Minister on SONA/Budget implications for DTI; WTO meeting; 'Debt Relief' National Credit Amendment Bill: DTI response to submissions

Meeting report

The Chairperson welcomed the Minister. She said additional matters had been added by Members which the Minister would need to respond to, which were not on the agenda. Those included the Eskom Inquiry and SABS (on the quality testing of the coal in its in lab), the African Bank fine, BEE certificates for Gupta linked companies and listeriosis.
 
Minister of Trade and Industry briefing
Minister Rob Davies stated that he would deal with three additional issues that were raised alongside the agenda, which included the listeriosis and the role of the National Consumer Commission.

SONA and Budget implications for DTI:
DTI understands that the context of the SONA was that the country was entering an era of dealing strategically and rebuilding relations with stakeholders on key economic issues which is happening in the context of a cyclical bounce upwards globally. The growth rates recorded by the IMF this year were the highest recorded since the recovery of the recession. This meant that the circumstances were now better to bring about the structural transformations needed to place the economy on a higher and more inclusive trajectory.

The Minister outlined the key themes of the SONA and Budget Speech 2018. DTI welcomed the commitments made by the President to advance the Black Industrialists Programme, in terms of the incentives offered by DTI and other funding forums. DTI has improved to 79%, and it was on track to reach 100% of its target. The next target might a combination of a quantitative and qualitative target and taking the black industrialists a step forward and moving them into a higher level, as well as assisting and developing new ones. On the SEZs) and Industrial Hubs, the SEZ announcement in the Budget was on a tax incentive for investors which was coming on track. There are two further SEZs that were expected as an announcement in terms of the designation and the DTI has to respond to the SEZ Advisory Board. On the Designations of Sectors for local procurement, he has welcomed the work done by the Committee. All the challenges that were raised have been considered by the Minister, and information from the Committee has been utilised to strengthen implementation and address the challenges. All reforms put in place must mean that there is a higher level respect for Designations. This is along with the work that has been done with the Auditor General South Africa (AGSA) on audit outcomes. Hopefully, the reforms will enable that to be an effective instrument.

On investor confidence, there has been a much more positive sentiment from investors which he believed was based on “action”. In the Davos preparatory meeting the question of how to deal with Eskom was raised and the delegation leader, President Cyril Ramaphosa, stated that the Eskom leadership in the form of the board would be dealt with before going to Davos. There was an intervention and one felt the change afterwards. Many people noticed this because it has not been very apparent in the past that investors were withdrawing. This time, investors wanted to talk about increasing their presence in the South African market, and that is what the President’s Investment Conference would be about.

On regional trade initiatives, he said in the week he will be travelling to Kigali to work towards the finalization of a framework agreement for the continental free-trade agreement. The growth forecast by the IMF has increased, but the country is still below the growth of its peers but there are signs for it to pick in the first quarter or third quarter. The approach being taken by government is that the growth forecast in the budget is seen as the floor not the ceiling. Therefore, there is some work being done to try and raise the growth context.

The Minister stated that DTI welcomed the President’s emphasis on developing consensus with social partners and developing partnerships to revive growth and encourage inclusive growth. The DTI was already doing this, and it has participated with the manufacturing sector and the new auto programme which is being developed in a very inclusive process with manufacturing companies and stakeholders. There is another initiative called Youth Employment Service in partnership with the private-sector, the programme seeks to create one million youth internships over the next three years.

The application of incentives needs to be continually improved; people need to understand that there are a number of incentives distributed without any value added. Therefore, there would be a need to re-evaluate how those incentives were distributed. The R18.8 billion MTEF budget allocation will allow the DTI to continue providing financial support to the private sector with a strengthened focus on labour-intensive sectors which can create jobs for the youth.

On priority interventions, Invest SA is operationalising the One-Stop Shop service for all investors with the service launched in March 2017. It is being rolled out in Gauteng, Western Cape and KZN and the National Office, and it has succeeded in reducing the regulatory time for all entities for a number of investments.

On the establishment of a Digital Industrial Revolution Commission, the Minister stated that this was a huge and massive issue that needs to be confronted. There is a range of technologies and the application of digitized services and the emergence of the digital hub as the apex of the value chains as opposed to the factories these days. All of these are going to have a profound effect on service sectors as well as retail trade in the country. The DTI is looking toprepare the country for the adoption of the technologies and it is already happening in some factories but people need to be prepared in terms of skills for operating those technologies. Some people are capable of operating those technologies and some of those technologies will be accessible to SMMEs but they are going to have an effect on employment.

As for the trade report, the summit is going to be this month.

