca Cola merger and new opportunities. Coca Cola had created a single bottling operation in 2016, with a controlling shareholding by SABMiller. A number of public interest issues had been agreed, including retaining total jobs for a three-year period, and increasing black economic empowerment (BEE) in the SA subsidiary from 11% to 20%. Subsequently, SABMiller had been taken over by ABInBev, and Coca Cola had exercised its pre-emptive right to buy the SABMiller shares back. So now they contemplated a transaction in two phases. In phase 1, Coca Cola buys the controlling stake and essentially warehouses for a period, and in phase 2, Coca Cola sells the controlling stake to another bottling operator. Coca Cola had then met with government to discuss the transactions and agreed to a range of terms to be put to the competition regulators. The following terms were discussed:

  • Coca Cola would extend the current agreement to maintain aggregate employment by commencing the three-year clock from the date of phase 1 and phase approvals, which means the three years may become five years;
  • Increasing the BEE shareholding in the SA subsidiary from 20% to 25% in phase 1, and to 30% in phase 2;
  • Committing to giving South African investors an opportunity to make a bid for the controlling shareholding;
  • Retaining the African headquarters in South Africa;
  • Maintaining all the other conditions previously agreed, such as the R800 million fund for farmer and small business development, commitment to localisation and keeping the production of Appletiser in SA.

The matter was currently before the Competition Commission.

Focus 6 covers the data cost market inquiry. The problem statement was the high data costs which impact on the economy and society, which was linked to Industry 4.0. This inquiry was requested by the Minister, and the terms of reference had been gazetted. The question was why the market inquiry into data costs was requested.

South Africa did not do very well in international evaluations of data costs and general information communication technology (ICT) competitiveness. It scored only 75th out of 143 countries in the World Economic Forum’s Network Readiness Index (2015), which measures the “performance of economies in leveraging information and communication technologies to boost competitiveness and well-being.” In the International Telecommunication Union’s (ITU’s( authoritative annual survey, SA was not ranked competitively for either absolute costs or affordability relative to national income. Nonetheless, data usage in the country was growing rapidly and was expected to be higher than the use of voice services. The number of South Africans with access to a smart phone or a tablet was currently at 40% and increasing rapidly. Therefore, access to data had become critical for small businesses, students for research, graduates to access the labour market and ordinary South Africans in general.

The Competition Commission would conduct a market inquiry into the telecommunications sector and work with other regulators, including the Independent Communications Authority of South Africa (ICASA) and National Consumer Commission, to establish the facts and identify measures to reduce data costs and make recommendations to government. The Commission would examine whether there were features or a combination of features in data services markets which prevented, distorted or restricted competition within the sector to achieve the purposes of the Competition Act.

The market inquiry would:

  • Obtain a clear understanding of the data services value chain and how it related to the ICT sector and the economy;
  • Benchmark SA costs against costs in other countries;
  • Establish whether data supply quality and coverage were adequate by international standards and meet SA’s developmental needs;
  • Assess the state of competition in the data services market in terms of: market structure; current regulatory regime; strategic behaviour of large incumbent firms; costs and profits of mobile network operators; current network infrastructure sharing arrangements; infrastructure investment and spectrum access and their impact on data prices and competitiveness; and adequacy of regulation to promote new South African entrants.

The inquiry would commence in September 2017 and be completed by August 2018.

Focus 7 covers the update on Highveld Steel. The Minister highlighted that the work that led to the reopening of Highveld Steel had been reported under Quarter 4 of 2016/17. The steel mill had started production during April 2017, and the opening ceremony was held on 6 June 2017. In addition to the steel mill, the old Highveld Steel complex was being turned into a multi-purpose industrial hub. Total employment to date was now in excess of 600 employees across the various activities in the industrial hub.

Focus 8 covers integrity and improved governance, and the release of information on IDC clients was part of improving that. Furthermore, as of 1 April 2017, in all new contracts entered into, the IDC stipulates that it is entitled to make available all relevant information on the identities and beneficial ownership of companies to which the IDC provides industrial funding, whether in the form of loans or equity. The IDC took a step further when its Board took a decision recently that its members would not be entitled to access industrial funding from the IDC. Previously, this was covered through the recusal of Board members.

