Localisation: Prof Ben Turok & SAMDA reports

Meeting report

Opening remarks
The Chairperson welcomed Prof Ben Turok, a former MP and an economist. Prof Turok had been invited as the Director of the Institute for African Alternatives.
 
She welcomed Ms Bridgette Radebe from the South African Mining Development Association (SAMDA). They would both be addressing localisation. The Chairperson thanked both presenters for giving their time, especially as the mining indaba was taking place at the same time.
 
The Chairperson welcomed the representatives from the Department of Trade and Industry, Dr Nimrod Zalk, Industrial Development Policy Strategy Advisor in the Office of the Director-General, and Dr Tebogo Makube, Chief Director: Industrial Procurement.
 
The Chairperson wished the Committee Members a great 2019. She thanked Members for their commitment to a heavy workload the previous year, and for fulfilling that commitment. She noted that the Committee for Trade and Industry had met 80 times while some Committees had met only 16 times.
 
Presentation on Localisation, Procurement and Beneficiation
Prof Turok briefed the Committee on localisation, procurement and beneficiation. He referred to a one-page advertisement by the Industrial Development Corporation (IDC) in the Business Day that morning, which was the first time that he had seen any public institution make a public statement about facilitating beneficiation in the mining industry. It was appropriate at the time of the mining indaba, but he was also pleased because he had been working on beneficiation for years.
 
Prof Turok explained that the conventional way of measuring the economy was by looking at the gross domestic product (GDP) and determining the contributions of the various sectors, but another way was to analyse the value addition that took place in the economy and which enabled one to make judgements about sectors, leading to a better understanding of the economy. The Institute for African Alternatives had conducted research over many years on value addition in mining-based Industrialisation in South Africa and across the continent. Since South Africa was a substantial exporter of capital equipment to the rest of the continent, local policies on procurement could affect that area quite substantially. Policy was needed to determine to what degree South Africa wished to encourage local production of goods and services throughout Africa, and to what extent that might impact on exports.
  
Localisation could be viewed from two perspectives: procurement and beneficiation. An important issue was whether the state was able to lay down requirements for local procurement by state agencies and whether the same could apply to the private sector. Beneficiation was the processing of a natural ore in order to prepare it for subsequent sale. There were various stages beginning with exploration, mining, processing, smelting and refining, and fabrication.
 
Over the years the issue of beneficiation had been highly contentious with the Chamber of Mines asserting that South African mining companies were highly specialized and should limit their operations to preparing the minerals for export. They were not willing to engage in manufacturing, nor were they interested in the domestic market. Yet the government continued to advocate a degree of beneficiation so that more value could be added domestically to foster further industrialisation. That would require much local training, but would promote economic growth. He added that mining was deeply embedded in South Africa.
 
Governments had to find the right entry into the value chain and not leave it to foreign countries or to the opportunists who entered the value chain by importing goods instead of manufacturing equipment locally. Those importers were usually politically connected inside the country and well connected outside the country, but their businesses were parasitic and did not add value to the value chain.
 
Prof Turok advised that the Portfolio Committee was too localised and too focused on the local economy while the economy was global. He advised the Portfolio Committee to address national issues of the economy and not to work in sectors. Secondly, the government itself should be more integrated to deal with the holistic and integrated nature of economics. The silos in government meant that the national policy was not coherent. He also noted the contradiction in the Minister’s policy as South Africa wanted to see industrialisation in Africa, but at the same time wanted to export to Africa. The Committee should engage with the IDC on the inherent contradiction of the policy.
 
Discussion
The Chairperson indicated that she would entertain questions from Members at that time.
 
Mr A Williams (ANC) asked about localisation and beneficiation legislation in Ghana and Tanzania. How was it better than South Africa’s legislatiion? Was it better than South Africa’s legislation, and was it effective? How did the other countries deal with the World Trade Organisation (WTO) which did not allow government to impose localisation on the private sector? Considering the WTO rules, how could government get the private sector onboard without imposing localisation on them?
 