Eskom Inquiry and South African Bureau of Standards (SABS):
On the Eskom inquiry and SABS, the Minister said that DTI came across this matter when it found out that Mr Matshela Koko told the parliamentary inquiry that the coal was purchased on the basis of the sign off of SABS in terms of the quality. It was coincidental that the Minister was having a meeting with SABS and he asked SABS about this. The answer was that SABS had not certified any coal as of adequate quality. SABS was asked to put this in writing. DTI came across an incident that some after-hours testing had occurred in one of the offices in SABS. The Director-General wrote a letter to the Committee and he was then asked to put this in an affidavit, which he did. DTI has asked the SABS board to conduct a forensic investigation around the circumstances in which those tests were conducted. The input from the DG indicated that the testing did not say that the coal was of adequate quality, but the Minister suggested that a full forensic investigation needed to be conducted.

African Bank fine:
On the National Credit Regulator (NCR) and African Bank, the allegation was that the NCR, DTI, Reserve Bank, and National Treasury had intervened to reduce the fine imposed on African Bank. The Minister said that there was no such intervention. The fine is imposed by the National Consumer Tribunal (NCT) not the DTI. What had occurred was a series of meetings between DTI, Treasury, Reserve Bank and NCR. In all of those meetings, they insisted that the NCR and the Consumer Regulator needed to do their work and their processes needed to be followed and that was accepted. The only issue that came up was an understanding that any public communication on the matter needed to be bounced off by both Regulators and that the processes leading up to the National Consumer Tribunal would not be delayed given the issue. There were several witnesses present, and the topic of the softening of the penalties or the fine was definitely not the case; the Minister said he would not have agreed to it. The consensus with every stakeholder was that market conduct is as important as the systemic issues. If reckless lending is allowed, that undermines the integrity of the financial institutions. The Minister said they have consistently defended that there must be a robust implementation of all the provisions in the National Credit Act (NCA).

BEE Certificates on Gupta Linked Companies:
The Minister said that Member of Parliament, Mr Macpherson, was at the BEE Commission yesterday and he had raised a number of matters that he wanted the Commission to investigate. The Minister said that Mr Macpherson was very fortunate that the advice of his party when the 2013 BEE Amendment Bill was going through was not accepted, because if then there would not have been a BEE Commission and these issues would have to be dealt with through the common law. The objective of the Commission was to deal with these matters without any fear or favour, and there is a large pile of cases that it has to deal with. There is no objection for the Commission to do its work, and there are penalties that are applicable for fronting – which in various forms is very widespread in SA and it needs to be dealt with robustly.

Listeriosis:
DTI has been working very hard with the Minister of Health on this since the Minister of Health since the World Health Organisation indicated that there were abnormally high instances of illness and death from listeriosis. The Department of Health, together with DAFF and DTI, were working with a team to locate the source. The National Consumer Commission was brought in because customers have the right to be sold products that are safe and they have the right to recall any product. Within an hour that information became available, the recall notices were issued, and the owners of the facilities now have the job to clean up their act. There are certain allegations floating about on where this bacteria may be coming from but the departments need to work on evidence.

Discussion
Mr D Macpherson (DA) stated that he was disappointed about the land expropriation without compensation issue. Investor confidence in the country has been taken aback since last Tuesday. He did not understand how the Minister was going to square the confidence of the investors when investors have reason to believe that their investments may not be secure.

The NDP (National Development Plan) does not speak to expropriation of land without compensation but securing land reforms; thus, exacerbating policy uncertainty in the country. On the plane travelling to Cape Town, he had met an asset manager based in New York City with an office in Cape Town who told him that their phone has been ringing non-stop since last week when the expropriation of land without compensation motion was passed in Parliament. This needed to be looked into because it was making policy uncertainty at the core of the government plan, and investors across the globe were panicking. He asked the Minister about his offer to investors to guarantee their investments were going to be safe and encouraged them to continue investing in the SA economy.
 
Ms P Mantashe (ANC) stated that in the recent past there has been new investment in the Eastern Cape amidst the expropriation of land without compensation motion which is certainly a dawn of hope for poor people. It was sad that some people think that ‘we’ won’t succeed. She advised that the Department should not be demoralised about such utterances because some Members have been seeing progress coming into fruition in some parts of the country with new investors coming in to invest. She utterly disagreed with Mr Macpherson that land expropriation without compensation will chase away investors.

Ms L Theko (ANC) stated that land expropriation without compensation is going to happen and it will be implemented regardless of how the DA feels. With the new jobs to be created through the investment in Eastern Cape, the land needs to be returned to people of this country. The DA needs to encourage investors and not try to obliterate such a historical moment for this country.

Mr S Mbuyane (ANC) asked the Minister to provide more clarity on localization because one challenge was the verification of compliance. Most companies pay for independent auditors to assist in their verification of compliance, so how can the DTI bring the SABS on board to assist in the process for those companies that cannot afford independent auditors. Lastly, the Black Industrialists Programme may lack research and innovation, so how will DTI assist in addressing these challenges?

Ms S van Schalkwyk (ANC) referred to page 20 and she shared her concern about some provinces having minor approvals whilst others were having more approvals. She asked the Minister to provide some indication of the challenges faced with the approvals.

