Induction on Broadening Participation including the role of the NEF, IDC & B-BBEE Commission

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Trade, Industry and Competition

17 July 2019
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Meeting Summary

The Department of Trade and Industry gave the Committee an induction on Broadening Participation and highlighted that the Special Economic Zone and Economic Transformation Division of the DTI is responsible for the transformation of the entire economy. Special Economic Zones and Industrial Parks are the two main instruments established to do this with the National Empowerment Fund, Industrial Development Corporation  and B-BBEE Commission playing a role as well.

Special Economic Zones are areas designated for economic activity and are aimed at de-centralising industrialisation. Industrial Parks are areas recognised as catalysts for broader economic and industrial development. The Industrial Parks Revitalisation Programme is based on five phases and aims to take industrialisation to the rural areas and townships. The parks are aimed at attracting investment and job creation. The main challenge to revitalising industrial parks is a lack of funding and a limited budget. A programme for establishing digital hubs in all of the parks is targeted at the youth.

The presentation noted the B-BBEE policy as an instrument to empower black South Africans who are still not participating in the mainstream economy. The vision is to have an inclusive and equal economy that is not racially-based in favour of white South Africans. The B-BBEE Act was amended in 2013 to ensure that other legislation and policy instruments are aligned to it. There is now a clause within the Act that requires other legislation to be amended if it frustrates and does not align to the Act. The B-BBEE Commission was established to oversee, supervise and promote adherence to the Act. The Commission deals with cases of non-compliance where there is circumvention or fronting. Fronting is criminalised in the Act and the Commission is empowered to investigate and prosecute it. The Commission ensures there is proper monitoring, reporting and evaluation of B-BBEE transactions that are either on or above the threshold of R25 million. The Youth Employment Service initiative contains incentives for companies to participate in the policy. 18 000 jobs have been created since the implementation of the initiative.

The Black Industrialist Policy is an intervention to assist black people with access to funding, markets and technical support. The focus is on supporting businesses that are owned, managed and controlled by black people. The funding model includes incentives and loans to support black people to acquire machinery and assets so that their businesses can become globally competitive. The loans come from the National Empowerment Fund, the Industrial Development Corporation, the Sector Education and Training Authorities and the Land Bank. Commercial banks have also been supportive in co-funding projects. Unlike the Industrial Development Corporation, the National Empowerment Fund covers all sectors and its mandate is not limited to the industrialisation sector. The Department provides a grant of up to 50% of the project value. Over the last three years, the Department has supported 139 Black Industrialists and hopes to reach a target of 400 in the next five years.

Members were concerned about the role of women and youth in the transformation of the economy and asked how these designated groups were being empowered. How are the Special Economic Zones creating jobs for the youth? Members asked what criteria are being used to create Special Economic Zones and how are they assisting historically disadvantaged communities. Members were concerned that the designated and proposed Special Economic Zones were not building capacity and allowing communities to boost themselves. Members asked how the B-BBEE Commission is dealing with the challenges in delivering its mandate and whether it plays a role in ensuring good governance and transparency in the approval of applications. Members asked what penalties are being imposed on companies who do not comply with the B-BBEE policy. Members asked if the Industrial Parks Revitalisation Programme had to be followed strictly in the order of the five phases. Members asked for the exact amount spent on these parks and what support the provincial and local governments give to the parks.


Meeting report

Broadening Participation: briefing by Department of Trade and Industry
Mr Takalani Tambani, Acting Deputy Director-General: Special Economic Zone & Economic Transformation: DTI, said the presentation provides a high-level overview of the Special Economic Zones (SEZs) and Economic Transformation Division of the DTI. The DTI has about nine divisions and this is one of them. It is mainly responsible for the transformation of the entire economy. Regional industrial development is key to this. The two main instruments are the Industrial Parks and SEZs. In rural areas, support is given to small business development. Infrastructure in key regions is important to ensure that small businesses can thrive. The focus is on targeting rural areas and townships to provide an enabling environment for the development of Black Industrialists in the productive sectors. Support is also provided to the youth through incubation.

