Department of Trade and Industry 2019/20 Annual Performance Plan

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Meeting Summary

Both Deputy Ministers were released from the meeting after opening remarks as they were needed in the National Assembly where the Appropriation Bill was being dealt with. The Ministry’s message was that DTI was encouraging inclusive growth to respond to unemployment, poverty and inequality in South Africa.

The Department of Trade and Industry (DTI) noted that the 2019 State of the Nation Address (SONA) vision was to have a “reimagined” industrial strategy for SA. SA’s manufacturing sector was at the heart of its growth strategy. Comparisons were drawn between SA’s manufacturing sector and other economies around the globe. For SA one of the largest cost inputs for manufacturing was electricity. There was a need to drive down the cost of doing business in SA. The good news was that SA had increased trade with the rest of the world. The Committee was comprehensively briefed on key planned interventions for 2019/20 with a total budget of R10.1 billion. The DTI said that it drove critical programmes and a plea was made to the Committee that t needed greater resources. The Committee’s support in lobbying a greater budget allocation was sought.

Members were concerned about the negative perceptions about SA being fed to potential investors abroad and complained that SA’s embassies were not pushing the country’s economic agenda as they should. DTI was urged to work more closely with the Department of Higher Education and Training to solve the skills shortages especially amongst the youth. One could not grow the economy without skilled youth. DTI was asked what it was doing to attract investors to SA. Concern was raised about South Africans being hugely in debt due to loans. DTI was asked to address urgently the maladministration at the National Lotteries Commission.

Members appreciated the opportunities that Special Economic Zones (SEZs) were bringing to areas but felt that in some instances the SEZs required some reconfiguration. DTI was asked how many SEZ applications had been received from provinces and the status of those applications. Members were concerned about the under capitalisation of the National Empowerment Fund (NEF) and asked this DTI entity would be assisted. Members requested an update on the state of the South African Bureau of Standards (SABS) and the Committee was told that SABS was under administration and being rebuilt. DTI was asked how many black companies had been assisted by DTI in the past year. Members suggested a National Economic Development Labour Council (NEDLAC) process to deal with the scourge of gangsterism in SA. It was a problem that had permeated all areas of SA. Members asked how Brexit would affect South African companies since the UK was a major trading partner of SA.

The Committee adopted its Report on the Trade and Industry Budget Vote.
 

Meeting report

Opening remarks by Deputy Minister of Trade and Industry and Economic Development
Trade and Industry Deputy Ministers, Gina Nomalungelo and Fikile Majola, were present briefly.

Deputy Minister Gina Nomalungelo apologised for requesting that Deputy Minister Majola and she be excused from the meeting as they were needed in the National Assembly where the Appropriation Bill was being dealt with. Both would have liked to have taken part in discussion with the Committee of the DTI APP. By no means was the National Assembly being prioritised over the NCOP Committee.

Deputy Minister Nomalungelo said that essentially the main message was that DTI was encouraging inclusive growth in South Africa. The challenge was how to respond to unemployment, poverty and inequality in South Africa. Inclusive economic growth was what was needed.

The Chairperson responded that the Committee understood that the National Assembly was dealing with the Appropriation Bill at present and released the Deputy Ministers from the meeting.
 
Department of Trade and Industry (DTI) on its Annual Performance Plan (APP) 2019/20
Mr Lionel October, DTI Director General, stated that the 2019 State of the Nation Address (SONA) vision was to have a “reimagined” industrial strategy for SA. The manufacturing sector was at the heart of its growth strategy. During the first quarter of 2019 SA had gone through a technical recession. The efforts of DTI were to facilitate growth. Background was provided on global economics and GDP growth by sector and by province in SA. Comparisons were also drawn between SA’s manufacturing sector and other economies around the globe. For SA one of the largest cost inputs for manufacturing was electricity. There was a need to drive down the cost of doing business in SA. The good news was that SA had increased trade with the rest of the world. Imports and exports with the world totalled R2.5 trillion.SA had a positive trade balance for the past two years.

An overview was given of key planned interventions for 2019/20. To transform the economy and promote industrial development, the plan was to grow the manufacturing sector. The value of projected investment leveraged was R18 billion and the projected number of new jobs and retained jobs from approved enterprises and projects was 18 000. The projected number of enterprises/projects approved for financial support across all incentives was 900.

For trade, investment and exports, the plan was to build mutually beneficial regional and global relations. For 2019/20 the intention was to have six status reports produced on progress for the Tripartite Free Trade Agreement (TFTA) and the Continental Free Trade Area (CFTA). There should also be two reports on the implementation of the SADC-EU Economic Partnership Agreement (EPA). There were a number of planned provincial workshops on export awareness that DTI intended to host. Invest SA had rolled out one-stop shops at the DTI Campus in Pretoria, KwaZulu-Natal, Gauteng and the Western Cape. For 2019/20 three more one-stop shops would be rolled out in the Eastern Cape, Limpopo and Northern Cape.