Mr B Radebe (ANC) appreciated Prof Turok’s presentation. The crux of the matter was that the most important asset in any country was the people. In any policy, people had to come first. How were people going to benefit? He agreed that the mineral wealth was a national asset. At a recent meeting in Pretoria, he had noted that various countries from the West were trying to impose policy positions on South Africa. It could not be allowed to happen after the hundreds of years of colonisation during which time minerals were taken out of the country without beneficiation. How did one get around those issues so that the multinational countries did not determine the policies of the country?
 
Mr Radebe referred to the fact that all the components of steel were mined in a localised area in the Northern Cape. Exporting all those raw minerals had an opportunity cost for the people of the Northern Cape. Why could a steel factory not be built right there?
 
Regarding the industrialisation of Africa and the export of products from South Africa, Mr Radebe suggested that the best way forward would be to identify strengths of particular countries and to create a value chain around those strengths. It was important to create value chains in SADC.
 
Mr J Esterhuizen (IFP) agreed that mining did offer more beneficiation for South Africa than was enjoyed by countries like Ghana. But, on the other hand, South Africa’s population would grow by another million in the next three years and that would put pressure on industrialisation. In terms of localisation, the platinum used for the catalysts in engines and renewable energy were good examples. But South Africa also needed direct foreign investment. WTO was trying to develop legal tools to create barriers for localisation in different countries. Was that a barrier for world trade and for foreign direct investment? How did Prof Turok see it?
 
Ms L Theko (ANC) thanked Prof Turok for the presentation. There was a need to revitalise farms. Where she came from, there had been a coffee farm but it no longer produced coffee. Based on the examples of Tanzania and Ghana that had local content policies, how could South Africa best apply localisation policies to ensure that goods were produced on farms? For now, development of agriculture was not possible as Section 25 of the Constitution was still being amended. How could the people become part of those processes that could benefit from the mining of the mineral wealth in the country? Local people had to benefit as it was a national asset of South Africa. It could not be that South Africa was given grants for its own minerals. The people had to benefit from the mines. Prof Turok’s report had said it all and had given a lot of food for thought.
 
The Chairperson remarked that when Prof Turok shared his studies with the Committee, it always promoted fresh thinking. As Mr Radebe had said, a country’s greatest resource was human capital and Prof Turok had said that value was added with human intervention. That was a critical point. Many African leaders were saying that they had resources but were still poor.
 
The Chairperson had not been aware that international pricing still continued at Sasol. It was disturbing as she and Mr Radebe had visited Sasol to discuss the pricing issue and they had felt re-assured that pricing would change. She noted that the SA government was striving to be a developmental state, but it needed developmental pricing in what was being produced, especially in relation to steel. Members had raised the issue. Was it a matter of political will, or did it take a lot more to ensure developmental pricing? One could force the public sector to support localisation, but the rules of the WTO did not allow one to force the private sector to support localisation. The Chairperson stated that she was not suggesting that South Africa follow the Trump route, but she did wonder how he got away with it. Prof Turok might cast some light on that question.
 
Prof Turok had indicated how complex beneficiation was and had mentioned a number African countries. The Continental Free Trade Agreement spoke of regional beneficiation. There was a need for complementarity in the country’s trade but if SA was charging international prices and not developmental prices, that was an impediment. The Committee was disturbed by the point about royalties, i.e. that foreign companies did not pay taxes or VAT but only royalties. Australia did not work like that, so she was puzzled and would like that point clarified.
 
The Chairperson thanked Prof Turok for sharing his knowledge and experience.
 
Prof Turok responded to the question on royalties. What happened in many African countries was a deal between the government, or even the President, and the foreign company around royalties. Corruption allowed that to happen. Countries required taxes, but heads of state negotiated a deal without all the necessary arrangements. That was when everything fell through the cracks. The elite in Africa ran the show in their own interest, not in the interest of the country. Did South Africa operate in the same way?
 
