Post Brexit UK-SA trade relations; DTI Quarter 3 performance; National Consumer Commission audit findings

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Trade and Industry

13 February 2019
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The National Consumer Council briefed the Committee on its progress in dealing with the Auditor-General’s findings on the National Consumer Council 2017/18 Annual Report. The Consumer Council had received an unqualified audit report, although there had been 23 findings, of which 78% had been dealt with to date. Ten of the findings were repeat findings and eight of those had been resolved.

Findings related to standard operating, supply chain management and the contact register which had shown incorrect description of assets. Errors in the IT system were holding up the electronic capture of assets. The Asset Management Register was being updated. The finding on ICT had dealt with user access and had been addressed but it had been established that a proper audit trail had not been kept and that was to be reviewed in February 2019. The key issues had been to fast-track the implementation of recommendations for the supply chain management and to prioritise repeat findings. The Auditor-General had also indicated that the Commission could choose to appoint an external auditor. The Commission had decided to go with that option.

Members expressed unhappiness that the National Consumer Council was not more aggressively on the side of consumers and waited for complaints instead of being pro-active in addressing dubious practices and stopping behaviour that was not in the interest of the consumers. They asked why was it necessary for OUTA, AfriForum and other private organisations to tackle problems that the NCC should be addressing? The Kuga matter was still hanging in the air and private individuals were taking the Kuga matter to court. Why was the Commission not doing that? Members warned the NCC to be very careful to find auditors that worked with integrity.

The Department of Trade and Industry presented its Third Quarter Report noting that it had been one of the worst periods of time for the economy. Unemployment was still far too high but in the Third Quarter of 2018, South Africa had exited the technical recession, thanks to the manufacturing sector which had grown by over two percent. Unemployment remained the biggest challenge, despite a very small decline. Because of the decline in the currency exchange rate, the trade surplus was getting smaller and the trade gap was narrowing. The effect of a currency decline was that import costs, especially of oil, were rising and increasing the trade deficit. The declining role of oil in Nigeria and Angola had had a dampening effective on exports. The trade deficit with BRICS countries was widening and the only country where there was a non-deficit in trade was India.

Positive developments were the investments in the clothing sector of R 1.3 billion and the launch, in December 2018, of a Special Economic Zone in Atlantis that would focus on green energy. Another positive was the new automotive plan which had been adopted by Cabinet. The plan ran until 2025 and had a R 40 billion investment. The recent gas finds in the Brulpadda area off the coast of Mossel Bay and finds off Richards Bay were good news. The Department had a gas industrialisation plan which would support the gas industrialisation drive. Global business services companies in South Africa were expanding and now employed over 200 000 people.

There had been activity in the legislative programme and three Bills: The Copyright Amendment Act, the Performers Protection Bill, National Gambling Amendment Bill, had been processed by the National Assembly and were being addressed in the National Council of Provinces. The signing of the Beijing and Berne treaties had been approved.

The financial target of the Department was no underspending of the budget. The Department had spent R 6.1 billion, which was 99.1% of the budget in the year to date.

Members asked for an update on the Manufacturing Competitiveness Enhancement Programme. What was the long-term view? Why had the Youth Employment Service not had the desired uptake? When was the Department going to hammer out concessions for the industrial parks in far-flung rural areas? Tax incentive would bring people into Special Economic Zones but there needed to be a long-term view of the 12i Tax concession. When was that going to happen? Was there going to be a focussed approach to job creation, bearing in mind the comments made by major trading partners in a document revealed by the media?

Members noted that China had been experiencing low growth in the economy and so had come up with a stimulus programme. How would it affect SA? What was the state of the textile industry and what were the major plans to revive the industry? What were the targeted industries in the Nkomazi Special Economic Zone? What would be the job opportunities in Nkomazi and the Atlantis Special Economic Zones? A Member requested an update on the Phuthaditjhaba Industrial Park.

Members asked, in the light of the newly discovered gas field that could be exploited, whether there were policy positions and legislation for the recovery of the gas if the work was not done by South Africans. The Chairperson asked that the idea of staggering manufacturing times through a 24-hour period, as suggested by the manufacturing sector be considered in the light of the crisis in Eskom.

The Department of Trade and Industry informed the Committee that the negotiations on the Rollover Economic Partnership Agreement between Britain and Southern African states were progressing well. The Minister of Trade and Industry and his British equivalent had declared that the deal had to be completed for signature in early March so that if there was a hard Brexit at the end of March, trade between the Southern African Customs Union, Mozambique and Britain could continue. One or two technical issues were still outstanding, including protecting the citrus industry.

Unless a deal could be reached between the European Union and the United Kingdom, the United Kingdom would leave the European Union on 29 March 2019 without an agreement. The SACU-EU partnership agreement would no longer apply to exports to the United Kingdom and South Africa would pay full duties instead of the duties applied to most favoured countries. Vehicles, South Africa’s third biggest export to the United Kingdom would have to pay 10% customs duties instead of being duty-free while customs duties of between 4% and 10% would apply to agricultural products. 40% of South Africa agricultural produce was sold in the United Kingdom. That was the reason for the urgency of the agreement between the UK and Southern African countries.

Members asked if the new Agreement was a better agreement than the Agreement with the European Union. Could SA get more out a bilateral arrangement with the UK? What would happen to SA exports to the United Kingdom that were then on-sold in Europe? Would the rule of origin apply? How was the balance of trade going to be affected by the Agreement?

The Chairperson was concerned about the timing of early March for the signing of the Agreement. She alerted the Department to the fact that the Agreement would have to be with the Committee by 12 or 13 March 2019 if it were to be ratified before Parliament rose on 20 March 2019.