For Special Economic Zones (SEZs) and economic transformation, the plan was to have one SEZ submitted to the Minister of Trade and Industry for designation and to have two implementation reports on Industrial Parks submitted to the Minister. DTI would also have 80 interventions to provide non-financial support to black industrialists. Black industrialists were experiencing problems with market access. A breakdown was given of SEZs and Industrial Parks across the provinces. A provincial overview was also provided on projected investments and jobs created.

Legislation and regulation plans for 2019/20 were to develop a Socio-Economic Impact Assessment System (SEIAS) report on the Companies Amendment Bill for the Minister’s approval and four progress reports on the development of the Companies Amendment Bill for the Minister’s approval.

DTI Administration targets for 2019/20 was 50% women in Senior Management Service (SMS) positions and at least 3.7% DTI staff complement being people with disabilities. DTI paid creditors within the required 30 days but the target was to make payment within 15 days of receipt of invoice.

The DTI total budget for 2019/20 was R10.1 billion. Mr October stressed that DTI drove critical programmes and that greater resources were needed. The Director General asked for the Committee’s support in lobbying for a greater allocation to the DTI budget vote. In conclusion Mr October pointed out that DTI always managed to secure a clean audit from the Auditor General.

Discussion
Mr M Dangor (ANC, Gauteng) was pleased that a DTI focus areas was about how to get investment into SA. President Ramaphosa had said in his 2019 State of the Nation Address (SONA) that there were challenges to get investment into SA. One of the major challenges identified was the perceptions being given abroad by persons in SA. He asked what had happened to the economic officers stationed at embassies abroad. There were very few left at embassies. Embassies were not pushing the economic agenda of SA as they should. It was important to get economic officers back into the embassies.

Mr October agreed that the biggest driver for growth was investment. Economic diplomacy was key and Minister of Trade and Industry Ebrahim Patel was doing a great deal of work on it. So too was DTI. He conceded that negative perceptions abroad of SA were the biggest problem. The perception however changed when businesses decided to invest in SA and operated in SA. It was not as bad as it was made out to be. President Ramaphosa had set a target of attracting investment to the tune of R1 trillion to SA. Presidential envoys had even been appointed. By November 2019 feedback on efforts was expected.

Ms H Boshoff (DA, Mpumalanga) said that unemployment in SA was a huge problem but felt that a lack of skills was another. She urged DTI to work with the Department of Higher Education and Training. There were 20 million youth in SA who were unemployed. There was no way to grow the economy of SA if its youth was not skilled. SA needed to foster a business climate within its borders. Imports and exports should also be increased. She pointed out that the Western Cape Province had managed to attract R500m in investment. A total of 520 jobs had been created. Lessons should be learnt from this. Other provinces should try to replicate the success story of the Western Cape. She asked DTI what was being done to try to attract investors. Another challenge that needed to be looked at was for South Africans to bring down their loan debt. The Minister of Finance had stated that R1.2bn in loans was being taken out per day. She felt that the maladministration of the National Lotteries Commission had to be addressed urgently. Its employees should bear the consequences of their actions. President Ramaphosa was adamant that corruption would not be tolerated. DTI had in its briefing spoke about addressing inequality and eradicating types of slave labour. She was concerned that if certain employers were exempted from paying the minimum wage, what was to stop them from taking advantage of workers.

Mr October agreed that the key problem in SA was its high unemployment rate of over 25%. The intention was to expand DTI’s relationship with the Department of Higher Education and Training. He confirmed that DTI did access funding from the National Skills Fund. DTI had placed 1000 graduates with companies. DTI had a skills unit in place. He too agreed that debt was the biggest constraint to growth. South Africans were constricted by debt.

On the Western Cape Province attracting investment, Mr October replied that DTI had worked with the province. All the Western Cape investments had received DTI incentives. DTI also worked with other provinces like the Eastern Cape and KwaZulu-Natal on investments. The approach should be to cover the entire SA. There were good investment practices across the provinces.

Mr October stated that DTI had initiated a forensic investigation into the National Lotteries Commission. DTI had zero tolerance for fraud and corruption.

Mr October explained that minimum wage exemptions were applicable for small businesses such as clothing and textile businesses that had twenty or fewer employees. When he had made reference to hundreds of years of low wages he was referring to the exploitation of workers such as farm workers. If wages grew, then countries grew. For instance in Europe and China when wages increased, then the countries grew. Every country had a minimum wage. Small businesses had to be given some leeway.

Mr Sipho Zikode, DTI Deputy Director General: Special Economic Zones and Economic Transformation Division, replied that three programmes supported unemployed youth. DTI did receive funds from the Skills Fund. There was for instance the Youth Employment Services Programme where DTI offered companies B-BBEE points if they employed unemployed youth. Thus far 20 000 youth had been taken on board. Other programmes offered youth training. The intention was to amend the DTI APP to have 37 digital hubs training unemployed youth. The target over three years was to have 100 digital hubs.