A key question around localisation was whether one could force the private sector into localisation and, secondly, whether one could play with the WTO system. He did not believe that the SA government was strong enough to force private companies or the international market. SA needed to negotiate terms. Forcing was the wrong approach. SA had to acknowledge that it needed international trade and to negotiate terms. The country did not need to surrender to the WTO. The country could be clever and bypass some of the rules of WTO, as did China and USA. WTO rules would not send one to jail if one did not comply. There was room for exceptions and negotiation. A strong government could do what it liked and Trump was a good example.
 
Prof Turok advised that SA should not force private companies into localisation and beneficiation. The government should negotiate and set certain conditions as Tanzania and Ghana did. Those countries were much more determined to implement their policies. Was it political will? The government had to be determined to demand concessions. It was clear that SA had a bargaining position with its minerals. The use of language not of force but determination was the key.
 
Minister Davies was a good negotiator but he was not getting as far as one wanted. The potential of the Southern African Development Community (SADC) market was enormous, but SA was nowhere near gaining that market. It was a lack of political will, determination and negotiation and South Africa did not do enough. He regretted that it might be a criticism of DTI, but the country was not achieving the potential it could.
 
Prof Turok addressed the question of whether the people had to benefit. That was the starting point, not the international trading regime or the Pan-African trading regime. The new Pan-African agreement was a wonderful deal and the lawyers would tell one that, but is there any way that ordinary people in Africa would benefit? And when? And at what rate? SA was not pursing policies that benefitted people. The advertisement in Business Day should have come 20 years ago. Why wait until that day to offer support to black businesses? Why did SA wait 20 years to talk about assisting black business downstream? It showed a lack of determination in government. That was his view. The country had not been determined enough to benefit the people. There had not been adequate training and skills. Why was SA complaining that old white engineers were retiring and there was no one to replace them? It was inconceivable in a country like SA. Why was old white human capital not being replaced? Very few black engineers qualified at the University of Cape Town each year and there were almost no women. That was a policy issue. Parliament had every right to raise the questions.
 
In Luanda he had told the government that they needed to train engineers. Was SA replacing white capital such as engineers? No, the universities were not doing enough. They were only interested in trendy things, such as the Fourth Industrial Revolution.
 
Prof Turok had no doubt that the potential for African complementarity was high, but it needed infrastructure. It was not compatible with border controls. Currently, it took days to cross the border with materials. That had to be addressed
 
The Chairperson explained that time was short because of the new Parliament schedule which did not allow meetings to commence before 11:00 on Tuesdays. She thanked Prof Turok and stated that the Committee would make its interim report available to him in case his work had been misrepresented.
 
The Chairperson introduced Bridgette Radebe.
 
Ms Radebe had wanted to study mining law but, although she had been accepted by the University of the Witwatersrand, the government of the time had banished her to the University of the North where mining law was not taught. After the strikes there, everyone was expelled, and she had gone to study Economics and Political Science in Botswana. But she had become the first black producer of minerals in South Africa 29 years earlier.
 
The Chairperson informed the Committee that Ms Radebe had been invited to brief the Committee on localisation.
 
Presentation by Bridget Radebe of the South African Mining Development Association
Ms Bridget Radebe, President, SAMDA, appreciated being aligned to Prof Turok. Chairperson of Black Business and Chairperson of Virginia Mining, she was one of the representatives for Business on BRICS.
 
As the first black woman producer 29 years earlier, many things could not be done when she had started. She had been in mining for 29 years, including her years in Botswana. When Mandela had become President in 1994, many things had changed because the legislation had changed, but many things had not changed because many Ministers, Directors-General and officials did not enforce the law. It was their duty to impose the law and ensure that people like her, who were producers of the minerals, were legislation compliant. The job of the Portfolio Committee was to ensure that the law was implemented. She was going to be honest in saying what could be done in South Africa. SA was number one in the production of many minerals, but they were all exported and there was next to no beneficiation.
 