Meeting report

Opening remarks
The Chairperson welcomed the representatives from the delegation from the Department of Trade and Industry (DTI): Mr Lionel October, Director-General, Mr Shabeer Khan, CFO, Ms Thandi Phele, Acting DDG: Industrial Development Division, Ms Malebo Mabitje-Thompson, DDG Industrial Development: Policy Development Division (IDPDD), Mr Sipho Zikode, Deputy Director General: SEZ and Economic Transformation Division, Mr Stephen Hanival, Chief Economist and Ms Niki Kruger, Chief Director: Trade Negotiations. She acknowledged the entire team as it was a very important meeting with the Third Quarter Report and the Report on Brexit Negotiations.
 
The Chairperson further welcomed the Chairperson of the National Consumer Council (NCC), Mr Ebrahim Mohamed and the Deputy Chairperson of the Council, Ms Thezi Mabuza, as well as Mr Anton van der Merwe, CFO.
 
The Chairperson acknowledged receipt of a letter from Mr D Macpherson and indicated that she would address the matter later.
 
Briefing on the Audit Findings of the Auditor-General on the 2017/18 Annual Report of the National Consumer Council (NCC)
Mr Ebrahim Mohamed briefed the Committee on the progress in dealing with the Auditor-General’s findings on the NCC 2017/18 Annual Report. He informed the Committee that the first few slides contained background information and challenges experienced. He would start on Slide 9. He would address the findings and brief the Committee on action taken and other issues that required immediate attention.
 
The Commission was extremely happy to say that the NCC had received an unqualified audit report, although there had been a few findings. There had been 23 findings, of which 78% had been dealt with, i.e. 18. Ten of the findings were repeat findings and eight of those had been resolved. Five findings were still being addressed. Progress had been reported to the audit and risk committees.
 
The response to the finding related to standard operating procedures was incomplete but he assured the Committee that a report, probably indicating the completion of the task, had been received by his office.
 
The findings in the supply chain management division had related to non-registered VAT vendors who had claimed VAT. The matter had been finalised, but the Commission was awaiting the recovery of the monies. The contact register had shown inefficiencies, including the incorrect description of assets, but those had been corrected manually. However, errors in the IT system were holding up the electronic capture. The Asset Management Register was being updated. The finding on ICT had dealt with user access and had been addressed but it had been established that a proper audit trail had not been kept and that was to be reviewed in February 2019.
 
All findings relating to the financials had been dealt with in full except the petty cash reconciliations. The monthly reconciliations had been done, but only as petty cash funds were being replenished. The properly reconciliations procedure had been implemented and the matter would soon be resolved.
 
The key issues had been to fast-track the implementation of recommendations for the supply chain management and to prioritise repeat findings. The AGSA had indicated that the Commission could choose to appoint an external auditor. The Commission had decided to go with that option.
 
Mr Mohamed noted that his term of office had come to an end and he would be leaving in three months’ time. He thanked the Committee for its support during his term of office.
 
The Chairperson indicated that there would be questions, but she thanked Mr Mohamed for his commitment. She asked Members to be succinct.
 
Discussion
Mr D Mahlobo (ANC) congratulated the NCC on achieving a clean audit. He noted that it had been a long journey, but the Commissioner and his team had worked with the Auditor General and had focussed on getting good results. He appreciated the work of the team and DTI that had oversight of the Commission. He thanked the Deputy Commissioner who had kept things going when the Commissioner had been ill. He stated that the important thing would be to keep up the good work and maintain a clean audit. He hoped that the NCC would bring in a good team of auditors, especially in the light of what had been experienced with auditors in the country. He looked forward to a clean audit in the following year.
 
Mr D Macpherson (DA) was pleased to see the DG in the meeting. While the work done by NCC was commendable, he did not think that the NCC was doing enough. It did not advocate strongly enough for consumers. The NCC should be more aggressively on the side of consumers and should not wait for complaints. It should be more pro-active in addressing dubious practices and stop behaviour that was not in the interest of the consumers. He referred to the many complaints sent to the NCC before it agreed to look into the dubious practice of the timeshares. It had taken 18 months to address the issue while consumers had continued to be ripped off. He hoped that in the new term of the NCC, the DTI would give it real clout and that the NCC would enforce the Consumer Protection Act in a vigorous way and not wait to be told to do so. That was the type of NCC that people were looking for. A clean audit was well and good, but he also wanted to see legislative steps so that there was a new and reformed NCC in the future.
 
Mr A Alberts (FF+) noted that it was important that proper groundwork was laid within the NCC to adjudicate and to assist consumers. He wanted to reiterate what Mr Macpherson had said, and hoped that the groundwork had been laid for a more aggressive NCC. Things were difficult for consumers, especially with the problems of Eskom. Consumers were being cheated by private companies in many ways. The holiday clubs was just one of the ways. That had taken some time to finalise. The holiday clubs contracts were illegal. One did not need to even be a first-year law student to know that. There was no such thing as a perpetual contract in South African law, and yet people still sold those contracts. He could not understand why there could not be an interdict to stop the illegal contracts across the industry. The process of investigations and negotiations took too long. Why have a discussion to ask the industry to stop the contracts voluntarily when it took so long and there were many other things happening?
 
What was happening was that OUTA, AfriForum and other private organisations were tackling problems that the NCC should be addressing. People were suffering. The economy was in dire straits and people were being ripped off left, right and centre. It was not only the poor but even the middle class that did not always know their rights and got caught up in those matters. His party had sent many complaints to the NCC, mostly, but not only, to do with the holiday clubs. The Kuga matter was still hanging in the air and Gerrie Nel was taking this matter to court. Why was he doing that? It was not his job to take the matter to court. Why was the Commission not doing that?
 
Mr Alberts almost wanted to beg the NCC to do what it had been set up to do. People came to him all the time and, being a person with a legal background, he knew when people were being ripped off. Political parties did not have the capacity to deal with all of the consumer problems. If the NCC had capacity problems, it should ask the Minister, or Parliament, to intervene on the NCC’s behalf. He acknowledged that NCC had had capacity problems from the start, but it had to move out of first gear.
 