Mr M Mmoiemang (ANC, Northern Cape) remarked that the exemption from paying the minimum wage was more so to lessen the burden on Small, Medium and Micro Enterprises (SMMEs). He was appreciative of the fact that there was a Special Economic Zone (SEZ) in Upington in the Northern Cape but felt that it should be extended to other areas of potential as well. SEZs should be reconfigured. He was concerned about the National Empowerment Fund (NEF) struggling. He noted that the Broad Based Black Economic Empowerment (B-BBEE) Commission wished to be independent instead of being a DTI entity. What was happening with the South African Bureau of Standards (SABS)?

Mr October explained that the focus of the SEZ in Upington was on renewable energy but unfortunately progress was slow. DTI had come up with a new concept for SEZs called multiple zones. The Upington SEZ would consequently be extended and would be broader. He replied that SABS had been placed under administration. SABS in a manner of speaking was being rebuilt.

Mr Zikode added that the DTI APP would be further amended to include the new extended SEZ in Upington. There was also an automobile SEZ in Tshwane. Legislation had been amended to allow for the conversion of Industrial Parks to SEZs. There were five new SEZs in the pipeline.

Ms B Mathevula (EFF, Limpopo) asked DTI how many black companies it had assisted in the past year. She pointed out that water rights was a problem in SA and asked what DTI was doing about it.

Mr October replied that DTI did focus on black companies. There was the Black Industrialists Programme in place. DTI had supported 139 black industrialists over the past three years. Access to finance was no longer such a big issue but access to markets was. To get around this DTI had to look at options. The one was inter-company trade which was a huge market. DTI tried its utmost to create partnerships amongst black industrialists. DTI also made an effort to expose black industrialists to global markets.

The Chairperson said that in the Fifth Parliament the NEF had complained about its capitalisation. There was at one point a Memorandum of Understanding (MOU) between the Economic Development Department (EDD) and DTI. What was the status of the MOU? He asked how the NEF as a DTI entity would be assisted. He noted there were many applications for SEZs from provinces to DTI. How many applications were there from provinces and what was the status of those applications?

Mr October replied that the Chairperson was correct about the NEF being under-capitalised. It had not been receiving funds from government for ten years. The best course of action was to merge the NEF with the Industrial Development Corporation (IDC). The NEF would become a subsidiary of the IDC.

Mr October pointed out that the Eastern Cape Province had been the most successful with SEZs. The start on a third SEZ in the Eastern Cape was imminent.

Mr Dangor suggested a NEDLAC type of process to convene civil society, departments and relevant stakeholders to deal with gangsterism in SA. Gangsterism was after all everyone’s problem. It has permeated into all areas.

Mr October agreed that a NEDLAC type of process could be useful. He added that revitalisation of Industrial Parks was taking place.

Ms Boshoff asked if it was correct that there had been instances of fruitless and wasteful expenditure in DTI. Had the SABS board been disbanded and when was a new one to be appointed? Had SABS suffered financial losses?

Mr October maintained that DTI did not have fruitless and wasteful expenditure. DTI had spent 99% of its budget. Perhaps there was fruitless and wasteful expenditure by one of DTI’s entities. He responded that the SABS had not suffered financial losses. SABS was placed under administration because its standards were dropping and it was no longer South African National Accreditation System (SANAS) accredited. It was not placed under administration due to financial losses.

Mr Shabeer Khan, DTI Chief Financial Officer, confirmed that DTI did not have fruitless and wasteful expenditure.

Mr Mmoiemang asked if it was justifiable to have a minimum wage exemption for the Expanded Public Works Programme (EPWP) projects. He asked what impact Britain’s withdrawal from the European Union (Brexit) would have on South African companies given that the United Kingdom was SA’s largest trading partner in the European Union. What impact was the Brazilian chicken import issue having on trade between SA and Brazil?

The Chairperson pointed out that the EPWP fell within the Department of Public Works and Infrastructure.

Mr October replied that low growth in SA was partly due to low wages. The impact of Brexit was huge. There was close cooperation between SA and Britain. Negotiations were taking place and an agreement with Britain would be concluded shortly. Brazil was still a BRICS partner of SA. Poultry imports from Brazil were huge but SA had to take a stand to protect its local poultry industry. There could be trade tensions but it would have to be dealt with.

Ms Boshoff stated that the SABS had made financial losses in 2017 and 2018. How could there have been no financial losses?

Mr October replied that a forensic investigation had been done and no financial irregularities were found. Perhaps the financial losses referred to were more of a technical matter. SABS had not obtained permission to create a private company in the name of SABS Commercial. For this reason SABS had received a disclaimer from the Auditor General. Hence SABS was placed under administration. SABS was falling short on the testing of products. He suggested that the Committee could be briefed on SABS progress.

The Chairperson thanked DTI for the briefing and the Committee’s Report on the Trade and Industry Budget Vote was adopted. The Committee minutes for the 16 July 2019 meeting were also adopted.

The meeting was adjourned.
 

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