Ms Radebe explained that Africa had 10 per cent of the world’s known reserves of oil, 40 per cent of its gold, and 80 to 90 per cent of the chromium and the platinum metal group, to list only a few. But a number of commentators still referred to that wealth of natural resources and minerals as “Africa’s resource curse.” They associated the many wars, poverty and untold suffering of ordinary Africans with that abundance. It was true that the abundance of natural resources has been the catalyst for wars and conflict. But should an abundance of natural resources lead to Africa’s decline? The answer surely had to be a resounding, “No!”.
 
Ms Radebe believed that mining legislation was the engine for economic growth and mineral beneficiation.  Section 26 of the Mineral and Petroleum Resources Development Act (MPRDA), stated that: “Any person who intends to beneficiate any mineral mined in the Republic outside the Republic may only do so after written notice and in consultation with the Minister. …The Minister may initiate or prescribe incentives to promote the beneficiation of minerals in the Republic.”
 
Critically, the legislation also enabled the establishment of the Minerals and Mining Development Board which would ensure that mining companies facilitated local beneficiation of mineral resources of mineral commodities by adhering to the provision of section 26 of the MPRDA and the mineral beneficiation strategy. In terms of mineral wealth, South Africa’s estimated reserves were R 20.3 trillion ($2.5 trillion) and remained some of the world’s most valuable reserves. The country was estimated to have the world’s fifth largest mining sector in terms of GDP value.
 
Ms Radebe stated that the beneficiation incentive was a catalyst to charter compliance and to achieving the National Development Plan. The Section 121 Tax Incentive had been designed to support Greenfield investments (i.e. new industrial projects that utilised only new and unused manufacturing assets), as well as Brownfield investments (i.e. expansions or upgrades of existing industrial projects). The new incentive offered support for both capital investment and training.
 
Ms Radebe was also adamant that government should use the legislative clauses of the MPRDA that allowed the Minister to use punitive measures against stakeholders that were in breach of the legislation.
 
Her recommendations including immediately aligning the Mining Charter with DTI’s B-BBEE codes of good practice to address transfer pricing and charter non-compliancy; using beneficiation an engine for economic growth; and that the Government should abolish transfer pricing and create a meaningful tax environment that would prevent the erosion of capital. 
 
 
Ms Radebe concluded by hoping that there could be a joint Committee meeting to look at localisation in conjunction with other role-players.
 
Discussion
Mr Radebe appreciated the presentation which had been enlightening. There was unease in the Committee because Ms Radebe said that the Committee was sleeping on duty. The Committee had a big role, so while it was dealing with localisation and industrialisation, the previous year the Committee had completed the Copyright Bill and the Performers’ Protection Bill. The Committee had held 80 meetings the previous year. Localisation was important, but the Portfolio Committee covered such a wide area.
 
Mr Radebe explained how he had asked the Japanese why they shipped iron ore and manganese out of the country and then shipped manufactured goods back into the country at high prices instead of creating lots of jobs and skills in the country. It was unfortunate that the presentation had been made as the Committee’s term of office was coming to an end. The Committee had met with the Portfolio Committees on Mineral Resources and Finance. He believed that it was true that such a cluster could deal with the issues. It was not only an issue of localising but an issue of shipping out products for recycling, invoiced at low costs, while under the material for recycling, one found bars of platinum and bars of gold. The Committee had raised the matter of scrap metal. Why take it out of the country when it could be recycled in the country. He mentioned that South Africa had also lost the aluminium smelter at Coega because of the lack of electricity, after a huge investment in it. He agreed with the presenter that coordination was very important.
 
Ms Radebe apologised. She said that the Trade and Industry Committee had been an ally and industrialists had all come to the Committee, even with the transfer pricing issue. It had been so difficult to get the Finance Committee to come onboard. To that day, the Finance Committee had not asked her, as a leader of business, to make a presentation, even though she had offered to meet them. She said that the Portfolio Committee on Mining was trying, but could not do anything on its own. The Committee on Trade and Industry was a strong Committee and when she had come to them with all the issues on transfer pricing, the Committee Members had literally pushed and encouraged Members of Parliament to address the loopholes.
 