Ms Stieneke Jensma, Chief Director: Regional Industrial Development: DTI, said SEZs are geographic areas designated for economic activity and supported through special measures. A number of zones have been promulgated and there are incentives that the zones benefit from. The aim is to further regional development and to de-centralise industrialisation. Support is given for infrastructure development within the zones. A table was provided of the existing SEZs, the province in which they are, date of designation and their focus as well as a second table on proposed SEZs. One of the designated SEZs is called Musina-Makhado and is aimed at being the biggest zone. It is at a strategic point close to Zimbabwe and allows easy access to Mozambique. Nkomazi is also very close to the Mozambique border and has just been promulgated in 2019. Of the proposed SEZs, Harrismith is positioned well to do logistics because there is a lot of trucking business going from Kwa-Zulu Natal to Gauteng. Mogwase is very close to Sun City and was an old industrial park which was revitalised before it became a SEZ.

Ms Jensma said the Industrial Parks Revitalisation Programme (IPRP) was initiated in 2015/16. The parks were all established before 1994 and are all state owned and managed by agencies of the provincial governments. Very few are managed by municipalities. These parks are recognised as catalysts for broader economic and industrial development. Incentives were removed after 1994 and lots of companies left these areas. The IPRP - aimed at taking industrialisation to the rural areas and townships - is focused on physical infrastructure and other support measures to enhance industrialisation. It is also aimed at promoting investment and job creation.

The DTI did not have adequate funding so it took a five-phase approach (see document) in its implementation programme. People were leaving these areas because of the high crime rate so security is the first phase that has to be attended to. Eleven parks have completed Phase 1.

Phase 3 requires the support of district municipalities to construct new and existing road work. Over 65 000 jobs were retained in the first 12 parks which were revitalized such as Isithebe. The DTI cannot let the parks deteriorate otherwise there would be a loss of jobs. Every single one of the 11 parks which have completed Phase 1 are based within townships. Five additional parks have been scoped for Phase 1 but the limiting factor is the budget as they still need to be funded. Garankuwa is owned by the North West province but it falls within the Limpopo province. The Resource Efficiency and Cleaner Production Programme has been introduced and is being piloted in Ekandustria. The idea is to ensure DTI is efficient in terms of energy usage while the areas are being revitalised. A programme for establishing digital hubs in all of the parks is targeted at the youth.

Mr Jacob Maphutha, Chief Director: Broad-Based Black Economic Empowerment: DTI, said creating social cohesion is only possible if all South Africans enjoy the benefits of what this country has to offer. The B-BBEE policy is an instrument to empower black South Africans who are still not participating in the mainstream economy. The vision of the National Development Plan (NDP) is to have an economy that is inclusive where all South Africans are participating and using their abilities to contribute to building the country. The statistics indicate that inequality and economic participation is still racially-based. The policy is an instrument relevant to close the gap and create one equal economy. The policy relies upon partnerships, whether its government, business, society, legislators and workers. Its success depends on everyone working together towards a common vision.

Mr Maphutha said the role of government is to ensure there is a conducive environment where all social partners can use the instrument to advance different sectors of the economy. It is not only from a moral point of view or business imperative but it is constitutionally mandated. In 2003, the first B-BBEE Act was passed. In 2007, the Codes of Good Practice was passed as secondary legislation that requires entities in private and public sectors to implement the policy. In 2013, there was a process to amend the entire legislation. One of the key reasons was to ensure the proper alignment of primary legislation and other key legislation across government. There were many policy instruments used across government that were not aligned to it so it was decided that the legislation must be overarching. There is a clause within the Act that stipulates other legislation must be amended to align with it.

Mr Maphutha said the establishment of the B-BBEE Commission is to monitor and evaluate the B-BBEE policy. It deals with non-compliance and fronting where companies have practices that seek to undermine the policy itself. Fronting had to be criminalised in the primary legislation and powers were given to the Commission to deal with the investigation and prosecution of it. The key objective of the policy is to promote economic empowerment. The Equity Equivalent Investment Programme (EEIP) is aimed at allowing multinational companies (MNCs) to sell equity. The Youth Employment Service (YES) initiative contains incentives, including a B-BBEE qualification, to encourage companies to participate in it. 18 000 job opportunities have been created to date since the implementation of the YES initiative in November 2018.

