Department of Trade and Industry 2016/17 Annual Report

NCOP Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour

18 October 2017
Chairperson: Mr B Nthebe (ANC, North West) (Acting)
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Meeting Summary

Annual Reports 2016/17

The Department of Trade and Industry had obtained a clean audit from the Office of the Auditor General of SA. Nine of its entities obtained a clean audit as well. The idea was for the Department’s entire stable to obtain clean audits. 99.62% of the Department’s allocated budget of R10.3bn had been spent. There was 50% of women in senior management positions and 3.4% of people with disabilities were employed. All eligible creditors were paid within 30 days. The vacancy rate sat at 7%. Through the Black Industrialist Programme over R3bn worth of investments were leveraged creating a total of 7000 new jobs. Broad Based Black Economic Empowerment regulations were gazetted and the Commission had been operationalised. The 8th iteration of the Industrial Policy Action Plan had been launched, which strengthened support for black industrialists and economic transformation to grow productive sectors such as agriculture, manufacturing and mining. Six industrial parks were approved for revitalisation, with job creation being a core objective. The Equity Equivalent Investment Programme facilitated skills development, enterprise development and research, which led to the creation of 241 job opportunities.

In as much as Members appreciated the efforts of the Department on job creation, Members asked how many jobs had been lost for the period under review. The Department was asked what its interventions at Highveld Steel were and how much funds it had invested in the plant. Was the investment made value for money? Members were concerned that at KwaNdebele there was no sound economic activity in the area. The Department was asked about the possibility of a Special Economic Zone in the area. Members asked what the progress on the agreement between the Department of Trade and Industry and South African Airways Technical was. Why were aircraft still breaking down? The Department was asked why nothing was happening on the revival of the Dimbaza Industrial Hub in the Eastern Cape. Much had been said in the media in the past about plans to revive the Hub but to date nothing had been done. The Department was asked to expedite the process on the Performers Protection Bill as the concern was that many of SA’s performers were dying as paupers because they had not received what was due to them. Members raised concerns about the lack of support and funding that smaller provinces were receiving from national government. One such province was the Northern Cape. The concern was that in these provinces special economic zones with infrastructure that held huge potential were going to waste. Provinces like the Northern Cape had to be uplifted.
The Department was also asked what the progress on industrial parks like the one at Garankua on the North-West border and at the Special Economic Zone on the platinum belt was. Was there construction or at least overhauling taking place? Members pointed out that there was a slight preference to develop already developed provinces. Did the Department have a programme that assisted smaller provinces? What progress was being made on the planned Special Economic Zone for the North-West Province?
The Department was asked why SA was exporting raw materials and not finished products. How could Eskom be allowed to use cheap steel from China instead of locally sourced steel? Perhaps Eskom and Transnet should be forced to use local steel. The Department was also asked how much it intended to spend in the Limpopo Province. Members felt that many areas in the Province were being neglected. Members were concerned that there were no take off agreements between beneficiaries that the Department funded and government/state owned entities. Regulation was needed and it was something that had to be addressed. Members had also observed that the Department’s funding agencies were risk averse. Only safe projects were funded. There was huge potential in SA and risky projects should be funded. Risk and innovation was needed to stimulate the South African economy.
The Department was asked why its vacancy rate had gone up compared to the previous year. Members further asked why there had been under spending. Members felt strongly that when investors invested in SA socio economic justice should be borne in mind when allowing investment to take place. Locals who were employed by foreign investors had to at least be paid R3500 per month. Where did Broad Based Black Economic Empowerment fit in when investors invested in SA? Members agreed that investment by the private sector was needed and there was no intention to scare investors off. Labour legislation in SA was adequate the problem was around enforcement by labour inspectors.

Outstanding minutes were adopted as amended.  

Meeting report

In the absence of the Chairperson Mr E Makue (ANC, Gauteng), Members elected Mr B Nthebe (ANC, North West) as Acting Chairperson.
 
Briefing by the Department of Trade and Industry (DTI) on its Annual Report 2016/17

The delegation comprised of Mr Lionel October, Director General; Mr Shabeer Khan, Chief Financial Officer (CFO); Ms Nontombi Matomela, Acting Group Operations Officer; Mr Yunus Hoosen, Acting Deputy Director General; Mr Macdonald Netshitenzhe, Acting Deputy Director General: Consumer and Corporate Regulation Division (CCRD), Mr Stephen Hanival, Chief Economist; Ms Lizell Reinecke, Acting Deputy Director General: International Trade Division; and Ms Marieme Jacobs, Acting Director General: Group Systems and Support Services Division(GSSSD). Mr October undertook the briefing.