The Chairperson stated that the incentives over the MTEF budget appeared to be generous, but she asked which sectors the DTI focused its allocation in the 2018/19 period. On the InvestSA and One-Stop Shops being implemented, she asked where the One-Stop Shops have been operationalized. As for the seven designated Special Economic Zones, she asked if every province was going to be covered.

Mr G Cachalia (DA) stated that the reality is that the SA external debt was growing; exports were down; unemployment is increasing, percentage of debt as per GDP was up; and GDP per capita in dollar terms is down. He asked the Minister about his proposals for what should be done differently to address the gross mismanagement and more that have built up over time. The continued expansion of existing ideas and programmes to foster industrialists and SEZs was yesterday’s news. He was interested to know what would be done differently to curb gross mismanagement.

The Minister responded that land expropriation without compensation has been appropriately raised in the Constitutional Review Committee which was dealing with the matter, but it will not be damaging to the food security, industrial and agricultural productivity. The issue is fundamentally based on the original sin. The significant aspect of the equation is to ensure that there is an increase in productivity as the result of the land reform, and this was the case with many countries that have successfully industrialised from land reform.

The Constitutional Review Committee will come up with a series of proposals that will be doable and workable that will not create any uncertainty to investors. On the Industrial Parks, there is phase one and two. DTI is still completing phase one in a number of Parks. It had been raised before about the question of the access roads, but this was not directly in DTI’s sphere. However, DTI would want to take that on board to make the Parks more effective. The point about this is that there is a lot of cynicism. Money has been spent by DTI on security features and basic infrastructure defects. These are the areas where most people are employed and quite a significant number of smaller black businesses are in the manufacturing space. The investment may yields very significant results.

As the SEZ legislation was being altered, DTI was working with the provinces to identify one SEZ per province. The ones most likely to come to fruition this year will be rolled out. This is definitely not something that is going to happen in every province, at least for now.

Some of the policy tools in SA are less optimal in application. One of those was the policy tool of localization. When there is a designation and it is a signed practice note from Treasury and it is sent to all applicable entities, it is no longer an option but an obligation. There is a lack of sufficient enforcement of that. If there is an applicable localization designation and the entities do not follow it, this translates to a lack of compliance with applicable legislation. DTI has been trying to monitor the application of this compliance, but there is a lack of capacity. It was also working with the Department of Performance, Monitoring and Evaluation (DPME) to assess the scale of it. The rail procurement story is a story of success and failure and there have been investments that have produced locomotives in South Africa which would have been otherwise imported. However, there have been too many tenders awarded without localization. DTI seeks to make the localization tool more effective, although there is a number of policy tools, the two with the highest impact were localization and incentives so we cannot have the one impaired, as that would translate to ineffectiveness. DTI is trying to spread that to the private sector as well and invigorate Proudly South Africa, so there is a much bigger and stronger Proudly SA programme. When DTI reviews the Industrial and Localization Action Plan at the ten year review, it is going to be very frank and candid about what has worked and what has not and it will propose effective conditions on how the programme can succeed.

On skills, the Black Industrialists Programme is one of the efforts to encourage inclusivity and in return for the incentives, DTI would expect employment, capacity and empowerment. The empowerment in terms of BEE legislation would have to score not only on ownership but on supplier development and skills development. The latter is fundamental and there is consensus that the fourth industrial revolution places a huge premium on that. On the application of incentives, the incentives are meant for industrial development but this remains concentrated on the centres of industrial production. That is why the SEZ and Industrial Parks come to achieve the degree of decentralization. It reflects that to a considerable degree, but there may be other industries in other provinces that are not coming forward.

Where DTI will be focusing will come up in the next Industrial Policy Action Plan (IPAP) which has already been drafted. It is looking into more labour-intensive sectors and manufacturing (components in autos and railway equipment), so the focus will be trying to put those value chains in place. When the motor programme comes out, the value added allowance will be turned into a value added localization allowance and DTI will be expecting a high level of localization of component manufacturing in SA. This is because it is a quarter of the investment per job as it is in the original equipment manufacturing.

Agriculture and agro-processing remains the critical one, this is the one with the quickest and easiest returns and it is not that land reform will be enough on its own but the land reform will potentially create opportunities for smaller scale farmers that will potentially create employment. In any case agro-processing is a critical value chain. DTI will also be focusing on the clothing and textile industry to reinvigorate it.

On One-Stop Shops, so far DTI has rolled out InvestSA in partnership with entities in KZN and Western Cape. The One-Stop Shop is available for anyone in the country and they work with any entity that gives regulatory decisions.

In response to Mr Cachalia, the Minister stated that no one said that the country performed wonderfully in recent years, the country has been performing below its peers, which is probably why a lot of people are now saying SA is the hot emerging market because there is a lot of space for catch up. The country is expecting fewer external shocks, and exports are not down in total. The cyclical bounce up and the floor is not going to be sufficient but it provides a better set of circumstances to move the economy into more value added and inclusive spaces.