Mr J Esterhuizen (IFP) was also concerned when he read poor audit reports and repeat findings. The Auditor-General had to act in the best interests of the people. Under the amended Auditor-General Act, the Auditor-General had teeth and could even call in the Hawks, if needed, so there should not be any repeat findings.
 
The Chairperson asked about a reference to an unqualified opinion in a previous period and challenges that had to be overcome. The presentation stated that financial records were poor but did not state in which years the financial records had been very poor. The NCC needed to be more specific there. What were the lessons learnt by the NCC when it had had to turn itself around from a very challenging situation in which very little had been regular? She requested a page on the lessons learnt and how they had been addressed and overcome. That would assist other organisations that faced similar challenges. The Commission had faced a sorry situation and so the lessons learnt would be valuable.
 
The Chairperson knew that there was an inquest going on about the Kuga case and she hoped that the NCC was keeping an eye on this, and was learning from, the proceedings. She hoped that lessons would be learnt.
 
The Chairperson understood that the NCC had tried to build a better relationship with the National Regulator for Compulsory Specifications (NRCS) because, in many ways, they were two sides of one coin. That had become very apparent in the Kuga case. The other issue had been raised by Mr Alberts. Sometimes there was legislation and secondary legislation in the form of regulations that should no longer be on the books and it would be constructive for the NCC to review the regulatory framework that was impacting negatively on consumers. The example of time share had been given by the Members. That matter had come before the Committee for the past nine years.
 
She noted that the NCC was considering hiring external auditors. Everyone knew about the state of auditing firms in the country and she had not come across more than two that she knew that worked with integrity. She warned the NCC to be very careful and find auditors that worked with integrity.
 
The Committee would like all entities to come back to the Committee with a written report on the current state of scarce strategic skills in relation to each specific entity. That would be constructive for the next period of Parliament and for the Executive itself.
 
Response by NCC
The Commissioner requested the Deputy Commissioner to respond to the Chairperson’s question about the poor financial records.
 
Ms Thezi Mabuza replied that the report deal with 2014/15 but it related to the fact that the 2011/2012 financial records had been stolen so there was a gap in the records of NCC and figures had had to be re-stated correctly. The NCC had had to reconstruct some of the areas by going back to Service Level Agreements to find the correct figures.
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The Commissioner noted that that had been the only question and the other points had been comments or recommendations.
 
Mr October commended the Commissioner on the progress made by the NCC and the attainment of a clean audit. That was a basic requirement. The point raised so articulately by Mr Macpherson, Mr Alberts and Mr Esterhuizen was the request for a more assertive role by the NCC, such as when the NCC had closed down the plant during the listeriosis crisis. The NCC had led the charge with the closing down of that plant. He concurred with the Members, and the Minister had asked them at the quarterly meetings with the entities, to act without fear and favour and to ensure that consumers were protected. The Minister and the DTI expected the NCC to be more assertive and it was aware of that.
 
The Deputy Commissioner thanked the Committee for raising the issue of regulations. The NCC picked up the problem areas as it acted upon the issues. There were conflicts and some of the legislation had not been reviewed on time. She noted that the Commission should be more pro-active and the NCC had found that out as it went along. She knew that the NCC needed to look at the legislation but, she added, that he Goods and Services budget of R 13 million barely covered the needs of the Commission. The timeshare issue had cost R 2 million and the NCC had to go to the DG and say that it did not have the funds to go ahead with the matter. The funding did not allow the Commission to take any of the risks that it should be taking because it could not afford to be taken to court. So, the NCC adhered cautiously to its mandate. On the Kuga matter, she stated that the NCC might seem to be stalling but the entity had asked legal advisors to review the arguments of the NCC on liabilities so that the could a entity could address all areas of compensation. Those were some of the skills lacking in the NCC. She added that the Commission frequently had to approach the DG for funds to do its work. The NCC wanted to be pro-active and hoped to be given the funds to facilitate such an approach.
 
The Chairperson appreciated the frank response because it had been an issue raised repeatedly by Mr Alberts.
 
Mr Alberts appreciated that the Commission was working under extremely challenging conditions. The Minister and DG should be aware of the need for more funds. He appreciated the Deputy Commissioner’s straight forward answers. There was a great unease as there were a lot of unacceptable practices in the business world.
 
Mr Alberts asked about the holiday clubs. The Commissioner had made a statement that there would be an engagement with the industry to cancel contracts, especially those contracts signed by vulnerable persons, such as elderly people. How far was that process as a lot of people were in distress and wanted to see the contracts cancelled as soon as possible?
 
Mr Mahlobo noted that the agenda item was the audit findings, but he agreed that there were bigger issues. He agreed with the need for reports on the Kuga issue and the other big issues, as well as the audit recovery report. He did not want to get into other issues and additional reports would resolve the issues.
 
The Chairperson agreed with Mr Mahlobo. She conveyed the appreciation of the Committee to the NCC.
 
Sugar Industry discussion
The Chairperson had made a reference to a letter from Mr Macpherson at the commencement of the meeting. She noted that the Committee had had numerous engagements with the sugar industry in Parliament and three site visits during which the issue of water had been raised in relation to the drought and the measures offered in that regard. Members of DTI had been present at that meeting. At the last engagement, the provincial Department of Agriculture had promised relief. Although the drought was not as severe as in the Western Cape, there were elements of drought that became apparent at that point.
 
The Chairperson explained that the Committee would not deal with the matter at that time but required a status report from the DG on the sugar industry and the issues that had been raised in respect of the drought and the commitment of the Department of Agriculture in KZN to assist sugar farmers. The Committee would await a status report as to what measures had been taken and not yet communicated to the Committee. That would be put in writing as a formal request to the DG.
 
Mr Macpherson asked the Chairperson when she would want him to speak about the matter. He was concerned that the Chairperson seemed to be outsourcing the matter to the DG.
 
