Investment and external trade promotion: Department of Trade and Industry briefing

Meeting report

Department of Trade and Industry: Investment Promotion and External Trade

Mr Riaan Le Roux, Acting Deputy Director General (DDG): Trade and Investment South Africa (TISA), said that global exports of goods were resilient, growing by 4.3% in 2016. Over the past seven years, from 2010 to 2016, export growth had been 53% at constant prices. The world’s top exported goods in 2016 were electrical machinery and equipment and parts thereof; sound recorders and reproducers, television; machinery, mechanical appliances, nuclear reactors, boilers and parts thereof; mineral fuels, mineral oils and products of their distillation; bituminous substances; minerals; vehicles other than railway or tramway rolling stock, and parts and accessories thereof; and natural or cultured pearls, precious or semi-precious stones and precious metals.

Looking at South Africa’s export share to the world, data showed that from 2010 to 2016, its trade of goods with the rest of the world lost share, dropping to 0.47% in 2016 at constant 2010 prices. South Africa was ranked the number 38 exporter to the world.

Over the past seven years, the country’s exports had shown a firm growth of 19%, which was an additional export of R126 billion at constant prices. Its top five export partners were China, Germany, the USA, Botswana and Namibia, which collectively amounted to R 399 billion, or 48% of its exports in 2016. The top two exported goods were platinum (8.3%) and motor vehicles (7.3%). The services sector’s exports to the world expanded by 3.5%, and reached R152 billion in 2016. This was in contrast to the past seven years, which reported a drop in the sector’s exports of 14%, or a shortfall of R25 billion at constant prices.

South Africa’s trade balance with the world remained in negative territory, but the deficit had narrowed to R2.1 billion in 2016, from R40 billion the previous year. A rapid contraction by 5% in imports had been the main driver. South Africa continued to be a net importer of services in 2016, where the deficit was further widened by R1.2 billion, reaching R5.9 billion in 2016 from R4.6 billion in 2015 at constant prices.

In 2016, exports to BRICS countries increased to R156 billion, or by 7%. China was the main importer of South African goods, valued at R100 billion, followed by India, with a value of R47 billion. South Africa’s exports to BRICS countries were mainly from sub-sectors like: Mining was the largest exporting sector to BRICS, where exports grew by 9.4% to reach R98 billion. About 98% of goods from this sector were destined to China and India.

The strategies being employed by the Department of Trade and Industry (DTI) to enhance South Africa’s export performance included:  

• Increasing the quality and quantum of foreign and domestic direct investment by undertaking effective investment recruitment campaigns, providing an efficient facilitation and information service in order to retain and expand investment into South Africa as well as into Africa. This would be a one-stop shop initiative.
• Developing new and existing South African exporters' capabilities in order to grow exports globally (goods, services and capital) by providing appropriate information, financial support and practical assistance to sustain organic growth in traditional markets and to penetrate new high growth markets.
• Effectively managing and administering the Foreign Office network; and
• Cooperation with key organisations

Mr Le Roux also took the Members through the Department’s export development, promotion and marketing initiatives, which were aimed at increasing the market penetration of South African companies in order to export products and services into various markets. The assistance provided was both financial and non-financial, and was offered to both groups and individuals. The group offerings included national pavilions, outward-selling trade missions, outward investment recruitment missions, inward-buying trade missions, and inward investment missions  The individual offerings covered primary export market research, foreign direct investment research schemes, individual inward-bound missions, individual exhibitions and in-store promotions, and sector-specific assistance schemes.

He also shared some insight on the genesis of the Trade Invest Africa (TIA) initiative, whose goals were:

• Working with South Africa’s partners to ensure increased exports, particularly manufactured and value-added exports.
• Working with other African states, South Africa would take forward a regional industrialisation agenda to ensure Africa became a manufacturing and industrial power.
• Trade among African countries would be further promoted as part of its effort to support regional integration, to create large regional markets to sustain industrialisation.
• South Africa would work together with state-owned enterprises, development finance institutions and the private sector to address infrastructural needs in Africa.