Mr Lionel October, Director-General: DTI, added that with regards to incentives, it was just about Northern Cape and Free State

Ms Malebo Mabitje-Thompson, DTI Deputy Director-General: Incentive Development and Administration, replied that the picture that emerges from the incentive geographical spread is mainly to show where the incentives are directed at and where activities are mainly concentrated. The work done with the provinces was to start partnerships as well as with the financial sector that will back these businesses. It will ascertain if working with the financial sector and the provinces would assist in getting more activities done in the rural provinces and those less industrialised such as in Northern Cape, Free State, Mpumalanga and Limpopo. These are some of the new things that will be done to ensure that capability builds there.

Mr October said that the plan was to cover all the provinces and DTI is currently dealing with the Mpumalanga SEZ application which is with the Board. Hopefully that will be passed in the next quarter. The next one will be a North West SEZ, and then the Northern Cape which is working on an SEZ. Then all the provinces would have been completed.

Ms Mantashe asked for clarity on the SEZ policy uncertainty and she asked how true it is that policy uncertainty exists. She suggested that the Minister and his team indicate where Members of Parliament as legislators can assist in ridding the notion of policy uncertainty.

Mr Macpherson stated that he was expecting deeper thought on how this expropriation of land without compensation would affect investor confidence. It is undeniable that there would be a fall-out from potential investors. The lack of conviction in the Minister’s response provides the impression that the Minister was uncertain of his assertions because you cannot have land expropriation and successful agro-processing running concurrently. That has decimated unemployment in other countries, such as Zimbabwe. So DTI needs to think about how it will attract investors with the implementation of land expropriation without compensation.

Ms Theko hoped that DTI has appointed the right personnel to ensure that implementation of land expropriation without compensation would not obliterate investment and potential investors in the country because the country is not going to back down from this. She suggested an oversight visit to DTI to see what DTI has managed to accomplish thus far so that the Committee can provide input.

Mr Cachalia said the implementation of SEZs in some African countries such as Kenya have failed, so DTI needs to look into the reasons for those failures to ensure that mistakes committed in that country were avoided. The notion of implementing SEZs in provinces for the sake of creating an equitable society is problematic especially if the SEZs were established in places far away from markets and ports. He said he was interested to see how this would occur.

The Minister replied that policy uncertainty generally refers to matters where there are decisions outstanding that could go one direction or the other or that the investors do not know what the decisions might be. The Minister stated that Mr Macpherson was pushing him to make statements that were in variance to the Cabinet and the decisions that have been taken. It has already been made clear that SA is not going to follow Zimbabwe. The form that the expropriation is going to take will be a form that is commensurate with the preservation of food security and agricultural productivity. The Minister can assure investors that he has confidence in the processes that have been embarked on and that they will be robust enough. The fact that a decision for further work on expropriation has been referred to the Constitutional Review Committee, and that was accepted by the House means that the country is not going towards an outcome that would burst the constitutional order but it will deal with the ‘original sin’ of the removal of land from people without compensation. He can assure investors that their investments would be safe in South Africa. The willing-buyer-willing-seller concept clearly did not work. The expropriation of land will be in a form of land reform that is sensitive to all these issues. There is an issue of course of building that confidence in investors and communicating that message very clearly.

Our SEZs were based in and around the ports but we did not follow the model of other countries on the continent. Mr Cachalia said only a few had been successful and many others have failed. Many followed the model that the DA suggests such as suspending labour legislation and allowing competition based on lower wages and no workers’ rights, have been complete and utter failures because that is not what is conducive to productivity. With the Industrial Development Zones, a number of those are gaining traction and there are new investments that have been coming forth.
 
Mr Macpherson referred to BEE certificates, saying it was most concerning that only 8 out of 85 government companies have submitted their BEE scorecard, in fact they were the worst offenders. On the SABS issue, what has been said by the Minister has contradicted what the Director-General said during a Subcommittee meeting that the NCR was pressurized by SABS to change the findings. Contrary to that, the Minister has said something different.

He asked the Minister if there was a concerted effort to find a settlement for African Bank on what was best for consumers at the time.

The Chairperson stated that some Committee Members were not privy to report of the Subcommittee which put them at a serious disadvantage. She asked that Committee Members have sight of that report so that all Members are informed. She asked the Minister to rather put his response in writing because the Report will be received by the Portfolio Committee the following day.

Mr Macpherson said that he did not think that was a correct position. This issue was on the front page of an international newspaper and he raised this with the Chairperson last week. There was nothing stopping the Minister from requesting that report. The only reason people might be at a disadvantage was because the Chairperson did not ask for the information to be provided in time for this meeting. She knew he would raise this matter. Therefore, the way the Chairperson is dealing with the matter was unfair.

The Chairperson said if the Minister wished, he may respond.

The Minister replied about the BEE Commissioner, saying the Commissioner was already dealing with Eskom. Anyone with any information is welcome to draw that to the attention of DTI or the Commissioner. On the NCR and SABS issue, the Minister said that he was not asked to alter the outcome of the findings because the findings had not been made.