Mr Mahlobo thought that Mr Macpherson should engage with the Committee whips if he wanted the matter taken forward. The letter had been directed to the Chairperson. It was an important matter and the Chairperson needed to discuss with the whips of all parties in the Committee and then she could decide whether she wanted to hold a joint meeting as he had suggested.
 
The Chairperson stated that the request had arisen from a site visit. The matter had already been debated and she believed that the Committee needed the latest information before it could discuss it further. Once she had the information from the Department, she would engage with the whip.
 
Mr Macpherson thanked Mr Mahlobo for the guidance. He took it that a discussion would be held. He asked if, by the end of the week, he would know when a joint Committee meeting would be held. He was unclear about the matter because the Chairperson was conflating her request to the DG with his request for a joint meeting. The information obtained by the DG should be presented to both Committees. It should not be a case of one after the other; it should be both.
 
The Chairperson said that she had not spoken to the whip and usually she contacted the whip if he could not attend Manco (Management Committee). She explained that she did want the information from the DG as she liked to take informed decisions and the information had to be collated and presented before she could state whether there would be a joint meeting. She also did not have time to commit to a meeting, unless she left the meeting at that moment to go and arrange matters.
 
Mr October said that DTI had been actively and extensively engaged and the senior management had visited the site. He committed to providing the report. He agreed that a joint meeting would be a good opportunity to discuss matters.
 
Briefing on DTI’s Third Quarter Report 2018/19
Mr October thanked the Committee for its support and guidance during the third term of the year. He would address the highlights as a detailed Quarterly Report had been attached.
 
He began with the economy. There had been many headwinds and the third Quarter (Q3) had been one of the worst periods of time for the economy. Unemployment was still far too high but in Q3 2018 and South Africa had exited the technical recession, thanks to the manufacturing sector which had grown by over two percent. Unemployment remained the biggest challenge, despite a very, very small decline. Because of the decline in the currency exchange rate, the trade surplus was getting smaller and the trade gap was narrowing. The effect of a currency decline was that import costs, especially of oil, were rising and increasing the trade deficit. One third of exports now went to the continent of Africa. That remained a positive. The declining role of oil in Nigeria and Angola had had a dampening effective on exports. The trade deficit with BRICS countries was widening and the only country where there was a non-deficit in trade was India, but the country as a whole was in deficit.
 
Regarding the performance of DTI, the DG said that growth of the manufacturing sector was an important focus of the Department. Positive developments were the investments in the clothing sector of R 1.3 billion and the Special Economic Zone (SEZ) in Atlantis that was launched in December 2018. Another positive was the new automotive plan which had been adopted by Cabinet and the plan ran until 2025 and had a R 40 billion investment. Ford intended doubling production. The recent gas finds in the Brulpadda area off the coast of Mossel Bay and off Richards Bay were good news and DTI had a gas industrialisation plan which would support the gas industrialisation drive.
 
After a very difficult period, steel, which had been in crisis because of the glut in steel globally, had seen a turn-around and Arcelor-Mittal had made a profit for the first time in a number of years.
 
Other DTI projects included what had been known as call centres and business processing outsourcings but was currently known as global business services had been incentivised and over 200 000 people were employed in the sector. Global business services companies were expanding and employing more people.
Although there had been a slow-down in the economy, incentives had been extended to 179 enterprises, 79 000 jobs were projected and DTI had supported 131 black industrialists with funds, marketing support, etc.
 
In the international area, DTI had successfully engaged with the EU and South Africa had been excluded from the steel tariffs. The work around services and negotiations processes in SADC had been completed. SA had increased investments by 400%. DTI had supported 234 small, medium and micro enterprises (SMMEs) to enter the international market in the quarter. The trade shows had travelled the globe.
 
In addition to the newly established Atlantis SEZ, DTI had completed the Nkomazi Special Economic Zone in Mpumalanga and only the North-West and Northern Cape provinces needed to come onboard. The industrial parks programme continued, and had been mentioned in the State of the Nation Address. DTI had held a third symposium to create a forum for industrial parks and to persuade owners of industrial parks to offer services, etc. The intention was not just to collect rent but to develop the industries and then impose standards on them.
 
Transformation was continuing and DTI was in the second leg of the Industrial Empowerment Programme. The private-led Youth Employment Service was working with DTI which was offering B-BBEE points if a company employed young people, trained them and kept them on for at least 12 months. Additional points were awarded if the youth were permanently employed.
 
There had been activity in the legislative programme and three Bills: the Copyright Amendment Bill, the Performers Protection Bill and National Gambling Amendment Bill had been processed by the National Assembly and were being addressed in the National Council of Provinces.
 
The DG reported on the approval of Beijing and Berne treaties.
 
The DTI was working hard to improve internal capacity. The Department emphasised skills development and the learning academy offered support by sending staff on masters and doctorate courses with an emphasis on women’s empowerment and empowerment of those with disabilities.
 
Regarding the financials, the DG noted that job development was lower than expected and applications for incentives had been lower as companies were only running at 60% capacity, but DTI had engaged with them to prepare them for the upturn. The target was no underspending of the budget. The Department had spent R 6.1 billion, which was 99.1% of the budget in the year to date. InvestSA had played a major role in the conferences, including the job summit, and so spending was high in that division.
 
Discussion
Mr Macpherson asked for an update on the Manufacturing Competitiveness Enhancement Programme (MCEP). What was the long-term view? Was there a 5-year, 10-year and 15-year view? The Youth Employment Service (YES) had apparently not had the desired uptake. The President had had expectations of 300 000 young people being given employment but, to date, only 2 000 young people had been employed. Why? What were the specific reasons for the lack of uptake?
 
Mr Macpherson stated that the industrial parks were his real focus area, but they would not work until there were concessions with provincial and local authorities as market-related rents, and high electricity and water costs would not attract industry to far-flung rural areas. At what point was DTI going to hammer out concessions? Tax incentive would bring people into SEZs but there needed to be a long-term view of the 12i Tax concession. He asked for an update on those matters.
 