The DTI had obtained a clean audit from the Office of the Auditor General of SA (AGSA). Nine of its entities had obtained a clean audit as well. The idea was for DTI’s entire stable to obtain clean audits.99.62% of the DTI’s allocated budget of R10.3bn had been spent. There was 50% of women in senior management positions and 3.4% of people with disabilities were employed. All eligible creditors were paid within 30 days. The vacancy rate sat at 7%. Through the Black Industrialist Programme over R3bn worth of investments were leveraged creating a total of 7000 new jobs. Broad Based Black Economic Empowerment (BBBEE) regulations were gazetted and the BBBEE Commission had been operationalised. The 8th iteration of the Industrial Policy Action Plan (IPAP) had been launched, which strengthened support for black industrialists and economic transformation to grow productive sectors such as agriculture, manufacturing and mining. Six industrial parks had been approved for revitalisation, with job creation being a core objective. The Equity Equivalent Investment Programme facilitated skills development, enterprise development and research, which led to the creation of 241 job opportunities.

The Committee was provided with insight into the economic context globally as well as locally. SA was lucky to have avoided a recession in 2016. Economic activity stalled in 2016 with growth at 0.3% compared to growth of 1.3% in 2015. However, in Quarter 4 of 2016 jobs in the economy had grown by 235 000.

The briefing continued with an overview of key achievements for the 2016/17 year. The DTI placed a great deal of emphasis on industrial development and economic transformation. For example, Toyota SA opened up a R6.1bn assembly line to produce its Fortuner and Hilux models. In addition, footwear manufacturing increased by 2m pairs in the first quarter of 2016 and employment creation continued. Exports in the leather and footwear sector had also begun to increase. Members appreciated the detail on the provincial spread of DTI approvals with projected jobs and investments in each province. Detail was also provided on the various programmes that the DTI had. On Special Economic Zones (SEZs) 16 projects had been approved to the value of R1.7bn. The Free State, Limpopo, Mpumalanga and the Nort- West Provinces had new SEZs. The Northern Cape Province was next in line. The idea was to have ten SEZs in total in SA. Detail on trade, investment and exports were also provided to members. 

Discussion
Mr S Mthimunye (ANC, Mpumalanga) referred to slide 11, which spoke about 235 000 jobs that had been created and asked how many jobs had been lost. He said that it would be interesting to see the difference between the two. On Highveld Steel it was understood that the DTI had made interventions. He asked how much had the DTI invested at Highveld Steel. Was the investment value for money? The DTI was asked what other interventions it had made. He had observed that whilst the Kusile Power Station was being constructed Highveld Steel was going through a bad patch. 50% of the residents of KwaNdebele were victims of forced removals. There was no sound economic activity in the area. Now that the DTI had the Moloto Rail Corridor in place he asked could the area not be provided with a Special Economic Zone (SEZ).

Mr October responded that at Highveld Steel an inter-departmental team had been put together to save the plant. The Industrial Development Corporation (IDC) provided the capital. As a consequence, part of the plant was saved. Oslo-Mittal was also assisting. Highveld Steel would come out of business rescue. The problem was a lack of coordination with respect to Eskom. The decision to construct Medupi Power Plant had been taken late. The bulk of the products for the construction were imported. The DTI was fighting a battle. Only three years earlier regulations had been set to designate products. Everyone had to buy local. The DTI even monitored municipalities. There was a 10% tariff on the import of steel. State institutions had to buy local. The point on KwaNdebele was noted. Discussions were taking place. He suggested that it was best for him to bring his entire SEZ and industrial parks team to deal with the issue. KwaNdebele would also be looked at. There were 16m people employed in SA. In 1994 the figure had been 9m. The problem in SA was that the labour force was growing faster than what jobs could be created. For this reason, the unemployment rate was rising. There were of course job losses. There was a need to accelerate labour intensive industries.

Mr Hanival stated that the point was well made that the growing labour force was surpassing employment. From May 2010 to May 2017 2.2m jobs had been created. The figures did change on a quarterly basis. During the 1st and 2nd Quarters of 2017 a total of 140 000 jobs had been lost. SA did not have jobless growth. In the last quarter the United States had created 400 000 jobs. The DTI continued to work on creating jobs. There was a need to redirect government spending, and also a need to buy local. This was where designations came in.