The Minister said that ultimately the African Bank fine decision rested on the National Consumer Tribunal. If he had been asked, he would have refused. What happened was a concern expressed at the time it was taken, the Minister did not truncate the process, and the outcome was changed by the NCT which did not fully accept the proposal made by the NCR. The Minister, Reserve Bank Governor and the Minister of Finance were asked rather to speed up the process. He did not agree to change the penalty and he would not have agreed to change the penalty because the protection of the consumers was paramount, which was the focus of the discussion during those meetings.

Mr October clarified what was dealt with at the meeting. Firstly the fine – he confirmed the Minister’s version. He resolutely defended the NCR and insisted that they would act without fear or favour. He did indicate that there was always tension between the market regulator and the prudential, the twin peaks, and it was in that context that this discussion arose. He said it is the job of the Reserve Bank and National Treasury to protect and preserve the stability of the financial system. DTI and the market regulator’s job is always to assist the consumer. The focus should be on banks conducting themselves appropriately and not to lend credit recklessly. The fine never came up, but the broad issue of the protocols.

The Chairperson stated that it was unfortunate that Mr Williams was not present.

Ms Nomsa Motshegare, NCR CEO, confirmed that the fine was never discussed at that meeting. The Minister made it clear in the meeting that the NCR must act without fear or favour, and the only issue that was discussed and agreed upon was talking to the Reserve Bank as far as issuing public information or communication with regards to the investigation conducted on a particular bank.

Ms Mantashe confirmed that no such a thing was discussed in the Subcommittee, and she fully agreed with the assertions of Mr October.

Mr Macpherson stated that he knows what was said in the meeting which was that there was pressure applied to reduce the fine. The Minster saying that the fine was never heard by the NCT, means there has to have been pressure applied somewhere by someone else to reduce the fine from R300 million to R20 million. It would be critically important to release the minutes of the meetings where these issues were discussed. In fact, it would be against the National Credit Act for the matter not to be referred to the NCT, and that is cause for concern and the Myburgh Report also points that out. He was deeply concerned about the view that the interest of the bank was ahead of the interest of the people who were granted credit recklessly. He urged the Minister to release the minutes in order to get to the bottom of where the pressure was applied and by whom.

The Minister stated that he was not aware there were any minutes, but he repeated that that he was never asked to alter the fine. There are processes in the National Credit Act that were unfolding in various ways and he was never asked to intervene in any sort of way. The view that consumers should be protected was precisely the centre of the discussion during those meetings.

WTO 11th Ministerial Conference (MC11) in Buenos Aires, Argentina in December 2017
The Minister spoke about the Doha Development Agenda (DDA) negotiations, stating that over the course of negotiations, the developmental content of DDA has steadily been eroded. Developing countries played a key role in working towards a credible outcome in agriculture, but the anticipated ambition for agricultural reform was moderate. By contrast, demands were made that would require developing countries to take steep cuts in their industrial tariffs with a negative impact on their industrial development and employment objectives. Developed countries demanded that emerging economies offer greater concessions, and concerns about consensus decision-making in the organization and the single undertaking were raised. Although emerging economies have increasing the share of world GDP and trade, these countries still face serious development challenges. The major implication of the impasse has been a “move away” from multilateral negotiations by some major economies and the launching of mega-regional negotiations.

It was clear from the discussion in Geneva before MC11 that there are wide divergences between members on most of issues on the table. These divergences are largely a manifestation of the lack of consensual language in Nairobi (MC10 Declaration on the DDA mandate) on new approaches and issues. South Africa on a number of occasions cautioned against putting issues before Ministers at MC11 when significant convergence in Geneva had not been achieved. The Africa Group in Geneva put forward strong common positions and a number of meetings were held to enhance coherence.

On Africa’s approach, the engagement of the African countries at the WTO is aimed at ensuring:
• Equitable distribution of the benefits of the Multilateral Trading System (MTS) and effective integration of African countries into the MTS;
• Adequate policy space for African countries to industrialize and promote structural transformation;
• The importance of addressing capacity and supply side constraints;
• The importance of the WTO multilateral trading system in supporting regional integration.

In the MC 11, Members put all their issues on the table although no convergence was reached in Geneva. Divergences amongst members on the issues tabled were simply too wide to bridge. Ministers confronted many issues on which there was no chance of convergence, and they had little time to consider strategic issues facing the MTS, or give sufficient attention to a few significant issues, such as fisheries and public stockholding, where there may have been some possibility for a positive outcome.

On MC 11 outcomes, Ministerial decisions were reached on just five issues and with limited scope:
• Fisheries – agreement to secure a deal on elimination of fishery subsidies by the next ministerial in December 2019, work to continue on current text.
• E-commerce – agreement to continue with the work on e-commerce under the current e-commerce work programme and a two-year extension of the moratorium on taxation of electronic transactions
• TRIPS – Two-year extension of the moratorium on non-violation complaints under the TRIPS Agreement.
• Small Economies – agreement to continue the work program
• South Sudan’s accession – agreement to establish a working party.

