Economic Development Department Quarter 1 & 2 performance; with Minister and Deputy present

Economic Development

13 November 2018
Chairperson: Mr A Cele (ANC) (Acting)
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Meeting Summary

The Minister of Economic Development, Mr Ebrahim Patel, met with the Committee to brief it on quarter one and two performance of the Department of Economic Development (EDD) for the 2018/19 financial year. Quarter one covered the period 1 April 2018 to 30 June 2018 and the presentation addressed highlights regarding regional trade, export and import performance, changing the investment narrative, scrap mental directive and stimulating investment. The presentation also covered the Competition Amendment Bill, Fourth Industrial Revolution debate, Key Performance Indicators of the Department’s programmes, human resources and expenditure.

The second quarter report covered the period 1 July 2018 to 30 September 2018. The presentation addressed economic context for the GDP, recessions, employment review and labour market trends. The presentation also covered economic stimulus and recovery, changing investment narrative, BRICS summit, ministerial small business imbizo and support for the tourism industry. The presentation spoke to infrastructure funding, investment conference, trade analysis, Key Performance Indicators of the Department’s programmes, fast tracking investment initiatives, human resources and expenditure.

In discussion, the Committee questioned the price preference system, export tax, impacts of the Fourth Industrial Revolution and contraction in the first and second quarters. There was discussion on the status of labour brokerage in SA, recession, Cooperative Finance Institutions and truck exports to Ethiopia. Members also asked about relations between the national EDD and provincial departments, African participation at the BRICS summit and urbanisation and city-led growth.

Meeting report

Election of Acting Chairperson

The Committee Secretary informed Members that the Chairperson was on study leave and the Committee would have to elect an Acting Chairperson.

Mr A Cele (ANC) was nominated.

Briefing by the Economic Development Department on the first and second quarter performance and expenditure reports

Mr Ebrahim Patel, Minister of Economic Development (EDD), took the Committee through a regional trade analysis of Botswana, changing of the investment narrative, scrap metal directive, stimulating investment, the Competition Amendment Bill and Fourth Industrial Revolution. A report on key performance indicators included public policy advocacy, women and youth, social accords, infrastructure, fast tracking investment initiatives, industrial finance, improved Industrial Development Corporation (IDC) performance, initiatives on mergers and acquisitions and import penetration and jobs. The EDD had a ratio of 46 percent of women in senior management positions and had exceeded the gender equity target of 50 percent in the filled and funded posts overall. The Department achieved total expenditure of 98 percent.

The second quarter report included an economic and employment overview and work towards the economic stimulus package and the Investment Conference. Other areas covered included changing the investment narrative, BRICS summit, support for the sugar industry, the ministerial small business imbizo, support for the tourism industry, economic stimulus, the Jobs Summit, unlocking infrastructure funding, the investment conference and a trade analysis report on Ethiopia. Key Performance Indicators (KPIs) included the growth path and social dialogue, agriculture case studies, youth employment accord, investment, competition and trade, fast tracking investment initiatives, funding allocations on township enterprises, industrial finance, capacity building, youth empowered businesses and trade authority support for industrialisation. Compensation of employees spending increased due to salary adjustments effected by the Department of Public Service and Administration (DPSA) in July and August.


Dr M Cardo (DA) referred to the price preference system and asked if there were other mechanisms, like export tax, that could replace it and how much export tax was raised annually. He asked if, in the event of export tax being prioritised, a sole port of export was on the agenda. He asked about the history and mandate of the Joint Committee of Parliament on the Fourth Industrial Revolution and whether recommendations would filter into the Executive so as to shape government policy. He enquired about its possible impact on South Africa, and whether it could possibly disrupt or entrench the economic hierarchy, or even exacerbate inequality. He asked how possible effects on poverty and inequality could be mitigated, how to avoid it being dealt with in silos, how collaborative efforts were to be institutionalised in government and what the role of the EDD would be. Two years before, the Portfolio Committee had engaged with Prof Vaughan, who undertook to supply 10 of his cutting edge breast screening systems to areas like Khayalitsha and Alexandra. He asked for an update on this and whether the EDD was involved. He referred to the second quarter briefing and noted that the Minister had claimed, at the investment conference, that SA could build its own trains. That could increase the percentage of manufacture from the current 12 percent. He asked how the EDD cooperated with line function departments to make that possible. The Youth Employment Accord was mentioned on slide 85. He asked if there would be a single implementation structure in government.