Mr Tambani said the Black Industrialist Policy (BLP) was approved by Cabinet in 2015 based on the outcome of the 2013 review of the B-BBEE policy. Very few black people have access to funding, markets and technical support and the BLP is a new programme to assist black people with this. This will be done by expanding the industrial base and supporting established manufacturing businesses owned by black people to become globally competitive. The focus is on ownership, management and control of businesses by black people. Black people are defined in the Act as Africans, Coloureds and Indians. The funding model includes incentives and loans to support black people to acquire machinery and other assets to participate in the manufacturing sectors of the economy. The loans come from the National Empowerment Fund (NEF), Industrial Development Corporation (IDC), Sector Education and Training Authorities (SETAs) and the Land Bank.

Mr Tambani said the DTI provides a grant as a form of funding. Up to 50% of the project value is funded and the grant is non-refundable. The grant recipient pays back the 50% balance to the bank. On the challenge of access to funding, a committee meets on a monthly basis to look at proposals from all of the provinces. The committee is made up of members from the DTI, NEF, IDC and others. If proposals are economically feasible they will be supported. Commercial banks often co-fund projects. The focus is on companies owned by black people in manufacturing sectors who manufacture products being sold in the economy. The sectors range from aviation to building of ships to automotive. Support is given to a potential request from any of these sectors to enhance and increase participation of black people in the economy. On access to technical support, institutions within government such as the South African Bureau of Standards (SABS) provide support. The DTI works very closely with SABS. Over the past 3 years, the DTI has supported 139 Black Industrialists. The DTI hopes to target around 400 in the next five years.

Mr Maphutha said the B-BBEE Commission addresses the need for having an institution to monitor black empowerment. Its main function is to ensure the proper monitoring, reporting and evaluation of investments made in the implementation of the B-BBEE policy. It ensures there is a process to deal with circumvention or fronting so that those who try to frustrate the policy are prosecuted. Its functions are to oversee, supervise and promote adherence with the B-BBEE Act. It also registers major B-BBEE transactions with a minimum threshold figure of R25 million. All transactions above this figure must be registered with the Commission. The Commission will interrogate if there is non-compliance and will provide feedback to those entities to ensure they become compliant.

Mr Maphutha said the Commission tracks transactions to see if they are empowering women, workers and other designated groups so that it can inform policy direction. Up to date data is needed to do this. In the media, there were some transactions which were declared non-compliant by the Commission. Those companies had to provide proof to the Commission. As a result, the Commission plays a critical role to ensure there is general compliance in line with the legislation. The Commission reports annually and has been doing so for the past three years. The NEF was established in 1998 to promote access to finance for black start-up businesses including those in the informal business sector. It is an institution created to ensure there is finance available that is affordable for the policy to be implemented. It does not only focus on industrialisation but covers all sectors. It will fund any sector as long as there is empowerment. Unlike the NEF, the IDC mandate is focused on industrialisation.

The Chairperson said the biggest programme for the country must focus on women and unemployed youth. By focusing on these designated groups, it will contribute to making a huge difference. Spaza shops must also be addressed. This issue changes the environment of what we understand as the township economy. How can we make sense of the township and rural economy? On social integration, the presentation raised a point about the high crime rates not in the sense of injuring others but rather people scavenging and trying to survive. Young men do not care about the environment but only what they will eat for the day. The loss of jobs and where the economy is being negatively affected must be looked into.

Ms J Hermans (ANC) spoke about gender equity. To what extent do the measures put in place to grow the economy empower women? It is important to report on the youth but also women. On SEZs, how are jobs being created from them? Is there anything more the DTI can be doing to employ the youth? How can the number of employed youth be increased? The grant of 50% is quite high for Black Industrialists. What is the current status of the number of grant recipients? Why is the uptake not higher? What are the impediments preventing people from taking the grant? Does the B-BBEE Commission assist with applications about good governance? What are the challenges the Commission is facing in delivering its mandate?