Mr Alberts thanked DG for presentation. He appreciated the work done by the DTI, but SA had experienced a stubborn high unemployment rate, at least since 2009. DTI saved jobs but had not made a breakthrough in creating new jobs. SA had one of highest unemployment rates in the world. Logically, it seemed necessary to review the policies and practices of the last 25 years to establish why different approaches had not worked. Were there examples of better practices elsewhere in the world? Mr Macpherson saw potential in SEZs and how they could be re-structured. Money flowed to Mauritius and other countries but not to SA.
 
Mr Alberts was also concerned about a letter reported on in the media. There was some confusion about the status of the letter but the letter from SA’s five biggest trading partners had apparently complained about corruption, Black Economic Empowerment and the intellectual property regime in SA. Did the DG know about the letter? What were the contents of the letter and what were the concerns of the authors? How should SA re-act? He saw a causal relationship between what those five countries saw and what had to be done in SA to create jobs and get people employed. As he had said to the NCC Commissioner, the people were suffering and, as people working in government, he and his colleagues had to be sure that the best possible policies were in place to give people hope.
 
The Chairperson asked for clarity on the letter he was referring to.
 
Mr Alberts replied that it had been reported in the media that it was a joint letter from the US, UK, Germany, Switzerland and another country (the Netherlands), i.e. five of the larger trading partners of SA. The Minister of International Relations and Cooperation, Minister Sisulu, had apparently been upset about the document breaking protocol but it was a working document that was supposed to be part of the discussions between the President and those countries. Those countries had raised concerns regarding governance and policy issues and so forth. He was concerned that those issues might have an effect on foreign investment. He wanted to know if the new Parliament would be looking with fresh eyes at what was being done wrong so that it could be fixed, and what was being done right could be done better. He had to say that people were getting restless and would not wait for Parliament if they did not see solution. They would overtake Parliament.
 
Mr G Cachalia (DA) thanked the DG. He pointed out that the reduction in 4% percentage points in the 3rd Quarter was no more than a seasonal boost in employment in the holiday service industry, but things would get worse. Even the president had said that 5% growth was necessary for unemployment to be reduced. There had been some traction in job creation in the manufacturing sector, but the balance of payments needed significant attention and DTI should revise targets in areas such as the export help desk, if traction had been achieved, as that would need to be pushed.
 
Incentives was one approach, but Mr Cachalia was interested, as was Mr Alberts, in what stood in the way of development, particularly in the light of the letter from the five trading partners. That needed to be addressed as a starting point to make progress.
 
Mr S Mbuyane (ANC) noted that China had been experiencing low growth in the economy and so had come up with a stimulus programme. How would that affect SA? What was the state of the textile industry and what were the major plans for revival of the industry? What were the targeted industries in the Nkomazi SEZ? What would be the job opportunities in Nkomazi and the Atlantis SEZs? In what sector was the Atlantis SEZ seeking investments? Mr Mbuyane asked for an update on the Phuthaditjhaba Industrial Park.
 
Mr Esterhuizen said that it was a much better report than the report received from the Department of Energy, but it had taken the steel industry two years to benefit from the tariff changes. The cheaper prices from the lower tariffs were never filtered downstream and so the whole engineering industry in the country had suffered. Arcelor-Mittal had shed thousands of jobs and China had dumped 100 000 tons of steel in the country, even after the tariff amendments. China would be doing more of that with US bans on Chinese steel. The industrial parks were run by the Chinese and they employed only Chinese and had their own transport. Value was never added. For example, pecan nuts were imported and packed by Chinese. They even used imported salt. The Chinese gained from the benefits of industrial parks and SEZs, but SA derived no benefit at all.
 
Mr Mahlobo stated that the question of the letter by the five Ambassadors had been responded to. It was an old story and those issues had not stopped the President’s investment drive. He thought that the investments were doing well. The conditions, such as legislative framework etc., could be addressed but the embassies had apologised because they had not followed protocol.
 
Mr Mahlobo stated that DTI was doing very well but there would always be an expectation that it could do more. The World Bank showed that there had been a downward trend in terms of the international outlook. He thought that the issues around energy would have an impact and SA would have to review its outlook downwards. The Eskom crisis would impact on the nation for a long time. The energy crisis had to be resolved as a matter of urgency.
 
He added that even in the broader industry framework policy, the Fourth Industrial Revolution would have to be factored in and the country had to be geared to deal with the Fourth Industrial Revolution. It was already here. Opportunities should be grasped but the country also had to have a plan for mitigation of those who were most vulnerable to the change. Policy had to take it into account.
 
Mr Mahlobo noted that climate change was real, and drought and overheating was now common. The DTI had to look at the conditions for growth in a world of climate change and determine the imperatives.
 
He referred to Slide 16 of the presentation which dealt with the SEZs. The necessary approvals had been given which was good as that line of expenditure had been below budget. He did not want the money for SEZs to remain unspent at the end of the year and be returned to the fiscus. Was there going to be an acceleration of actions related to the SEZs?
 
Lastly, Mr Mahlobo turned to the issue of transformation. He said that the DA did not believe in transformation and B-BBEE and had made that a policy statement, but the ANC knew it was an important constitutional matter to address the imbalances of the past. The DTI had to keep an eye on transformation policies. The Committee had met with Transnet the previous day and had found that Transnet had not developed the necessary policies in line with the industrial policies of the country. Transnet had intended to ignore the supply side.
 
Mr Mahlobo stated that DTI also had to keep an eye on the Department of Mineral Resources and the Department of Energy. SA was an oil-importing country, including gas, but now there was a gas field that could be exploited, were there policy positions for the exploitation of as if the work was not done by South Africans? Policy frameworks were important, and DTI had to ensure that the relevant departments had the necessary policies. A Practice Note did not work. Legislative instruments had to be sharp and ready for application.
 