Mr S Tleane (ANC) expressed appreciation for the hard work performed. Good work had to be acknowledged. India took the lead with medicine exports to Botswana. India had a population of one billion and so it was easy for it to keep prices low. He asked about the possibility of partnership with India, which was a BRICS partner. Partnership with India seemed the better option as SA could not beat it, in the long run. He referred to contraction in the first and second quarters and how it compared with other developing countries, as well as developed countries. He asked about the status of labour brokerage in the country. It was on the agenda for a long time. It was mentioned there was a special session at the BRICS summit for African countries. He asked which countries participated, matters discussed and impact of agreements on the region and the continent. The Big Hole at Kimberley used to be a tourist attraction, but currently one seldom heard about it. He asked if it was undermarketed.

Mr I Pikinini (ANC) commented that EDD interventions were always good. During the recession it had come up with the Industrial Policy Action Plan (IPAP). He asked that the Committee be taken through the two quarters of recession in terms of GDP. It would be necessary to look at two years, with the assistance of graphs 4 and 8.

Ms C Matsimbi (ANC) remarked that she was not seeing any Cooperative Finance Institutions (CFIs) in her province and asked where they were situated. Since the IDC’s CEO resigned, it caused concern that there would be a process of employing someone to avoid explanations in future. It was mentioned there was startup funding for Madmead brewing but it seemed to her that it could be continued funding for Soweto Gold. She was not sure if it was the same company or two different companies.

Mr P Atkinson (DA) commented there was a discrepancy between figures quoted about truck exports to Ethiopa. The figure quoted by SA was 204.7 billion but in the next slide it was stated that SA was ninth on the supplier list and the figure quoted was R59 billion. It was stated under quarter one that the greatest loss of jobs was under private households. He asked that private households be defined. He asked about the relation between oversight by the national EDD and NCOP oversight of provincial departments, and whether resources were utilised in a coordinated manner. He asked about urbanisation, and interactions by the Department towards city-led growth.

The Minister replied to Dr Cardo that the amount of tax through export tax was a function of the level of tax and depended on the rate - it could be 10 or 20 percent of value. Discussion was not completed and the Finance Minister would make an announcement in a formal budget. Export tax was not revenue raising. A more efficient system for local utilisation of scrap metal had to be found. A useful by-product would be the revenue raising impact of that. It could influence the level at which tax was set. If the route of export tax was followed, it might make the proposals that the International Trade Administration Commission of SA (ITAC) put out for comment less necessary. The approach to control scrap metal had to be reconsidered. Localisation had been dealt with but there was still the challenge of metal and copper theft to be addressed through the public infrastructure programme. The City of Cape Town reported that the Passenger Rail Agency of SA (PRASA) experienced cable theft. The Gautrain experienced copper theft and even hospitals were affected. There must be tighter control of the scrap trade, both domestic and export. Some or all of the provisions in the gazette that ITAC put out could become redundant as a result of export tax. It depended on the control systems that National Treasury (NT) would put in place around export tax. Export tax could deal with localisation but the challenge of theft of copper and metal from the public infrastructure system would still remain.

He assumed that the Joint Committee on the Fourth Industrial Revolution was composed of both the National Assembly and NCOP. It could give Parliament a sense of challenges of the Fourth Industrial Revolution on Parliament and could give different parliamentary Committees guidance in oversight. It would probably not act under its own name. Portfolio and Select Committees would be familiarised with challenges. The Fourth Industrial Revolution had surfaced and had to be on every Portfolio Committee agenda. Parliament itself could be set on a new growth path. In 2010, the Minister was stuck in Gauteng and could not attend a Committee meeting. A video conference was arranged and this worked well. Video conference technology was already in existence ten years before. It would make it easier to bring in heads of agencies. Efficiency inducing systems could enhance democracy - if it could save time for Parliament, the institution could better perform its oversight role. The Fourth Industrial Revolution could have a disruptive impact but it would be possible to influence the course and effects of disruption as it related to income inequality. Existing inequalities could be deepened or the economy could be made more inclusive. If data costs stayed high, it would lead to exclusion of small business and youth. If data was affordable, it could empower people. Inequality could be moderated or reduced. Public policy had to be based on decisions on how to intervene. It was impossible to regulate everything. It was advisable to focus on outcomes rather than inputs.  An appropriate regulatory regime had to be found. If prices were too low there would be a lack of investment. In theory, prices would be low, but in practice there would be no availability. If it was left unregulated, big players would consolidate themselves. They would get in first and would be able to advertise their infrastructure. No one would be able to meet the cost required to create new infrastructure. Two or three big players had to be allowed to compete so that competition could energise the economy. If the wrong policy was followed it could add to existing inequality, but the right policy could be of benefit to smaller firms and young people, who would be able to compete. There was the example of Jack Ma, who created a platform to empower small business. Small players were often not able to supply in large enough quantity. On an online platform one could put 50 books up, sell them, and enter the market. Mitigation of poverty and inequality could be achieved through bringing services to more places. For example, at Sutherland, there was poverty and alcoholism, with a feeling of hopelessness prevailing. There was a corporation dedicated to upgrade Early Childhood Development (ECD) but there were challenges of company registration. Young people familiar with the internet were better able to access resources. He was optimistic about technology - even though there could be a disruptive impact, the level of negative disruption could be softened if there was smart regulation. The Digital Economic Commission could explore how to activate the power of the Fourth Industrial Revolution.