With regard to investments on the continent, during 2015 the Minister of Economic Development and the Minister of Finance had approved an IDC investment in the development of the Bisie Tin Mine in the DRC. The Minister of Economic Development had placed a condition that the project would be managed from South Africa, with significant value of mining equipment and services to be procured from South Africa. During the detailed feasibility study work, spending on South African services and equipment was estimated to have been R400 million. Construction began in January 2017 and spending in South Africa amounted to R79 854 232. In addition 200 new jobs had been created for South Africans working on the project in the DRC, and the duration of their contract was between two and three years. There was also a possibility that some of these workers would be absorbed as permanent workers when the mine started operations.

Under Key Performance Indicator (KPI) 6, investment in women and youths, the IDC approved projects during the 2016/17 financial year that required funding of R15.3 billion, and 36% of this funding supported youth and women-owned businesses.

Under KPI 11, a number of Cabinet and Presidential Infrastructure Coordinating Council (PICC) strategic decisions on infrastructure were implemented, including setting up the Steel Development Fund, which would be announced in the budget speech. The Fund was aimed at supporting the downstream steel industry. The EDD had proposed to Cabinet that a steel development fund (SDF) be established by the IDC to enhance the competitiveness of the industry. The purpose of the SDF was to assist qualifying enterprises in the downstream steel sectors to improve their competitiveness and assist companies in distress with a turnaround plan within the sector, and National Treasury had approved a budget of R30 million for 2017/18, R30 million for 2018/19 and R35 million for 2019/20. The SDF had a 20-project pipeline, with four projects in the due diligence phase and one approved project.

The Minister advised the Members that they could ask questions relating to sections of the report that he had not covered during his presentation.

Discussion

Mr Tleane commended the Department on the work that it was doing, and showed appreciation for the good decision taken by the IDC Board to not allow members of the Board to access industrial funding from the Corporation as had been the case previously through the recusal of Board members. He firmly hoped that this was replicated in other government spheres and entities.

As for the high unemployment rate in the country, he asked whether the 6 177 000 unemployment number could be broken down per sector or industry, because it did not necessarily translate to which sectors accounted for the 6 million jobless people. This would assist the Committee to interrogate the targeted areas and ascertain which areas needed attention to boost employment.

He commented that market inquiries required a lot of balancing out for both parties -- government’s interests and the investor’s interest – and it was tough to achieve the balance between these two different interests and ensure that all affected parties were satisfied with the terms and conditions, or the outcome of those terms and conditions.

He asked the Minister how government monitored and supported Highveld Steel so that there was no relapse. As previously seen, this tended to be the case with rescued companies that fell on to government. It was always a good and lucrative initiative when the country invested in other countries on the continent. He was in impressed with the IDC investment in the DRC, particularly the Tin Mine. However, he related his sentiment regarding other investments that the IDC makes in other countries on the continent, because there were other previous investments that had been made in DRC. How could the country track its investments on an on-going basis, and report continually about what was happening with those investments and assess their value?

Dr Cardo asked about the status of the regulations on the scrap metals (SA Metal) case, the proposed regulatory changes resulting therefrom, and an update on their current operations. The Minister had mentioned in his budget speech that the Ministry would set up an advisory panel to assist the Department on competitions, mergers, acquisitions and other related transactions. He asked whether the panel had been set up, and if so, whether it had yet convened and for an update on the work that it had done thus far.

Mr M Mbatha (EFF) wanted an update on the previous work done in the townships. These projects needed to be continually reported on in order to assist the Committee to understand where they were in terms of progress. In addition, this information would assist the Committee to understand whether some of the factors that caused stagnancy stemmed from the municipal or provincial level.

Ms C Matsimbi (ANC) asked about the Steel Development Fund, particularly the 20 project pipeline – which projects were identified and from which provinces. Secondly, was the focus on the entire country or only certain parts of the country?

The Chairperson said it was outlined on slide 32 that the “CCBA (Coca-Cola Beverages Africa) partnered with Orange River Cellars (ORC) to secure grape juice concentrate. ORC supports black local farmers in the area.” The following sentence seemed to contradict the above, particularly the part that reads: “CCBSA was sourcing all fruit locally except for grape juice concentrates where CCBA was sourcing approximately 9% of its grape juice locally.” She asked if the Minister could share more light on this and clarify.

Secondly, was anything being done to transfer skills to small black farmers, so that someday they would be able to manage and run their farms, particularly those that were funded through the R800 million fund. Normally, trusts and funds were established to assist people on the ground, yet those very same people were not updated and informed about the trust, and ended up being exploited.