The Chairperson was concerned that ownership of the reported document had not been claimed by the relevant countries. In Committee, the status of documents was very important, otherwise it became a commentary in the media. There were concerns in SA and other countries about the document. The explanation had been that it was a working document. There should be a policy on dealing with documents with no recognised status otherwise the Committee would have to deal with anything and everything. That document and the commentary on it would be left to the realm of the media.
 
Mr Cachalia replied that it was not a question of commenting on everything out there. It was a constructive engagement. His point, along with that of Mr Alberts, was to encourage the DTI to address the impediments that stood in the way of creating jobs. The points made in the letter had previously been raised by the German delegation that had met with the Committee. The Committee needed to take cognisance of those issues and raise them with the DTI. It was in no way political party-related or point scoring, as had been suggested.
 
The Chairperson stated that a document that did not have status could provide commentary, but the document could not form the basis of discussion in a Committee meeting.
 
The Chairperson had heard, in the House the previous day, of the successful investments in the country. It was important to recognise that DTI’s presentation showed that the target of R 4 billion had been attained. DTI had indicated that it was awaiting more figures. She agreed with Members that it was necessary to address the problems of Eskom on manufacturing and industrialisation. She hoped that those concerns would be addressed in the multi-party teams that were working on the issue. She wanted to propose that the idea of staggering manufacturing times through a 24-hour period be considered. That had been put forward by the manufacturing sector and should be considered.
 
Response by DTI
Mr October stated that he would, as per convention, ask the Deputy Director-Generals to respond to the more complex questions and he would respond to the general questions.
 
Ms Malebo Mabitja-Thompson addressed the question of MCEP. MCEP had been developed to address issues of the global market crisis and to help manufacturers to deal with it. Money had been set aside and used for that purpose. DTI was not looking at a repeat of MCEP but had a generic programme for manufacturing dealing with different issues. The problem was now local demand, helping companies to prepare for the Fourth Industrial Revolution, and resource management to address climate change. There would be a generic programme for manufacturers that would even focus on the export market.
 
Ms Malebo Mabitja-Thompson addressed Mr Macpherson’s question about using the 12i tax concession. 12i was over-subscribed and DTI had entered into discussions with National Treasury. 12i had been considered a concession to support SEZs but DTI was looking to include industrial parks in the concessions. DTI wanted to bring investments into fruition as soon as possible and ensuring that innovation technology was localised and maintained and upgraded in SA. A review of 12i had been undertaken and a report had been prepared for SARS.
 
Mr Stephen Hanival, Chief Economist, responded to Mr Mbuyane’s question on China and the textile industry. China’s growth had slowed over the last decade. China was now growing at 6.2% but had previously grown at 6.8% and even 10%. The approach was no longer export-led but focussed on the service industry and growing the consumer market inside China. SA had been aware of the slowing growth of China and had prepared for it but, as SA mostly exported raw products, it would not have much impact on SA.
 
Mr Hanival said that DTI normally reported on the statistics from the clothing industry companies supported by DTI, but StatsSA collected figures from all businesses and had said that 29 000 jobs had been created: 7 000 in footwear and 19 000 in clothing. That was 29 000 jobs over two years. It was not enough, but a significant change in the right direction.
 
Mr Sipho Zikode said that the Nkomazi SEZ was mainly for the agro-processing industry would could find opportunities in the area and even across the border into Mozambique. Atlantis was focussed on green technology and renewable energy. Wind turbine manufacturing and the manufacturing of wind blades would take place in Atlantis.
 
Mr October explained that the annual target of R 4 billion for investment had already been reached, even though the target for investment in the third quarter had not been reached. In fact, investment was currently at R 4.1 billion which exceeded the target set for the year.
 
He agreed that the question of electricity was an important one. DTI needed the support of the Committee on the matter of electricity. Progress in manufacturing had been constrained by an increase in electricity of almost 500% over the past 10 to 15 years, and also by the lack of supply. That was rendering SA’s manufacturing industry uncompetitive. The stimulus package prepared by DTI included cheaper electricity prices. DTI needed to ensure that space was carved out for the manufacturing sector. Strategic industries had to be given cheaper electricity or be given the rights to build their own electricity plants and generate the electricity that they needed. Port and rail charges were excessively high. DTI had been over-relying on incentives to drive development. To succeed, SA needed low cost electricity, low cost transport and low-cost port charges.
 
Mr October told Mr Macpherson said that YES was a private sector initiative that DTI had given B-BBEE support. The changes to B-BBEE had been gazetted. He suggested that, because DTI wanted to encourage the private sector to become involved in growing the economy, the Portfolio Committee could perhaps invite the private companies leading the initiative to a meeting to discuss the involvement of the corporate sector in YES. Investec and Standard Bank were amongst those that had done very well in employing young people but those companies that did not commit to supporting YES should perhaps be named and shamed. DTI had provided very good B-BBEE incentives. One could go up one level up on the scorecard with good involvement in the YES programme.
 
Mr Octoner responded to Mr Alberts’ concerns about high unemployment, which was the biggest issue. Part of the high unemployment problem was SA’s own failure to develop a competitive manufacturing sector because of high import prices, but it was also an historical problem. The economy, despite all the wealth produced in SA, had been stuck in the low-wage low-skill trap. Historically the population had had low-cost employment and there had been no investment in skills for the labour force. 90% of the workers remained impoverished. Adam Smith had said that the biggest growth factor was the size of one’s market and SA, and Africa, had a very small market. Low wages did not promote capitalisation as the workers could not support the market. The country was battling with the poverty of workers. SA needed an unconventional industrial policy i.e. protecting industries by raising tariffs and buying more locally. In 1996, SA had prematurely opened its markets for imports. The way to increase jobs was via export growth, reclaiming the domestic market and lowering transport and electricity costs.
 