Minister Patel answered Dr Cardo about the breast screening technology developed by Prof Vaughan explaining that trials were under way and usable machines could be developed through testing. There was no commercial production as yet. Transnet had rail engineering factories for train manufacture. The Minister and the President launched a private sector initiative to enhance capability. Highveld Steel could produce tracks. In the African Union, SA was recognised as the train producing centre. Diplomacy had to be focused on consolidating that position. The EDD had started discussions with Transnet and the IDC to work together to make SA the source. SA was competing with China and Europe. Those countries had the advantage of offering finance, maintenance and procurement packages. He had raised the idea with commercial banks. SA was struggling to be the preferred supplier and had to become able to put an entire package together. Finance could help SA suppliers elsewhere in Africa to present an entire package.

Deputy Minister Madala Masuku replied to the question of whether the Youth Employment Accord would have a single implementation structure – he said it was rather a matter of there being a single coordination point for the private sector and labour. Within government itself, the EDD could coordinate different departments and get information but as one went down into companies, there was no reference point. The coordination point was agreed to by different players which allowed for the sourcing out of information. The same notion was incorporated into other initiatives. It emerged from Job Summit discussions that a provincial economic council had to be created for improved coordination of different areas of government. The EDD worked with provinces on how to consolidate resources. Provinces experienced budget challenges which skewed the budget towards other areas of work. Resources for economic development went to isolated projects instead of projects being consolidated into one to provide traction. The Investment Conference and Job Summit addressed challenges.

The Minister returned to Dr Cardo’s question about Cape Ray and Prof Vaughan’s breast screening system noting that Cape Ray sold a prototype machine to Germany which could help to extend clinical trials as another jurisdiction and another partner was involved.  Concerning the offer to Khayalitsha, it was suggested that government buy the prototype and utilise it in the meantime. The national Department wanted the province to buy it which was what usually happened between tiers of government. The EDD had to follow up. As it was not free of charge, it could only be encouraged but it was not possible to compel. Once the machine had been put through trials, it could become a designated project and public institutions could be required to buy it. If it was preferred technology, combing scanner and x-ray into one, it could be rolled out in the rural areas and be generally available.

Minister Patel answered Mr Tleane about partnering with India on medicine - SA produced generic medicines through Aspen, also internationally. India focused strongly on pharmaceuticals and medicines, in contrast to China, which focused on clothes, electronics and toys. The question was if Indian companies could be located in SA. Incentives for industrialisation in India were huge. There could be cooperation with India to establish factories, as there was common interest, but there were also competing interests. The two commonly went together. If there were opportunities to cooperate with India, it had to be grabbed, but with caution. India wanted to industrialise to cope with high levels of poverty so there would be efforts to employ people in the field of medicine. The question was how state procurement could be used to build SA companies. The EDD could talk to Aspen about why India was winning in Botswana.

He addressed contraction noting that two and a half to three years before, there was shrinking in Brazil and Russia. Brazil went into a deep recession. The economic performance of Russia and Canada was also decreasing. This was as a result of the commodity cycle - as minerals had powered them, gas and oil, and as prices went down, the demand went down. SA avoided recession because of infrastructure spending but as infrastructure spending came down over the preceding one and a half to two years, economic performance went down. Infrastructure spending went down because of weaknesses in State –Owned Enterprises (SOEs). The spending also went down in Sanral, because of e-tolls, and Eskom and Transnet because of state capture and corruption, which contributed to bad decisions by boards and CEOs. The cleanup of SOEs could drive infrastructure investment. Corruption was not only a moral issue. The economy was shot in the foot through decisions based on improper motives.

Looking at labour brokerage, Parliament passed legislation that dealt with the security of employment. Labour contract brokers were called in when there was unhappiness about working conditions. The problem was that it shifted the responsibility. The legislation prescribed that contracts could not be renewed every year. It was not a contracted right that an employer had towards an employee. There was a judgment in a Constitutional Court case in June 2018 that a temporary contract could not be rolled over indefinitely. Legislation and jurisprudence, which was the result of court processes, created a context where the economic incentive to rely on labour brokers was weaker. There could be less reliance on labour brokers. A company could not escape liability by employing a labour broker. A reduction in labour brokerage could be expected, and the terrain would become more difficult for labour brokers.