Ms P Mantashe (ANC) said the biggest challenge is to transform the rural economy. Is it compulsory to run the Industrial Parks revitalisation programme according to the set phases? It cannot be a one size fits all approach because the parks are all at different levels. Some have bad roads and some need an electricity supply. The ones with bad roads hinder investment opportunities and this defeats what the parks are trying to achieve. Is it compulsory to do the revitalisation strictly in the order of the set phases? On B-BBEE policy, Ms Mantashe said that there was an article about the non-compliance of MTN. What penalties have you imposed on MTN? Even where companies say they will comply there should be penalties to stop this non-compliance. Is it true that MNCs are not taxed but South African companies are? MNCs should be taxed so we can increase the pool of funds for the development of small businesses.

Ms N Motaung (ANC) asked how funding is spread between the rural and urban areas? How does the B-BBEE Commission play a role in ensuring good governance and transparency in the approval of applications? There may be situations where a person in a company represents black empowerment but is not benefiting in accordance with the policy. Does the DTI have a way to assess or audit this?

Mr S Mbuyane (ANC) said the presentation highlights that one of the objectives of the SEZ & ET division is to create an enabling environment for the development of Black Industrialists in the productive sectors. How are historically disadvantaged communities being assisted? What criteria are used to establish SEZs? They are being constructed in towns where people cannot access them because they stay in the rural areas. How do you reconcile the President’s State of the Nation Address (SONA) and the B-BBEE policy? On the listing the B-BBEE Commission according to the PFMA schedules, how far are you? The B-BBEE Commission must be listed so that it is independent from the DTI. Are the challenges the Commission faces linked to it not being listed yet? On non-compliance with the Act, does the matter get referred to the Competition Commission and it determines how much is paid?

Ms R Moatshe (ANC) said there are adverse implications derived from non-compliant companies. Is the B-BBEE Commission experiencing challenges in ensuring the fulfillment of its mandate? What is the percentage of people empowered in terms of the B-BBEE policy?

Mr D Macpherson (DA) said there is an extraordinary amount of money being spent on Industrial Parks but the presentation does not stipulate the amount. How much is spent on them to date? The presentation highlights the advantages of SEZs but with Industrial Parks there are no such incentives, investment promotions or assistance from the provincial and local governments. If that has changed what are the support measures in place for the Industrial Parks? When is the DTI going to present a business plan and agreements with local and provincial governments on financial packages for the parks? Which major companies have invested in these parks? The presentation says that Industrial Parks revitalisation has retained 65 000 jobs. Were they ever going to be lost in the first place? The businesses in those parks have always existed. Which companies were going to leave those parks and how many jobs were going to be lost? On MNCs, the EEIP was implemented because MNCs refused to participate in equity sales. DTI invented an opt-out exclusion for them and has now created a parallel system. On the one hand, MNCs have one set of rights and on the other hand South African companies have one set of rights. This leads to a problem where South African companies may move its domicile to an offshore based company and demand the same rights as a MNC. Why did the DTI embark down this road? What other companies is it targeting with the EEIP?

Mr Macpherson said the presentation highlights that the B-BBEE policy is mutually beneficial and assists in creating social cohesion but this view has changed dramatically in South Africa. It is seen as a cost inflation and rent-seeking patronage network. This will be made evident in the B-BBEE Commission where he submitted a complaint to. He does not think its advancing social cohesion. It is a narrow-based programme and must be rethought. Is it achieving the objectives of when it was first created? He knows of a scheme that exists where people who receive preferential equity opportunities in business under the guise of empowerment are able to advance those shares to people to lend them money. Big business opportunities go to that individual. The business that did the B-BBEE transaction is no longer compliant and has to do another transaction to become compliant. It is outrageous that this is allowed to happen.

The Chairperson said that questions must relate to the presentation. Members can work together on the issues raised outside of the presentation. The DTI officials will not be able to help on these questions.