The target had been to create an Africa Export Council in the 2016/17 financial year, but on 1 April 2016, the target had been redefined, and the Council was refined and re-branded to “Trade Invest Africa” to ensure a holistic and sustainable approach to trade and investment on the continent. TIA had been launched on 15 July 2016. It was an initiative of the Dti, and aimed at increasing the levels of South Africa’s investments and trade with the rest of Africa. It was created to be the “go-to” unit in the Dti for companies looking for trade and investment opportunities in the rest of Africa, and for those that were already operating on the continent and were facing challenges. Trade Invest Africa would also work closely with governments and business in the rest of Africa, to facilitate exports from the continent into South Africa. This was the Department’s direct contribution to increasing the levels of intra-Africa trade. It also offered facilitation support to business and used outward investments to the rest of Africa to drive South Africa’s value-added exports and create mutually beneficial economic relationships. Offerings included access to capital, access to markets and contracts, and other non-financial support.

Invest South Africa  (InvestSA) was formally established as a separate division of the Dti as Programme 8 from 1 April 2016. It was separated from TISA with a view to being the central nodal operational structure at the national level that would act as a convener for the inter-government clearing house, establish a national and nine provincial “one stop-shops,” and coordinate the work of the provincial investment agencies. Currently, InvestSA was the defined focal point in government that supports and facilitates investment. ISA’s main contribution to the objective of the Dti was that of promoting inward investment, as well as developing a sustainable long-term competitive market position and international profile for the country. In this context, ISA focused on improving South Africa’s investment climate, the cost of doing business, and continued to build South Africa’s position as an attractive investment destination. It played a critical client role within the Dti. The division fulfilled one of the Dti’s core mandates -- investment promotion, facilitation and aftercare.

The national one-stop shop in Pretoria became operational from 17 March 2017. Additionally, three more one-stop shops in Gauteng, KwaZulu-Natal (KZN) and the Western Cape were scheduled to be launched during the 2017/18 financial year. The InvestSA’s  Western Cape one-stop shop was launched on 8 September, and the one in KZN on 18 November.

Discussion

Mr P Atkinson (DA) said earlier this year, the Committee had gone on an oversight visit to Malaysia and had subsequently received feedback that the trade relationship between South Africa and Malaysia had broken down. He asked what South Africa was doing in that part of the world as far as export markets were concerned. He added that it was important to trade with local countries.

Ms A Mfulo (ANC) said that trade hubs for emerging small, medium and micro enterprises (SMMEs) were essential, because when they went to those hubs they enjoyed substantial assistance in the form of capital. Was there any plan for trade hubs -- had they started? With regard to beneficiation, particularly in manufacturing, was there anything that said this year South Africa would cut its exports of raw materials by 20% and focus on manufacturing, in order to avoid or reduce the excessive exportation of raw materials.

She expressed her concern about how government could inform the media, or direct it, regarding what it portrayed to the world about the country, because all of that information negatively affected potential investors. It was no secret that most of the information published by journalists to the world was bad and not doing anything good for the country. Lastly, she asked how many SMMEs were actually exporting, and suggested that this information should be narrowed down to race, women, youth and black-owned businesses. In addition, what was the plan to enhance this sector and black people as far as exportation was concerned?

Mr S Tleane (ANC) said the global exporter passport programme system should be designed in such a way that the smaller companies knew about it, so that they were informed and able to avoid potential failures. Secondly, with regards to incentives for foreign direct investment, were there incentives for local companies to encourage them to process raw materials in the country? Thirdly, there were many divisions and sub-divisions in the Dti, and the need for seamless activities and moving away from a silo mentality had been expressed. In that situation, how did one ensure that there was integration -- was there an active relationship between the Dti and the rest of the departments? Lastly, local investors should also be encouraged. There was the Construction Industry Development Board (CIDB), but not many people really understood how it works. Could the Dti explain how useful it was and how it adds value to the local construction companies?

Ms C Matsimbi (ANC) asked the Dti how the definition of investment involved the SMMEs and cooperatives.

The Chairperson was concerned about whether the country was focused on the inland opportunities. There were so many projects happening concurrently that one found it difficult to identify the country’s focus. Was South Africa not trying to be everywhere at the same time, while wasting the meagre resources that it had? It could not afford to be visible everywhere – it needed to harness and focus its skills towards the right places.

She asked what the role of foreign missions in Africa was. While she was appreciative of the one-stop shops, but was South Africa also doing this in foreign countries?

She expressed her concern about whether there would be much in monetary value that South Africa would get from the neighbouring countries to which it was exporting. Botswana, Democratic Republic of Congo (DRC), Angola, Nigeria – these were big economies in Africa thus far, and Tanzania and Kenya were not highlighted. What was the thinking behind this? Was this led by SA’s relations with these countries, or by policy formulation and implementation? Lastly, with Angola now opening up its doors, was SA not going to see more trade happening between SA and Angola? When the Dti planned trade negotiations and agreements, did it take into consideration the socio-economic issues, and what the impact or returns on investment would be?