Mr L Magwebu (DA, Eastern Cape) asked what the progress was on the agreement between the DTI and South African Airways Technical (SAAT). SAA’s fleet of aircraft still broke down. The intention after all was to ensure that there was better maintenance. In the Eastern Cape attempts had apparently been made to revive the Dimbaza Industrial Hub. The reality was that 80% of the people in the area were unemployed. Nothing had happened as yet. Media reports had spoken about R118m to be spent in 2016/17 and a further R172m to be spent in 2017/18. He had hoped that the Hub would be uplifted. It was once a booming Hub. On bills that were pending he was very excited over the Performer’s Protection Bill. He was concerned about many of SA’s performers dying as paupers. He asked that the DTI expedite the process on the Bill. If problems emerged the Committee would be happy to assist.

Mr October said the DTI encouraged localisation, including in the aircraft industry. The DTI got Airbus and its affiliates to get SAAT to upgrade facilities. SAAT was in a better position to fix equipment at SAA and SAA Express. The DTI worked on ten industrial parks. The next one on the list was at Dimbaza. The DTI tried to fix the fencing and road infrastructure at Dimbaza. No additional funding had been received for the programme. Provincial Development Finance Institutions (DFIs) owned industrial parks. The DTI had called a meeting with the Provincial DFIs to work out a funding arrangement. Dimbaza was big on clothing manufacturing. The Committee could be provided with a project plan. The point on the Performer’s Protection Bill was taken. There was a commission called the Faber Commission in place to deal with protection of performers.  

Mr W Faber (DA, Northern Cape) emphasised that Members of the Committee represented provinces. Being from the Northern Cape, the steel industry was close to his heart. The reality was that the Northern Cape was the poorest of all nine provinces. On products exported, steel was the second largest export item. The Province had asked for smelters to be built in the Province. The Committee had done oversight to the Northern Cape. He was shocked at the miniscule amount that the Northern Cape received from the equitable share. Gauteng Province received an amount close to R7bn or R8bn. The Northern Cape only received an amount somewhere in the millions. It was unacceptable. How was the Northern Cape expected to grow? The DTI really needed to support the Province. He pointed out that in the Pampierstad area there was an SEZ with huge infrastructure that was going backwards. Was the problem perhaps at provincial level? A Member of the Executive Committee (MEC) on Finance Mr Mac Jack had complained that national did not provide funds for provinces to improve. The DTI asked why SA did not export finished products instead of raw materials. The Northern Cape Province could be a big player in the South African economy as it had huge harbours. The Committee had also done oversight over the steel industry. How could Eskom be allowed to use cheap steel from China rather than locally sourced steel? The Committee could force Eskom and Transnet to use local steel. He was impressed that the DTI had in the Northern Cape Province assisted with grain silos. Mr Jack had said that the Northern Cape could only function if it received funds from National Treasury and the DTI. The DTI was asked why SEZ efforts were now happening in the Northern Cape. Was it because of a lack of economic activity?

Ms M Dikgale (ANC, Limpopo) asked the DTI how much it intended to spend in the Limpopo Province. Many areas in the Province were neglected. Efforts by the DTI could be concentrated in areas along its border. There were ladies manufacturing soap under trees.

Mr October said that the DTI’s unit would be informed about the soap manufacturers. He asked Ms Dikgale to forward their details to the DTI.

Ms T Motara (ANC, Gauteng) observed that there were no take off agreements between beneficiaries that the DTI funded and government departments/state owned entities. It was an issue that should be addressed. Regulation was needed and it was something that the Committee needed to consider. The Committee had done oversight on four projects in the Gauteng Province and she had been impressed by it. She felt that the DTI’s funding agencies were risk averse. Only safe projects were funded. She spoke about Manele foods using meat waste to make pet foods and exporting it to the United States. Pet food was a $90bn a year industry in the United States. There was perhaps not yet a market for such types of foods in SA yet but such types of opportunities had to be supported. There was huge potential in SA. Risky projects should be funded. Risk and innovation was needed to stimulate the economy. A lot more could be done.

Mr October was in agreement with the sentiments expressed by Ms Motara. Sometimes there were no take off agreements. There was a State-Owned Entities (SOEs) Suppliers Forum. The DTI wished for the Passenger Rail Agency of SA (PRASA) to work closely with the Black Industrialist Forum. SOE’s had to provide work to black companies. The DFI’s had not adopted a proactive approach, hence the need for the Black Industrialist Programme. Black industrialists were extended to other sectors like agriculture as well.