The DG noted that the issue of the five ambassadors had been dealt with but, regarding the content of the letter, he could say that the Department had been working with those five countries for the past six to seven months on the issues. None of the issues were controversial. They were generally accepted concerns: the mining charter, political uncertainty, visas and the land issue. The President had dealt decisively with the issues: the mining charter had been resolved, the visa issue was partially resolved, and he had given a guarantee that the land issue with be dealt with constitutionally. The Germans, as SA’s largest investment partners, were fully committed. Swissport had recently had its contract extended. The only problems were with localisation. Because of the corruption, countries that had made investments, had not made any gains. Mr Alberts was right, and DTI would have to focus very specially on the problem of unemployment and take extraordinary measures. DTI was even re-directing the black economic empowerment programme. If companies invested in skills development, that was an equity equivalent on the B-BBEE scorecard.
 
The steel industry had been slow in making progress. There had been industrial decline in the Vaal Triangle, and DTI and the Gauteng provincial government was looking at a revival in that area. An SEZ in the Vaal Triangle was being considered to support the old steel and industrial area.
 
Industrial parks had been started under apartheid by the Taiwanese who had indulged in exploitation of workers, etc. Those industries had not been embedded in the South African economy. DTI had changed the model and demanded full application of labour laws and no Chinese labour could be brought in. Companies now signed 30-year leases as opposed to the footloose approach of the past.
 
Brexit: Rollover Economic Partnership Agreement Negotiations
Mr October informed the Committee that the Minister of Trade and Industry and his British counterpart had declared that the deal had to be completed for signature in early March so that if there was a hard Brexit at the end of March, trade between the Southern African Customs Union, Mozambique and Britain could continue. One or two technical issues were still outstanding, including protection of the citrus industry. Ms Niki Kruger had just returned from negotiations in London and would present the highlights.
 
Ms Kruger referred briefly to the Brexit agreement. The British Cabinet had approved an exit deal with the European Union (EU), but the British Parliament had rejected the deal. That had created a situation where, if the deal could not be reviewed or the period extended, the United Kingdom (UK) would leave the European Union on 29 March 2019 without an agreement. The SACU-EU partnership agreement would no longer apply, and SA would pay full duties instead of the duties applied to most favoured countries. That was the reason for the urgency of the agreement between the UK and Southern African countries. The SADC agreement had to be ratified by Parliament by 29 March 2019 in case the UK left the EU without an agreement. South Africa’s third biggest export to the UK, vehicles, would have to pay 10% customs duties instead of being duty-free. UK took 40% of South Africa agricultural produce and, there too, customs duties of up to 10% would apply.
 
The intention of the Rollover Agreement was to maintain the effects of the existing provisions of the Economic Partnership Agreement (EPA), focusing on technical amendments without necessarily amending the substance of the current agreement, and to avoid trade disruption once the UK left the EU. The UK could not negotiate new provisions other than what was under the EU. In the Agreement, SA would get additional market access to the UK beyond the quotas currently valid for trade with the EU. For example, in dairy and sugar, SA would export an additional 70 000 duty-free tons p.a. and 70 million litre duty-free liquor would be exported to the UK over and above the current quantities sold to the EU. Flower lines were all duty free.
Matters outstanding from the treaty included accumulation, i.e. if a “no-deal” Brexit were to materialise (i.e. no preferential trade arrangement between the UK and the EU), the ability of SA to source input products from the UK for export to the EU and vice versa could be severely compromised. Transitional arrangements would preserve exiting value chains and provide for recognition of EU materials and processing during a three-year transitional period
The Cotonou Agreement is an agreement between the EU and the African, Caribbean and Pacific (ACP) states. The UK will no longer be a party to that agreement post-Brexit. The agreement was being re-negotiated, in any event, as it fell away in 2020.
 
Negotiations to finalise outstanding issues had been held from 4 to 8 February 2019. A final technical meeting would take place on 15 February 2019 and on Monday, 18 February the Ministers would meet to finalise the Agreement. A joint legal scrubbing of the Agreement would be undertaken from 18 to 21 February and the Ministers were expected to sign the Agreement early in March 2019, following which Parliament needed to follow the processes for ratification of a treaty. The Agreement would have to be ratified by the National Assembly before it rose so that it was in place should there be a hard Brexit later that month.
 
The Agreement would enter into force once the UK left the EU and the EU-SADC EPA no longer applied to the UK. At the moment, the presumed date for that to happen was 29 March 2019.
 
Discussion
The Chairperson was concerned about the timing of early March for the signing of the Agreement. She alerted the DTI to the fact that the Agreement would have to be with the Committee by 12 or 13 March 2019 if it were to be ratified before Parliament rose on 20 March 2019.
 
Mr Alberts appreciated the difficulty of making agreements in an uncertain environment. At present, it looked as though it might be a hard Brexit. Was the Agreement that Ms Kruger was working on a better agreement than the EPA? In future, could SA get more out a bilateral arrangement with the UK?
 
Mr Mbuyane noted that the EU Agreement barred member states from signing separate agreements. He understood that Article 50 did not allow member states to sign other agreements. How was SA going to sign an agreement with the UK in March?
 
Mr Mbuyane also asked what would happen to SA exports to the UK that were then on-sold in Europe. Would the rule of origin not apply? How was balance of trade going to be affected by the Agreement?
 
Ms Kruger responded to Mr Alberts. The UK could not negotiate a new agreement while it was part of the EU, but the EU had agreed that the UK could have discussions on roll-over or continuity agreements. The current agreements that the EU had with other countries and groups could be replicated but could not be different. The only advantage for SA was that there were new volumes or TRQs (Trade Rate Quotas) for the UK and those volumes were in addition to the volumes written into the EU Agreement. Changes to the Agreement could be considered after Brexit.
 