Notably, there were no outcomes or agreed work on other issues such as agriculture; non agricultural market access; services; development; investment facilitation and SMEs.

As for the Ministerial Declaration, no agreement was reached on it. The Ministerial Conference outcome was a Chair’s Statement on her own responsibility. A truncated declaration was produced in MC11 to address the concern of some Members but this was opposed by others that want specific references in the Ministerial Declaration.

Minister Davies commented on the clashing of paradigms in terms of development. He stated that the exchanges at MC11 revealed more of the scope and depth of divergences amongst Members. The US opposed any mention of the DDA and argued there was no shared understanding of development. Many developed countries, especially the United States, supports a paradigm that asserts that the way to enhance development is that all countries abide by the same set of rules, on the same level and standard; and with very little or any differentiation. These countries argue that some see development only as exemptions from rules and that it is incorrect to see rules as impediments to development.

Most developing countries support a paradigm that it is absolutely necessary and imperative that developing countries have an opportunity to industrialise, diversify and move up the value chain and not remain stuck as producers and exporters of primary commodities. This required that developing countries have access to the very same tools that the developed countries used in their journey to become developed. Developing countries need a differentiated set of obligations, a differentiated set of rules that deals directly with the problems of development and importance of policy space for industrialisation.

In conclusion, the Ministers indicated that while MC9 and MC10 delivered outcomes on the Trade Facilitation Agreement and export subsidies, respectively, the Nairobi Ministerial Declaration acknowledged the lack of consensus on the DDA. South Africa reiterated support for the developmental principles in the DDA, as a basis to redress the imbalances in the Uruguay Round. The DDA, through the Doha Declaration that was adopted by consensus in 2001 can only be formally ended by another consensus decision, but no consensus or clear understanding on what ‘new approaches’ or ‘pathways’ entail. Paragraph 31 of the MC10 Ministerial Declaration does express a consensus amongst Members to pursue negotiations on the remaining Doha issues. Fishery subsidy negotiations appear to offer the best chance for a substantive outcome at this stage although other issues will continue to be advanced by the proponents. However, different views on development arise in the context of the Special and Differential (SandD) treatment agenda in the WTO to address the constraints imposed by multilateral rules. The full scope of SandD in the various WTO Agreements includes differential rules and capacity building, and South Africa will continue to oppose efforts to narrow the scope of SandD.

Discussion
Ms van Schalkwyk asked for clarity on slide 5 on the major implication of the impasse has been a “move away” from multilateral negotiations by some major economies and launching of mega-regional negotiations.

Adv A Alberts (FF+) stated that it was clear that the world is now on a new normal against all expectations and many countries were caught off-guard by the new information. He asked in the Minister has strategized how he will negotiate these matters going forward, and what is DTI’s plan in possible war trades that may emanate. The US is the one player that seems to be changing the rules of the game, so what is DTI’s position on the African Growth and Opportunity Act (AGOA) going forward.

The Minister replied that what has been seen in the recent past aggressively as the Doha was not advancing, a number of countries proposed moving towards plurilateral agreements. These were supposed to be a group of countries that are going to work within the architecture and framework of the WTO to develop some propositions that they can bring back in as a stepping stone to the development of the trade rules. Some people have talked that language but they have actually gone into large free trade agreements – this was being sought. In those there are high quality trade agreements in all sorts of commitments with high levels of recognition of intellectual property. When President Trump came into office, he only expressed the desire to engage bilaterally, and the point of departure here was the trade imbalance against the US and working towards reducing it. It is absolute reciprocity and they are sceptical of the multilateral rules and any proposals on these were not accepted. Most of the cases that have gone to the WTO dispute bodies have resulted in favour of the US, except for one issue called zeroing.

South Africa needs to define what is good for itself, and the WTO is not somewhere where SA could make a break through to advance SA’s exports. SA’s approach with the WTO is often defensive on imposing rules that are going to damage the country’s policy space. On AGOA, it is not a trade agreement but a one-way set of preferences agreed to by the US Congress which means that if it were to be changed, it would have to go through the US Congress. The current arrangement is enforced from 2015 to 2025 and SA seeks to continue to benefit from it, and DTI will engage with any issues that are raised. DTI has informed its players that they should not be overly dependent on it, but overall trade policy priorities which are linked to industrialization and value added products are going to be on the African continent.

The Chairperson thanked the Minister.

DTI response on the ‘Debt Relief” National Credit Amendment Bill
Mr Lionel October, Director-General: DTI, presented jointly with the NCR and NCT. He stated that there has been intense work around the Bill and the team will deal with all the issues comprehensively. The constitutionality of the Bill was looked into very carefully. DTI, the NCR and NCTare in full support of the Bill, and DTI, NCR and NCT made input on the Bill, on a clause by clause basis on 2 February 2018. This presentation elaborates on previous submissions and also includes commentary on the stakeholder submissions. A legal opinion on the constitutionality of the Bill is being sought and a report will be presented to the Committee on its receipt, and submissions from 45 credit industry stakeholders had been received and were considered. This response will be addressing the critical issues raised.