Dti’s reponse

Ms Lerato Mataboge, Acting DDG (TIA): Dti, responded that the country had the priority to build a manufacturing and industrialised economy that could export value-added products to the rest of the world. If one looked at its trade with the rest of the world, the bulk of its value-added export basket went to the rest of the continent, apart from some that went to the United States. This was not something that could be ignored. South Africa needed to have a dedicated export focus to grow its value-added exports to the rest of the world and ensure that its strategy was sustainable.

The Committee needed to realise that SA had also been getting a lot of push back in the continent, and had to look at how it could use investments to drive its exports to rest of the continent. It could not just be a partner, and not invest in those markets – investing in those markets would drive SA’s exports as well. For instance, when South African companies invested in a country on the continent, those companies sought inputs locally, and this was a model the Dti was pursuing.

The Department was taking investors to the continent, and had just had a business forum in Angola. The latest approach was to take the SA companies to invest in infrastructure in Angola to stimulate demand, as well as a growth in SA exports. It was important to underscore why the continent was pivotal for SA exports.

There was a reason why SA was exporting raw materials to China and Asia - there was a policy in those countries, that they would not import finished goods except in special circumstances. This was a critical element, because it had implications for the strategies that SA employed, but there were a lot of barriers to exporting finished and value-added products to those countries. Therefore there was a focus on the continent, because SA could export those products to the continent. There were huge benefits in Africa which were not only centred on trade, but on investments which could potentially benefit SMMEs as well.

The Dti had seen more success on the continent, but it had to interrogate how it would bolster its entrance to the continent around opportunities for investments and building infrastructure, and positioning South African companies there. Therefore it had to internationalise the continent a bit more. This was where the Dti was coming from, and it was avoiding using an old model. It may seem like additional bureaucracies, but it needed a dedicated unit that dealt with the African continent. If the Department was going to expand, maintain and sustain what it had, it needed to be dedicated. SA would not be able to transform the economy if it did not open up new markets and invest in the continent to ensure that opportunities were created for South African companies.

Ms Mfulo asked why SA encouraged raw material exports to go to the Chinese if they did not open up their markets for beneficiated products? It did not make sense -- why not explore other economies or countries, because such an agreement did not benefit South Africa. Surely, there were other countries that SA could trade with that would allow beneficiation.

The Chairperson agreed that this was a conundrum -- why was SA insisting on trading with the Chinese if it was hurting us? Perhaps it was a political question.

Ms Mataboge responded that she understood the Members’ concerns, and acknowledged that it was a very critical question. However, China was a critical partner in terms of foreign direct investment (FDI) into our economy. It was a quid quo pro – although SA had access challenges in terms of exporting to the country, SA in turn had the advantage of dictating the terms of their investments into the country. There were many dynamics to the relationship. The Dti was cognisant of the challenges, but it also do not want to lose some of the benefits that were attached to that engagement.

The Chairperson said that there were sectors of the economy where people were complaining about how Chinese products were disadvantaging them. The Chinese products were making them uncomfortable, so was it not time to change the direction, because there was the International Trade Administration Commission (ITAC), which came with massive issues of dumping from these countries? SA’s policy agreements should not go forward even though they were hurting our economy.

Mr Le Roux responded that South Africans were brilliant policy makers, but the core issue was whether SA had the teams that would be able to make this value chain work. Documents got written, and they ended up gathering dust in people’s offices, and nothing was being implemented. Sadly, this was the case with government officials in government departments mandated to drive radical economic transformation, development and growth.

As for beneficiation, this was governed by the industrialisation action plan, and the Dti had hopes that the plan would put some building blocks into dealing with the emerging businesses and markets. The key issue about transformation of the economy was to bring on board the broader based market, and this was the message that should be sent out. If the approach was not broad enough, the economy would be very unstable, so people had to be told that this was a broad based economy. The principle of beneficiation should be guided by the industrialisation action plan. All the divisions had come up with a customised list of all the countries SA could deal with.

Small businesses learn a lot from big companies, so the Department was trying to create learnership programmes where small businesses were being brought on board by big businesses to learn about certain things. The country was working closely with Malaysia in this regard.

He could not respond to the question about the CIBD, because it was not within his mandate or line of work.

The meeting was adjourned.