The Chairperson explained that the Committee had met with the Portfolio Committees on Mining and Finance but there had been a challenge. When Ben Turok had returned, as an MP, to the Portfolio Committee nine years earlier, the Committee had tried to bring the issues relating to the MPRDA together, but the Executive and officials also had to do their own consultation with stakeholders. They were unable to simply implement unless there was a resolution in the House. Three mining Ministers in the past seven years made it very difficult as progress was continuously interrupted. One of the few advantages was that DTI as such had not changed.
 
The Chairperson added that not many Committees had met only 16 times in the past year. Portfolio Committees had met 30 to 40 times on average. The new Minister of Mineral Resources had wanted to go through the Act and the requirements in the Act and to fully unpack it. In his opinion, there had been a need for him to look at it himself to consider concerns, but he stated that mines had to be used for beneficiation. It was the one thing that the Minister and the Committee had agreed on. That was one of the reasons for doing localisation. It was being done for the legacy report to share their experiences and recommendations with others. One of the recommendations that Committee would make was that the Portfolio Committee could not resolve some issues such as localisation on its own as Trade and Industry. Committees had to work together for the matter to go forward. There was, however, no time to do it at that stage. That had to be clear. Information that Ms Radebe had shared with the Committee had gone through to Finance because the two Committees had worked together.
 
Ms P Mantashe (ANC) appreciated the issues raised by the presentation because the Committee shared the same vision as the presenter on many issues but, as the Chairperson had said, the Committee could not do it alone. The hands of the Committee had been full with four Bills. She appreciated the input as it would help to give direction to the report to the Sixth Parliament. Localisation would get the country out of the quagmire of unemployment.
 
Ms Mantashe had to say that the Committee was not sleeping on the job and that was an insult and she would not allow anyone to say that about the Committee. The Committee went beyond its duty. Ms Radebe had said that she was not there to insult the Committee but when she had said that they slept on the job, she had insulted the Committee.
 
Mr S Mbuyane (ANC) noted that Ms Mantashe had covered him regarding the Committee sleeping on the job. He required clarity on the mining mandate as it was not a core mandate of Trade and Industry. Unfortunately, the mandate of minerals was not the core mandate of the Portfolio Committee. He suggested that the Chairperson engage with other Committees as it was an issue of national importance. The people of the country were not beneficiaries of the minerals in the country and that had to be addressed.
 
Mr Mbuyane noted that most mines in South Africa were owned by foreign companies. How could SA become a player and a beneficiary of the mines where South Africans were currently just workers?
 
Regarding the holistic approach of the economy, Mr Mbuyane asked about the WTO matter. What could Ms Radebe say in that regard from a mining perspective. Definitely the determination, negotiation and political will was critical, but the companies also had to participate. For them, mining was just another sector. He thanked Ms Radebe for the presentation which provided a clear mandate.
 
The Chairperson noted that the Members had benefitted from her input and that her input would be shared in the legacy report. Unfortunately, all Committees were too busy at that time to meet for deliberation of the issue.
 
Ms Radebe asked, in Setswana, for forgiveness for her remarks. The Chairperson had witnessed her have a very unhappy and aggressive, but truthful, discussion in the passage with the Chairperson of a Committee that had never wanted to listen to her as a leader in industry on very important issues, so that was the Committee that she had referred to. She was really concerned about it and hoped that one day that Committee would see fit to call leaders in industry to share a moment with the Committee. She appreciated the helpfulness of Portfolio Committee on Trade and Industry. Often the industrial leaders came in anger, wanting to know how to deal with all the issues that affected them, and the Committee on Trade and Industry had been really very helpful.
 
How could SA be a beneficiary and not just a player? Ms Radebe said that it was important to note that SA had created the mining and other legislation and that was beneficial to SA. The laws were very clear. The Committee and the Minister had been very active in trying to ensure compliance. The government and Department had to insist on compliance by all companies investing in the country.
 