Ms Kruger explained that the advantage of having a bilateral relationship with UK was that UK could put in place its own policies and sanitary measures. The EU had to take into account conditions in the entire EU and therefore specific sanitary measures were in place to protect agriculture throughout the EU. For example, sanitary measure were in place for citrus because Spain produced citrus and the trees had to be protected. It cost SA exporters R 1.8 billion to meet the EU sanitary requirements. That might not be needed when exporting only to the UK as the UK did not produce citrus.
 
She added that the rules of origin would be exactly the same. But if the UK left the EU without a trade deal and a company wanted to export a SA product from UK to the EU, that company would pay duties on the product. SA companies would have to decide whether to export goods via the UK or directly to the EU.
 
Ms Kruger informed Members that currently SA had a negative trade balance with the EU but a positive trade balance with the UK. In 2018 it had increased significantly to a positive balance of US$ 1.5 billion, largely due to the export of vehicles and agricultural products.
 
Mr Cachalia asked a broader question beyond the line by line negotiations. The Governor of the Bank of England, Mark Carney, spoke of the dangers of the Chinese slowdown that would knock off 1% off global activity which could encourage countries to turn inward. Because Ms Kruger was close to the negotiations, asked what heher take was on that possibility?
 
Mr Mahlobo asked the DG about the timelines. He appreciated the hard work of the Minister and the team, especially because they were being proactive in dealing with the matter. He hoped that the SA team would find a middle ground for the sticking points, but he was sure that the SA negotiators were hard-nosed and would get the best deal. His concern was that the Agreement would have to go to Cabinet after it had been signed and before it could come to the Committee. DTI should advise the Minister and the Chairperson when it was ready as he was concerned about the date for Parliament to rise.
 
Mr Mbuyane asked about the impact on the regional integration economy. He had earlier asked about the impact on SA, but he was wondering about the impact of the Agreement on the region.
 
Ms Kruger agreed with Mr Cachalia that the current Chinese slowdown was having an impact on the global economy and that countries were more inward-looking, but for many reasons, and not only the Chinese slowdown. The inward-looking approach had made negotiations with SA’s trading partners more difficult, but the UK had said that their own trade policy would be more open and mutually beneficial to its trading partners. Therefore, she did not think the Chinese slowdown would have an impact, but the UK leaving EU would definitely have an impact on SA, especially if the UK left without a trade agreement.
 
Ms Kruger responded to Mr Mbuyane’s question on the impact on regional trade agreements. Many countries in Africa had raised concerns that the economic partnerships that the EU had negotiated had not assisted regional integration. It made the regions more fragmented. The EU had divided the SADC countries into three blocs to sign agreements. Currently agreements could not change because of the UK agreement with the EU and the fragmentation would remain. However, there would be an opportunity to change those agreements once the UK had left the EU. It was important that the UK rolled-over agreements with all African countries or SA would not be able to accumulate with other Africa countries. Ms Kruger believed that that was a very important tool that SA had included in the Agreement.
 
Mr October informed Mr Mahlobo that Cabinet had, within certain parameters, already given approval of the Agreement because it was roll-over agreement. DTI could go straight to Parliament and the Chairperson would be informed. The Ministers wanted to sign it by the first week in March 2019. The negotiations had included all the SACU countries, and all would sign at the same time.
 
Ms Kruger added that all countries did not need to ratify at the same time. The intention was to ratify the Agreement by the time that it would need to be entered into force. If a country had not ratified the Agreement at the time of a hard Brexit, the Agreement would only come into force for that country when the country ratified it.
 
The Chairperson thanked the DG and Ms Kruger and the DTI team.
 
Report of the PC Trade and Industry on the Department of Trade and Industry Second Quarter Report 2018/19
The Chairperson informed the Committee that the report would be adopted the following week and that Members who wished to add anything should inform the staff.
 
Mr Mahlobo said that staff should be given any further submissions by the following day, but he felt that the report had included all substantive issues. The staff had not received any input from Members to date. It was a straight-forward report and the Committee could adopt it on Tuesday.
 
The Chairperson agreed that it was a straight-forward report, but parties had been invited to provide written input. The three parties in the meeting, ANC, DA and FF+, usually submitted comments in writing. The deadline was Thursday afternoon and the final draft would be given to Members on Thursday or Friday.
 
Mr Mahlobo complimented the staff on the document.
 
The Chairperson added that it was a good effort, especially as the researcher was on study leave. She asked the Content Advisor to check the figures in the report.
 
General Committee Business
All minutes had been adopted.
 
Correspondence
The Chairperson informed Members that there had been correspondence from the EU diplomatic community requesting an engagement with the Portfolio Committee on Trade and Industry.
 
The Committee Secretary stated that the letter received from the European diplomatic community had proposed a meeting on 6 February 2019, but the Committee had not been able to meet that request and had proposed 19 February 2019 which, if accepted, would mean an adjustment to the programme. However, he had not yet had a response to the proposal.
 
Ms P Mantashe (ANC) asked if there were specific issues that the European diplomatic community wanted to discuss.
 
The Chairperson stated that the proposal for a meeting was in the context of the EU-SA summit held in November 2018. The EU Commissioner for Trade, Cecilia Malmstrőm, was in the country. It was essentially to engage with the EU and to share thoughts about the summit with them.
 
The Chairperson thanked Members and the DTI for their attendance.
 
Closing remarks
The Chairperson reminded Members that on Tuesday 19 February 2019 from 11:00 to 13:30, there would be a briefing of the Export Credit Insurance Corporation (ECIC) on its third Annual Report.
 
The Budget Speech was on Wednesday, 20 February 2019, and some Members of the Committee had asked for permission to attend the closed session on the budget. The Chairperson explained that people could not just arrive at the session as there was a space challenge. She added that once one went in, one could not come out, but had to go directly to the National Assembly Chamber. There would be no Committee meeting on 20 February 2019.
 
The meeting was adjourned.
 

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