Mr Macpherson replied the statement that the B-BBEE policy is fostering social cohesion is not a factually true statement. The business issues that are taking place show this.

Mr M Cuthbert (DA) said that Ekandustria is being managed by external provinces and this operates like a Bantustan. Is there a reason for that? For the OR Tambo SEZ, there is a master plan which speaks of medical technology being incorporated into the SEZ. Has this been made known to you? Have the intentions of the municipality been made known to you?

Ms Y Yako (EFF) said the designated and proposed SEZs are not centered on building capacity, creating jobs, building the industry and making sure communities can boost themselves. A lot of people are migrating from the Eastern Cape to the Western Cape. There is an inequality in the provinces. Why is there not a SEZ in King Williams Town? An economic hub should be created in King Williams Town so people do not migrate because they have no jobs or education. This generation needs to sustain itself and have a future to create its own economy and sustainability.

Ms Hermans noted the SEZs in the Western Cape. Is the second SEZ an extension of the first one or is it also in Atlantis? There are other areas like Phillipi which has an industrial area. How do you interface and what support do you get from municipalities and provinces once a decision is taken to establish a SEZ? All spheres of government must be on the same page as far as job creation and economic upliftment is concerned.

The Chairperson referred to the 65 000 jobs retained and asked what categories and types of jobs are they? On the IPRP, do you have the cooperation of municipalities?

Ms Mantashe said the mandate of the ANC is to have the B-BBEE policy as it stands because it is trying to transform the economy. The policy will be defended and no one will change it. It has not finished what it was supposed to do hence the B-BBEE Commission was established. The DTI must not be threatened by traitors of black people.

DTI response
Ms Jensma replied the IPRP is not strict with the order of the phases. The phase approach aims to start with security but it is not cast in stone. There are some parks that started with the waste water treatment plant such as Ekandustria and the fencing could not be done at the same time. In Kwa-Zulu Natal, DTI started with the roofs because they were leaking and causing a health hazard. It did not start with security. In Vulindlela, the roads are the biggest problem and this has been incorporated into Phase 2. DTI has collaborated with the local municipalities in Vulindlela and the main streets have been tarred as a result of the collaboration. DTI is moving onto regulatory requirements now such as electricity supply. On the creation of jobs in SEZs, most of them are new areas. New investments are coming into the country and this is how jobs have been created. The money spent on the industrial parks is way below the need that is there. DTI has spent just over R500 million and much more than that is needed.

Ms Jensma replied now that the roofs and infrastructure have been dealt with, a process of investment promotion has started. The incentives and investment promotion were not prioritised as revitalisation is the core issue. DTI is looking at bringing the incentives in the SEZs into the industrial parks. On the agreements with municipalities and provinces, provinces own the parks so there was no way DTI could have started without an agreement with them. The provinces invest in them and there is a collaboration with the municipalities. On the companies that were going to leave, there were a number of them such as Twizza and Supreme Chicken which supplies Nandos and KFC. Supreme Chicken had been talking about their intention to leave the park but when they saw an interest to maintain it they decided to stay. On job creation and categories, manufacturing offers a large number of jobs across all levels. These range from engineering jobs to blue collar jobs. There are statistics from the parks indicating the number of people who are employed.

Ms Jensma replied there are ongoing discussions about the management of the parks. The Department of Cooperative Governance and Traditional Affairs is involved in these discussions and they are at an advanced level. DTI has intervened in revitalisation without waiting for that process to be finalised. On the OR Tambo SEZ and the intention to include other sectors, this has been made known to DTI. DTI supports investment in this SEZ. On SEZs not being where the people are, DTI has tried to be inclusive and the process of bringing them forth has actually come from the provinces. The SEZs are done in collaboration with the provinces. King Williams Town is highly populated and the SEZs are aimed to be tools of decentralisation. Atlantis was promulgated late last year and it is the same SEZ. On the support from municipalities in the promulgation of SEZs, SEZs are proposed by the provinces and managed through the provinces. DTI supports these initiatives with the provinces. Municipalities do cooperate with DTI. The town planning provided from the municipality plays a key role in the revitalisation process.