Minister Patel then spoke to BRICS in Africa - the summit was attended by heads of economic entities, representing East and West Africa, and key leaders in the African Union, some of whom played leading roles in infrastructure development. Not all 54 heads of state were there. Discussion focused on building of strong relationships between BRICS and the continent to help boost industrialisation. It was not just about market investment in infrastructure. China met with all 54 African leaders one month after the summit. The forum established was the Forum on China-Africa Cooperation (FOCAC). Africa had to protect its own interests. It had become more important than ever to promote an African free trading area. African countries trading with each other had to be prioritised. Goods had to flow in a free trade area and a common market. South Africa was the smallest country in BRICS. Bulking up could be achieved through relations with the African continent.

He replied to Mr Tleane about the Kimberley big hole explaining the EDD had a relation with the Department of Tourism which would develop a portfolio of projects. Key projects could be brought into the tourism master plan. The EDD could suggest the Kimberley Big Hole be brought in but on its own it was not compelling enough. The question was if there could be a bigger story line. He gave the example of astro tourism - Sutherland had one of the biggest telescopes in the world. The biggest radio relescope in the world was being built at Carnarvon. Both destinations were not far from Cape Town yet not many people went there because it was not well marketed. There were early human settlement sites at Sutherland and Carnarvon which could be packaged together with the telescopes in the way it was done in places like Beijing. Kimberley currently had a university which made it more attractive. The crucial question that tourism had to answer was about story lines.

Minister Patel answered Mr Pikinini about two quarters of economic decline - Mr Pikinini was correct but one had to look at a one or two year trend line. If one looked at 50 years, the good news was that the country had gone very long without recessions. There was growth in between recessions but it was not fast enough to meet the needs of a growing population. It was a technical recession and a stimulus package and recovery plan was needed to emerge from it. Corruption and state capture had to be fought to improve the climate for investors. Tourists needed an easy visa regime to prevent them simply travelling to countries where regimes were easier. Twenty first century technologies had to be embraced across different sectors. There had to be spectrum release. Twenty years before, cellphones were mostly used for making calls, then it was used for data, and currently it was for downloading videos, for instance. The migration from analog to digital TV could release more spectrum. People who wanted to invest in mining, and who wanted to bring in R50 billion, had to know what the legal regime was. If the debate on the Mining Charter dragged on too long, people would not invest. The Mining Charter was now complete. A policy had to be indicated for spectrum release.

He responded to Ms Matsimbi about CFIs stating that the EDD worked with Treasury on CFIs. The Department could link up with the Member to locate CFIs in her constituency. There were a total of 27 CFIs in all provinces. Gauteng had the most. Limpopo had six, KZN had five, the Western Cape had three and the Free State, North West and Eastern Cape each had one. The EDD facilitated CFIs but did not drive it.

The IDC CEO process was under way. The Board put together a subcommittee and worked with a headhunting agency.

With Madmead brewing, the fund was started for the Pioneer bread cartel in 2010.  An agri-processing competitiveness fund was set up in 2011 and became operational in 2012. It was asked if the R250 million set aside was used and it turned out that even more was used as interest income was utilised. Money paid back from loans was lent out to someone else. R300 million was used. He would find out about Madmead and Soweto Gold.

Minister Patel answered Mr Atkinson about discrepancies in figures of truck exports to Ethiopia. It was not a typographical error - two sources were used. SA published its export data and other countries published their import data. Figures could differ. If a mobile phone was made in China, the price of shipping and insurance had to be added to the price as stated in China, hence SA would declare a different price. There were mismatches to which the SA Revenue Service (SARS) and the task team on illegal exports had to attend. Problems were inherent to trade data. The SA data on truck exports showed SA as a bigger exporter than the Ethiopian import data did. Trade data could be messy.

The private household category referred to individuals employed in a household, like domestics and gardeners. There were a greater proportion of domestic workers employed in SA than in other countries.

The relation between economic development departments at national and provincial level was fraternal in the sense that the national Department could not require or compel. The Deputy Minister led that relation. It was an uneven relation as some provincial departments were good and others not. Institutional cultures in provinces tended towards working in a provincial bubble. It could improve but there had to be a willingness on the part of Premiers.

Years before the possibility had been explored of unifying development finance institutions, and to let each province have a portion, but the idea was not taken forward. The Minister agreed with Mr Atkinson that city-led growth was critical. It was essential to support rural centres so as not to overrun urban infrastructure but long term growth would come from cities. Half of SA resided in cities and large towns. The more highly urbanised countries were wealthier. Metros and national government had to partner to develop infrastructure that would link the city with itself and the city with rural areas. The housing programme had to be relooked as more and more people lived in large blocks of flats, rather than single households, as seen in Singapore, London and Germany. SA had not yet embraced massification and densification.

The Chairperson thanked the EDD and the Minister for always being well prepared and thanked Members for their participation.

The Secretary announced that a proposed Committee oversight meeting awaited approval from the oversight committee.

The meeting was adjourned.

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