Ms Evelyn Masotja, DTI Deputy Director-General: Consumer and Corporate Regulation Division (CCRD), spoke to the constitutionality of the Bill stating that DTI has sought a legal opinion on the constitutionality of the extinguishment of debt. Legal opinion received from National Treasury indicated that it could be constitutional, but subject to certain drafting amendments and provision should be made in the Bill for NCR debt intervention officers to negotiate new payment terms with credit providers before making recommendation to the NCT. The National Treasury legal opinion confirms that the affected group and the rationale for this group must be clearly defined in the Bill, but could be constitutional.

On Section 15 (constitutionality of suspension of suspected reckless agreements by NCR), comments received from stakeholders were:
• Separation of investigation and adjudication powers between NCR and NCT;
• NCR cannot investigate and adjudicate reckless credit agreements at the same time;
• Accumulation of interest and fees during period of suspension;
• Usage of assets by consumers during period of suspension.

In response to these comments, DTI indicated that it agreed with the concerns raised. The power to suspend reckless agreements should remain with the NCT, and if the suspended agreement is found not to be reckless by the NCT, accumulated arrear interest and fees would make it difficult for the consumer to recover. So the NCT must still has its discretionary powers when granting orders. The discretion of the NCT should be unfettered – “must” vis-à-vis “may”.

On Section 82A (reporting of suspected reckless credit agreements to NCR by credit providers), comments received from stakeholders were:
• Credit providers will have insufficient information to determine if other credit provider agreements are reckless;
• Competition amongst credit providers;
• Credit providers have no investigative capacity;
• Criminalisation of non-reporting not desirable.

In response, DTI agreed with the concerns raised; thus the clause should be deleted. There is potential for frivolous reporting of suspected reckless credit agreements due to competition amongst credit providers; potential lack of objectivity and independence of credit providers; and DTI agreed that criminalisation was not desirable. DTI firmly disagreed with the proposal that credit providers pay a fee to debt counsellors to assess reckless lending. This could encourage frivolous applications by debt counsellors to the courts.

On Section 106 (mandatory life insurance), consumers will still have the right to choose their own insurer. Credit providers are not required to register as insurers, but to require consumers to take out credit life insurance.

Alternative proposals indicated that the cut off income threshold be reduced to R3 500 in line with the national minimum wage (consumers earning more than R3 500 should be referred to debt review). DTI disagreed with the comment. The reduction of the threshold would limit the number of qualifying consumers. It was suggested that debt intervention should be applicable to consumers who owe more than R10 000 and earn less than R6 000. DTI felt that the application to debt of more than R10 000 will exclude short term credit transactions.

On debt write offs, it was submitted that currently, loans are being written off in the normal course. However, DTI felt debt write-off was done to meet accounting standards. In addition, writing-off of a debt does not amount to extinguishment; such debts may be on-sold and later collected on.

Data from credit bureaus for consumers that earn less than R7 500 income indicated the following:
1.76 million consumers that earn less than R7500 could potentially qualify for the debt intervention.
R13.10 billion of outstanding debtors for unsecured credit is likely to be eligible for debt intervention.
88% (R11.57 billion) of outstanding rand value is for consumers who are in arrears for 6 months and more.
78% (R1.37 million) is the number of consumers that are in arrears for more than 6 months - this category is unlikely to recover.

Based on the data received from National Treasury, there are 2.6 million borrowers that are eligible for debt relief that have at least one account that is three months or more in arrears. In total, borrowers that could qualify for debt review hold over 16 million loans and 29% of these loans (4.7 million) are three months or more in arrears.

On implementation capacity, the possible NCR capacity requirements (based on NCR statistics that 1.7 million consumers could qualify for debt intervention) were:
1 debt intervention officer will evaluate 1 application per hour.
To evaluate 141 700 applications in a month (totaling 1.7 million consumer applications in a year), approximately 886 debt intervention officers would be necessary.
If the implementation period (to deal with 1.7 million applications) is spread over 3 years, this number will be reduced to 295 debt intervention officers.

To facilitate the financial literacy programme, five trainers would be required. They will present the financial literacy programme and train debt intervention officers. The regulations will have to deal with this and to look at possible funding for presentation of the programme. For all the resources required, the approximate cost for the first year was R75 million.

The possible NCT capacity requirements were:
It is anticipated that approximately 50% of the initial applications received by NCR, will be successful.
1 tribunal member can adjudicate on 700 applications per month
To adjudicate 63 000 applications in a month, approximately 90 tribunal members would be necessary. This figure can be reduced to 30 tribunal members if the applications are dealt with over three years.
The NCT would require R78 million for first year costs.