In Ghana, Ms Radebe had been asked how SA had developed legislation such as B-BBEE and she had looked at the laws in Ghana and had seen so many loopholes in the legislation that it was possible to get away with all sorts of things. She had suggested that the President of Ghana send his teams to engage with Portfolio Committees in Parliament to understand how SA got things such as B-BBEE right. She was often asked to help emerging countries to develop, and the previous year she had been asked to present to 74 Ministers from Africa and the Caribbean. Her first remark had been to look to the law. She mentioned that she would not own a company that had its primary listing outside of SA if the primary listing could be in SA because it was all about the economic revolution. SA had done excellent work in producing legislation, but implementation of the law was the problem, not only in SA, but in most developing countries. Producers would ignore the law if there was no one policing the situation.
 
The Chairperson thanked her for sharing her experiences and making it clear that SA had to harness its human capital and address the fact that many South Africans were not yet benefitting from mining and agricultural production. The Committee would look back and see what could be changed. Ms Radebe could rest assured that the Committee would share its experiences with the new Committee coming in so that it would benefit from the lessons that the current Committee had learned. She thanked Ms Radebe once again.
 
The Chairperson also thanked Dr Zalk and Dr Makube for their attendance. The Committee still had two more engagements before it could finalise its report on localisation.
 
Committee Minutes
Minutes of 23 October 2018: the adoption of the minutes, without amendments, was proposed by Mr Williams and seconded by Mr Mbuyane.
 
Minutes of 26 October 2018. The Chairperson noted that all documents had to be distributed by email. The adoption of the minutes, without amendments, was proposed by Mr Williams and seconded by Mr Mbuyane.
 
Minutes of 21 November 2018: the adoption of the minutes, without amendments, was proposed by Ms Mantashe and seconded by Ms Theko.
 
Minutes of 27 November 2018: The Committee did not agree with the point made in 5.1.3 as it did not deal explicitly with the report nor the rejection of a proposal for a forensic report. The minutes were not adopted.
 
Minutes of 4 December 2018: Point 4 briefing by Transnet had not been followed by a one-pager. Mr Radebe reminded the Chairperson that the localisation issue with Transnet should be sent to the Zondo Commission. The minutes were not adopted.
 
Minutes of 5 December 2018: the adoption of the minutes, without amendments, was proposed by Mr Radebe with a rider that various Committee members had had a successful trip to KwaZulu-Natal on 8 December 2018 and appreciated the way that the staff had arranged the trip. The proposal for adoption was seconded by Ms Theko. It was noted that Members had not submitted questions as required in the meeting.
 
The Chairperson explained that the Committee Programme had been adopted at the meeting of 5 December so that venues could be booked. Parliament had not indicated that work had to be completed on 20 March 2019.
 
Matters arising from the Minutes of 5 December 2018
It was noted that the Committee Programme adopted on 5 December 2018 had been to comply with the request of the Chairperson of Chairpersons that the Committee send through the Committee Programme for approval so that the Committee could book its venues and at that time the parliamentary programme had not indicated that the work of the Committee would be completed on 20 March 2019.
 
The Chairperson explained that the Committee needed to adopt a new programme. One day had been removed from the new programme and, while the other days remained the same, the content had changed. The matter arising had to be included in the minutes because the programme had already been adopted at the previous meeting, but it had since changed.
 
The adoption of the revised Committee Programme was proposed by Mr Radebe and seconded by Mr Esterhuizen.
 
Chairperson requested minutes of the current meeting by the end of the week.
 
Closing remarks
The Chairperson thanked Mr Esterhuizen for attending even though he was a Member of several Committees. It was the challenge for someone in his party. The Chairperson stated she appreciated what Members had done as Members of the Committee. It was her second term as Chairperson of the Portfolio Committee on Trade and Industry and Mr Radebe had been whip in her first term and for the past two years. She believed that the Committee had worked harder than any other Committee in the past two and a half years, and she thanked each one individually for sacrificing their time, especially those who had worked solidly despite other challenges. She thanked Dr Zalk and Dr Makube for their patience and the Committee staff for their assistance.
 
Mr Esterhuizen thanked the Chairperson and appreciated her commitment.
 
The meeting ended in an uproar when the Chairperson jokingly suggested that the Committee meet on the Friday.
 
The meeting was adjourned.