Ms Mantashe said the presentation does not indicate how DTI is supporting Dimbaza. It is totally neglected and there is no mention of the economy of the townships in this area.

Ms Jensma replied the IPRP is comprehensive and includes this area.

The Chairperson replied that Ms Mantashe raised a constituency question and DTI may be able to share more information on it later.

Mr Maphutha replied the major challenge for the B-BBEE Commission is the fact that it is not listed. As a result of non-listing, it cannot do certain functions quicker. The function of listing public entities lies with National Treasury. DTI is engaging with the Treasury on this. The main issue Treasury raises is the clause in the Act which does not allow Treasury to list the Commission. A process of amending the clause in the Act has commenced so that the Commission can be listed and able to execute its mandate efficiently. The Commission is doing a steady job so far. It deals with fronting practices and non-compliant issues. The Commission will be able to provide members with a list of entities they have dealt with. All companies pay tax regardless of whether it is a local or international company but for B-BBEE compliance, the differentiation lies in ownership of the company. Many multinational companies have global policies in place restricting the level of ownership and control that can be transferred to local parties. Other companies have been able to sell equity. As a replacement for those companies not being able to sell equity, they must comply by spending at least 25% of operational costs by investing in skills development for black people. It is not that they refuse, it is because they have a global policy not to sell equity outside their country of origin. South African companies comply with the equity ownership element.

Mr Maphutha replied the B-BBEE Commission is able to investigate any kind of fronting, frustration or tokenism. There is no limit. The Commission proactively does its own investigation process or any case can be submitted to the Commission to trigger the process of investigation. The Commission was established precisely to deal with non-compliance in both the private and public sector. The Commission’s Annual Report will highlight the level of compliance in both sectors. The B-BBEE policy contributes to addressing the challenges of employment, poverty reduction and skills within the economy. The level of employment and level of compliance by companies have both improved. Through the policy, at least 3000 jobs have been created. What is lacking is the ability to give statistics, data and trends over the past years. From next year and moving forward, this will be done. The current reports are fragmented so moving forward the report on the B-BBEE policy will not only show compliance but also the impact on job creation, poverty and employment.

Mr Tambani replied there is an Industrial Park in the Free State where a company employs 90% women only. The company manufactures stoves to Macro and Game. The company invested in the park. Another company invested R3 million in the park. As a result, local people will be employed. This principle is applicable across all of the parks. On the uptake of Black Industrialists, the grant targets large industrial projects. This means it will have at least a R30 million projected value including capital, factories and machinery. Cabinet took a decision to distinguish between small and large projects. If the project is below the threshold of R30 million, the request for funding is not wholly rejected. DTI interacts and has a working relationship with other government partners to support Black Industrialists. The project will be referred elsewhere, but once it is large enough it will be able to apply for the grant. DTI provides support and guidance. DTI works closely with the provincial governments to ensure there is a pipeline for Black Industrialists. There is a clear programme of action with provincial governments. Provinces and municipalities play an important role in ensuring this. In Kwa-Zulu Natal, the Growth Fund plays an important role in providing financial support. Out of the 139, 30 of the Black Industrialists come from Kwa-Zulu Natal. There are 10 who come from Mpumalanga. DTI encourages women and the youth to also participate in those projects. Specific agencies will present a detailed briefing to members on this.

Mr Mbuyane said there is a battle between Mpumalanga and Gauteng on where Ekandustria belongs. Where is the process on this? Is Nkomazi a new SEZ or is it a proposed one? Can members be provided with numbers so that they are able to check and monitor the progress. Other provinces are not aware of the Black Industrialist programme. There needs to an educational programme to talk to other provinces about it.

The Chairperson said DTI reply in writing to the questions raised and submit them to the Committee Secretariat. It is an induction by DTI so some questions do not need to be raised at this point. The Committee hopes to see the impact of what DTI can do to address implementation and challenges.

The meeting was adjourned.


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