The Acting Chairperson asked why had the DTI’s vacancy rate had gone up from 5% the previous year to 7%. Why was there was under spending of R40.1m, and under spending on SEZ’s as well? The Committee wished to see progress. He asked what the progress on industrial parks like the one at Garankua on the North-West border and at the SEZ on the platinum belt was. Was there construction or at least overhauling taking place? He felt that more could be done. He observed that there was a slight preference to develop already developed provinces. A large portion of the Manufacturing Competitiveness Enhancement Programme (MCEP) went to developed provinces. The reality was that the flow of urban migration would never be stemmed. He conceded that it was easier to invest in the more developed provinces because infrastructure was already in place.

Mr October welcomed support from the Committee. It was true that most of the economic activity was in the big metros. Applications submitted to DTI were mostly from the big metros. The DTI encouraged the Northern Cape and other provinces with minimal economic activity to submit applications. These applications would be prioritised. The Industrial Parks Programme was important for smaller provinces. Provinces would cover operational expenditure and the DTI capital expenditure. Legislation was needed to regulate it.

Mr Khan responded that the DTI wished to have a vacancy rate of 5%. The DTI had placed a cap on the filling of posts. Funding was needed for the entire Medium-Term Expenditure Framework (MTEF) period. The DTI had to prioritise which posts to fill. He conceded that there was R40m under spending. The DTI had to re-operationalise the Broad Based Black Economic Empowerment (BBBEE) Commission. It however still operated within the DTI. The accommodation process with the Department of Public Works took long. The BBBEE Commission and SEZs were where some of the under spending was.

Mr Faber reiterated that if small provinces were not developed then economic growth could not take place. Did the DTI have a programme to assist small provinces? There was great potential in small provinces. The will was however not there to push for small provinces to progress.

Mr October, on strategies for smaller provinces, said that there was firstly an Agro-processing Incentive Programme just as there had been for the automobile and clothing sector. Agriculture was being supported. There was also an Industrial Parks Programme. The intention was to target 26 industrial parks. The DTI intended to work closely with provinces on the Industrial Parks Programme. He noted that an amendment to the SEZ Act was needed in order to bring in industrial parks.  

Mr Y Vawda (EFF, Mpumalanga) congratulated the DTI on obtaining a clean audit. He asked what influence the DTI had over provincial departments to perform in the same manner. The clean audit should filter down to provincial departments and even to municipal level. It would be a sad day if Highveld Steel was to go down. It had to continue to function. He was concerned when investors invested in SA whether such investment came with bearing socio economic justice in mind. Addressing the DTI, all its investments coming into SA should be paying local workers at least R3500 per month. Investors should be giving back. He asked the DTI to bear this in mind.  He asked where BBBEE fitted in on investments that came into SA, bearing in mind black industrialists was coming to the fore.   

Mr October agreed that a minimum wage was important. The problem with minimum wages was mostly in wages paid in agriculture and in public works. In the corporate sector there were minimum wage levels. He pointed out that Denmark wished to boycott South African agricultural products as they believed the sector to be using slave labour. The matter of wages in the agricultural sector had to be addressed. There was even talk about persons wanting exemptions from minimum wage requirements for Expanded Public Works Programme (EPWP) workers. He felt it not a good idea to allow it. The point on Highveld Steel was taken and progress had been made. Under the Nine Point Plan there were also nine agri-parks. These were located in under-developed provinces. State support needed to be shifted where it was needed.

The Acting Chairperson asked what the progress on the SEZ in the North West was. He felt that mining was a sunset industry. The idea was not to have public expenditure to exceed private investment. Private investment had to be attracted. There was no intention to push out private investment. 

Mr October responded that the SEZ Board was assessing SEZs in the North West and Mpumalanga Provinces. Good progress was being made. The next step was for them to be referred to the Minister of Trade and Industry and Cabinet. The DTI at the SEZ in the Northern Cape had asked for an intervention. There were issues at the Upington Solar Park. Eskom had undermined the programme. He had asked his team to look at an alternative other than Upington as a possible port SEZ.  Port Nolloth and Bokpoort were being considered as alternatives as SEZS. He felt Port Nolloth to be a good option.

The Acting Chairperson said that the problem in labour was around the lack of enforcement by labour inspectors. SA had adequate labour legislation when compared to the rest of the world. The Committee on oversight had observed so many labour issues pertaining to farm workers. The matter had subsequently gone to court. Members coming from rural provinces knew exactly what the issues were

Committee Minutes
Minutes dated 2 August 2017 were adopted as amended. 

The meeting was adjourned.

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