Thirdly, in Malaysia, the Committee saw a lot of businesses being developed up to the point where they were able to stand on their own. Government procured their goods and services so that they were able to grow. Apart from the procurement system or framework being followed in South Africa, after the businesses had won tenders and supplied goods and services to government departments, there was no update on whether those businesses were being paid, what they were paid and when. It seemed that state enterprises did not adhere to the agreed contractual terms, because they continuously failed to pay their suppliers within the agreed time frames. This crippled the small suppliers who relied on these payments as their main source of revenue. There were business expositions in Malaysia that were instituted by government to assist the smaller businesses to acquire investment from private investors. She asked if SA was in a position to establish such business expos -- the CSIR and SABS had expo centres, but only a few people, who already had resources, who actually accessed those centres, not the ordinary people who were in need of funding and investments to grow their businesses. The main objective of these expos was to expose those small and black-owned companies, with enormous potential to grow, to potential investors so that they were not reliant on government procurement and funding to grow.

The Chairperson also asked about progress with the nominations to fill up the vacancies for Commissioner and Deputy Commissioner of ITAC, as it had been reported that the closing date was August, 2017. Lastly, on the Coca Cola merger, what was the progress on the R800 million fund that was meant to develop farmers and small businesses.

Minister’s response

The Minister responded on the high rate of unemployment, saying the big drivers were the fact that the majority of the South African population were youths, and more and more young people were coming into the labour market, in some cases without the required education and skills. On the other hand, there was a high number of people who were becoming optimistic and consequently joined the labour market, and these individuals had previously been out of the labour market. This meant that as employment increased, unemployment increased concurrently. The economy had moved out of the recessionary effects resulting from the global financial crisis, but the number of jobs created did not have an overall impact because the previously unemployed, who had not been looking for employment, had now entered into the labour market.

Regarding market inquiries, government needed to attract investors in a favourable environment, and show investors that it recognised their contribution into areas such as the acquisition and transfer of skills, employment creation, decent wages, rural development, etc. Managing that complexity had its challenges, and if government was rhetorical about transformation to the point where investors were not certain about the future, that made them lose confidence and subsequently chases them away. Therefore, as much as it was important to negotiate from a public interest point of view when dealing with mergers and acquisitions, it was also important to bear in mind that investors needed to have returns on their investments.

With Highveld Steel, the EDD had tried to support the efforts of the company with a tariff increase, but the big issue was whether Transnet and Prasa would buy a lot more from Highveld Steel or not. Part of the effort now was that the EDD was engaging the counter-party procurement office to make that happened, and why it was important for Transnet to bring back that procurement to South Africa to ensure that Highveld Steel was kept afloat. In addition to the efforts, the EDD was trying to get more SOEs and other companies to make use of Highveld Steel as a primary supplier for steel and steel manufacturing.

In as much as the IDC’s board had taken a good decision in relation to board members’ eligibility to apply for loans and financing from the Corporation, it was important that the Committee noted that it did not chase away potential business-wise board members who would ideally join the IDC, but it was a ground-breaking decision nonetheless.

As for the tracking and monitoring of investments on the continent, at the next meeting the EDD would focus on the investment report instead of the trade report so that the Committee could get a sense of investment relationships by the IDC on the continent. The reason the tin mine had been highlighted was to give the Committee the ammunition to be able to argue against a narrow xenophobia that sees fellow Africans as a threat. There were also other examples of investments on the continent by the IDC.

On the status of the regulation, the price preference system that was introduced about five years ago had been focused on infrastructure, localisation and climate change objectives, but the PICC had received reports about infrastructure slacking, and people stealing cable and metal. In Cape Town, for instance, the metro rail was very often down because of theft, and those pieces of copper or metal being stolen were worth more to the government than they were being sold for on the black market. The Mayor of Cape Town had reported this to various government structures, and from those engagements government had decided to introduce tougher bail conditions, penalties, tougher ten year jail sentences, and had created a new category of crime which was infrastructure theft. What had also surfaced was that these organised export syndicates were creating a market demand for smaller players to go around stealing cables and metals to be sold to bigger players and exported. Government needed to slow down that trade in order to dampen the market demand. ITAC had proposed a single dedicated exit port that would be able to concentrate both top technical and other expertise that would be able to distinguish different classes of metal that would identify companies that were disguising the true nature of the products they were exporting. ITAC had received public comments on this matter; and the focus now was to tighten up the efforts of the justice system. A month ago, the EDD had presented the statistics to Cabinet -- the number of crimes committed, the number of people convicted of these crimes and where the serious or major infrastructural theft came from. The EDD was beginning to track and identify the gaps at the enforcement level.