In conclusion, DTI, NCR and NCT support the Bill and the legal opinion on the constitutionality of certain clauses in the Bill is being sought. DTI is available to conduct a socio-economic impact study, with the approval of the Portfolio Committee.

Discussion
Mr Cachalia asked for the legal opinion on constitutionality. On page 10 of the presentation, he asked if DTI supports the criminalization of reckless lending or not. He asked for the legal opinion on ministerial power to prescribe debt intervention. He asked if there were any other benchmarks for DTI applications process in covering the scales of the different applications by consumers. He asked about the proposed socio-economic impact, and how the terms of reference for the study would be compiled.

Mr Macpherson referred to page 7 where the DTI suggested that the National Credit Act date of implementation in 2007 be the cut-off date; he still did not understand the retrospective assessment of legally granted credit, and asked for clarity on it. On page 9, he did not agree that credit providers should not have to report reckless lending because credit providers assess credit applications, so if they come across credit applications that have been granted recklessly, they should be compelled to report it.

On debt counsellors, he said the discretion is with the debt counsellor. He asked DTI to consider his disagreement with that.

On slide 21, with regards to consumers that were nine months in arrears, he said the slide does not speak to consumers that are still making payments even though they may be in arrears and this is a discussion that still needs to be held. If people are still meeting the obligations of their repayments, the consideration of consumers that are nine months in arrears may stop a bunch of people that were currently making some payments towards their credit obligations, which in turn may broaden the scope of the targeted consumers.

On slide 26, he was glad that the application numbers have changed but he believed that they were still conservative. He was concerned about the implementation being spread over three years for consumers that have made application to the NCR. Are they going to wait for a period of three years for their applications to be dealt with? He stated that this had to be done within one year.

The budget for implementation capacity on slide 28 had doubled. He could not remember if the ICT budget on slide 32 was still the same. He asked if DTI was going to budget the personnel costs for three years or if the number was expected to drop. He asked if there was a budgeted amount for maintenance. Lastly, he agreed to the socio-economic study that was proposed.

Adv Alberts referred to retrospectivity and said he did not understand the cut-off date of 2007. He asked for clarity on this because if DTI, NCR and NCT would be going back to 2007, most of that debt had already prescribed. Secondly, he asked if DTI had been able to ascertain where the debt comes from within the financial sector.

Mr October replied that on the constitutional issues, the report was available as well as on ministerial discretion. In general the legal opinions were on the extinction of debt. This cannot be done arbitrarily and it must be proportional to avoid debt reduction being profitable to someone else. So if the Minister intervenes, it must be proportional.

On the budget, the figures are provisional because the 2018/19 budget was already done and these provisional figures were proposed for when the Bill comes into effect. DTI will roll out the implementation over an appropriate period, and people will not be turned away saying that they can only apply in three years’ time.

Ms Masotja added that in the legal opinion, counsel had focused on two aspects of the procedure and that was on the constitutionality of the Bill in certain sections and whether the proposals were in line with the Constitution due to concerns raised by stakeholders.

On the socio-economic study, if DTI gets the approval to go ahead, the terms of reference will be shared with the Committee and input will be welcomed. On retrospectivity, this was debated extensively but after thorough discussions, 2007 was deemed the appropriate date because it was the year the National Credit Act came into effect. Retrospectivity cannot be beyond the date the original Act came into effect. DTI agreed that with the abuse in the market, some of the provisions can be strengthened. In response to making consumers wait for three years, DTI, NCR and NCT were merely showcasing the two options, which is between one year and over three years. This will depend on which option is decided upon, but DTI is not suggesting that consumers must wait for three years. This was something that would still need to be decided on.

Prof Joseph Maseko, NCT Executive Chairperson, replied on the reporting of reckless lending by credit providers, saying credit providers tend to compete against each other so they would not want to be scrutinized by other credit providers on whether they are duly assessing the consumers and on what criteria they are granting credit to their customers. Credit providers look at the current factual information before them when a consumer applies for credit, so that information is limited. If the former were to be allowed, that would contravene the secrets of trade of credit providers. Credit providers are likely to receive different information by different consumers, so NCT feels that debt counsellors are the perfect players to take up the task because they assess the consumer retrospectively and peruse the entire credit history of the consumer.

On the six months arrears payment, people that can pay, once you are three months in arrears you are unable to pay even if you are able to pay once after three months, that is an indication of distress. Hence, consumers that are arrears for nine months were considered to be part of the targeted group.

Ms Motshegare replied on criminalization, that this was where the debt counsellors do not report reckless lending. NCR was suggesting that it should not be criminalized. On retrospectivity, 2007 was the year the National Credit Act was promulgated, hence the decision. In instances where consumers can pay, the NCR will play a debt counsellor role and assist those consumers with their payments.

On the benchmarks, NCR had to ensure that the application forms were simple so that we can assess the application properly and make referrals to the NCT once you have all the information.

The Chairperson thanked the delegation for its responses, and declared the meeting adjourned.