The Advisory Council on the Competition Act had convened, and had already held a number of meetings and engaged with the tribunal and competition authority to get a sense of the work that had been done thus far. He was happy with the progress. The goal was to move much faster, but also to come up with proposals that were meaningful and helpful. In the next quarterly report the EDD would provide more details on this issue.

On rural economic development, there had been slow growth and active involvement by rural communities. Some of the work that had already been started included provincial and local governments gaining a better idea of what needed to be done in the rural areas. The EDD sought to act as a catalyst to make this happen. In the main stream economy, the work done by the EDD needed to connect back to the rural economy. One of the efforts by government in making this happen was the establishment of the Small Enterprise Finance Agency (SEFA) as a key vehicle to drive loans and finance to those normally excluded in the rural areas, and it had approved about R1 billion in loans in the previous financial year alone. However, this was just one mechanism. It had surfaced that the big shopping malls in both urban and rural areas had become a vehicle for anchor stores such as Shoprite, Pick n Pay and Spar, which tended to squeeze out the smaller players from those malls. The exorbitantly high rental rates added to that, which translated to exclusionary practices. They tended to object to smaller businesses that sold similar products from operating in those malls. This contravened the spirit of competition and the Competition Act. However, before the EDD could devise an action plan with regard to this issue, more evidence needed to be gathered.

The EDD had looked into the social economy as one of the key drivers, because it appeared that it had been economically neglected. This area included cooperatives, non-governmental organisations (NGOs), and other non-profit organisations. The EDD had therefore taken a step forward and signed an agreement with government funders, and this had been tabled in Parliament a week or so previously. The EDD would do some work on this and report back to the Committee. Out of this, the EDD wished to develop a White Paper for the social economy, on how it could get more survivalist enterprises and increase the number of cooperatives in rural areas.

Deputy Minister Masuku added that in the report on the social economy, there was a case study of an area called Ehlanzeni in Mpumalanga, which was one of the areas that had been identified as being very poor. Currently an Agri-Park was being developed in that area to support the local agricultural economy. To assist the community, the EDD had advised them that they needed to plan their economic development around the resources that were within the community, and by so doing link skills development around those resources with the local TVET colleges.

Minister Patel further responded on the Steel Development fund, saying that applicants had to come forward to apply. It was not a government grant or trust set up by government, but a consideration that had emanated from the Coca Cola merger. Companies from various provinces had applied, and there was definitely a geographical spread. However, this needed to be publicised so that more companies could come forward and apply.

Referring to the apparent anomaly on slide 32 involving CCBA, he said that had been before the merger, and when negotiations occurred they had indicated they needed a specific type of grape for the Grapetiser products, and that it seemed there was not enough of it in South Africa. They had also indicated some of the countries that they imported it from. The EDD had argued that there was an enormous capacity for South Africa to increase its production of this type of grape, and had guided them on the places where the climate was conducive to producing it. This had led to local sourcing increasing to 43%, which was the medium term goal. The long term goal was 80%, and although the medium term goal had not yet been achieved, there was a very high possibility of achieving it.

The Trust was a working trust that Coca Cola had set up, not a direct trust that had been set up by IDC, although the way it was outlined in the presentation may have conveyed the message that this was so. The Minister had had a discussion with Minister Nkwinti about working trusts to support farms. CCBA had appointed the IDC as its fund manager -- this was for the portion of the R400 million that CCBA had set aside to promote localisation around transport logistics companies, black farmers and smaller bottling plants.

Malaysia was an area where the Department of Trade and Industry (Dti) was responsible for trade and the promotion of trade and exhibition facilities. Perhaps the EDD could get the Dti to put out some information for the EDD to get an overall footprint, both inside the country and with export promotions for exhibitions. Government puts a lot of money into expos, especially abroad, but whether they yielded the desired results was another question. The Dti was best able to disclose the extent of the work, and they would do an excellent job in providing this information.

With regard to the ITAC appointments, the application deadline had closed but it had been extended a bit to enhance the number of people applying. The EDD was currently sifting through the applications and commencing with the processes.

As for the Coca Cola R800 million fund, the EDD would look into the progress report and this information could perhaps be included in the Q2 report, but if there was not enough information at that stage, it would then be included in the quarter 3 report.

The Chairperson thanked the Members, the Minister and the Deputy Minister for the presentation and the responses.

The meeting was adjourned. 

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