The meeting began with a briefing on the 2019/20 Quarter 2 performance by both the Department of Trade and industry and the Economic Development Department. The second part of the meeting addressed the ongoing crises in the sugar industry.
The Department of Trade and Industry indicated that South Africa had registered growth of 3.1% quarter-on-quarter. The growth was driven by the recovery in the Mining and Manufacturing sectors, on the back of the restoration of consistent electricity output. The private sector had resuscitated total domestic investment, which was up 15.2% quarter-on-quarter, but public corporations and general government investment lagged. Growth was primarily in trade, services, construction and manufacturing. The net number of employed people in SA had increased by 21 000 from 16.29 million to 16.31 million. Nevertheless, the official unemployment rate rose to 29.1% in Quarter 2.
The Credit Amendment Act had been signed into law by the President and an implementation plan had been presented by the Minister to the Portfolio Committee. The Liquor Amendment Act Regulations had been drafted and submitted. Six months into the 2019/20 financial year, expenditure was at R4.4 billion or 98% of the actual drawings. Spending was on track and in line with performance objectives.
The Economic Development Department presented much of the same information, highlighting the need for the amalgamation of the two Departments that would be taking place at the end of March 2020. Following the Presidential Jobs Summit in 2018, the Temporary Employer/Employee Relief Scheme had been established to replace the old Training Layoff Scheme for companies in financial distress and replaced 75% of the salary with a training allowance. The relevant committee had approved 26 applications out of 35 applications in the past nine months of its existence. That was an improvement on the 56 approvals made by the old Training Lay-off Scheme over ten years.
The Competition Amendment Act, No. 18 of 2018 had been published in Government Notice No. 42231 of 14 February 2019. On 6 July 2019, the President had promulgated certain sections of the Act to commence its implementation.
As at 30 September 2019, the Department had spent R549.8 million of an allocated budget of R1.1. billion, or 53% of the total budget. Transfers to entities had made up R482.1 million while the Department itself had spent R67.7 million of the baseline allocation. The compensation of employees was lower than budgeted due to resignations. The increase in spending on Goods and Services could be attributed to the requirement for increased legal services.
Members asked about outstanding answers to written questions. Had the legal services included amounts paid to Ndzabandzaba Attorneys? How did government intend to ensure that it sang from the same book as consulates internationally regarding the ease of business and granting of visas? Why had there been non-performance in transport and construction? What was the Economic Development Department doing to stop illicit outflows of money? What was happening in the Nkomazi Special Economic Zone? Why were most initiatives in Gauteng? Was there a plan for resuscitation of the construction, transport and trade industries that had lost jobs? What were the turnaround strategies for the industries under stress, that is, agriculture, manufacturing and trade?
Members also asked about the 416 companies that had benefitted from the incentives programme. What were they exporting? Where did the Department channel the money for industrial development? Was there a rural development plan? 95% of SOEs were not performing optimally, particularly those flagged by the Auditor-General. What was the plan to deal with that?
The Department of Trade and industry explained that progress had been made in the sugar industry in the past few months. The main issue had been the lack of transformation in the industry and he could say that good progress had been made at including black farmers in the sugar industry and the SA Sugar Association. The second issue was that the industry was under stress because of the sugar levy and the global oversupply of sugar. A master plan to revive the sector was close to completion. Transitional regulations had been developed and would apply from 1 April 2020 until 31 March 2024. The key issue in the short term was to secure the market by looking at harmonization with the eSwatini sugar industry, downstream user commitments to buy 100% local sugar backed by producer price-restraint commitments and government commitment to not extend sugar taxes.
The South African Sugar Association presented transformation interventions that amounted to R142 million per annum for black sugarcane farmers. The impact of interventions on the financial status of black farmers arose from the fact that, in the current season, black farmers had received 15% above the basic sugar price per ton. R58 million per annum had been committed to other transformation initiatives. The B-BBEE status of the sugarcane farming sector was to be measured and the Sugar Industry Transformation Masterplan was complete.
Members asked how one looked at unlocking potential in Ingonyama trust areas. How had the Huletts saga impacted the sugar industry and the transformation? What punitive measures, if any, had been taken against those who had been cooking the books at Huletts? What protection was there for small-scale farmers from warlords just north of King Shaka airport? When would a black-owned mill be built so that the money did not remain in the hands of whites?
Members also asked what the rebalancing and diversification agreement consisted of? What was crop diversification? Which crops would work in the different provinces? Who was going to fund the new crops? Had the Minister made an application for a change in the sugar tariffs? How had it been possible for eSwatini to take over the sugar market. How would the industry secure the market? Were the stakeholders prepared to help the country, to intervene in the sector, deal with the challenges and help with the way forward? The questions were really about what was to be done.
The Chairperson welcomed everyone to the meeting, especially the teams from dti and EDD. The SA Sugar Association (SASA) would inform the Committee on progress in the second half of the meeting. The
South African Sugar Millers’ Association (SASMA), the South African Canegrowers’ Association (SACGA) and the South African Farmers Development Association (SAFDA) would provide brief input.
The agenda was adopted without amendment.
Briefing on Department of Trade and Industry (dti) 2019/10 Quarter Performance
Mr Lionel October, Director-General (DG), dti, briefed the Committee on the Second Quarter Performance Report. He noted that in a few months, on 31 March 2019, the two Departments (dti and the Department of Economic Development (EDD)) would merge and there would be a single budget and from that point a single report would be presented by the Department of Trade, Industry and Competition (dtic).
Mr October informed the Committee that dti had three aims: industrialisation and expanding employment; transformation of the economy; and opening up markets. The real gross domestic product (GDP) had bounced back much stronger than expected in Q2 2019, registering a 3.1% quarter-on-quarter growth. The growth was driven by the recovery in the Mining and Manufacturing sectors, on the back of the restoration of consistent electricity output. On a year-on-year basis, the GDP had grown marginally by 0.9%.
The private sector had resuscitated total domestic investment, which was up 15.2% quarter-on-quarter, while public corporations and general government investment lagged. Growth was primarily in trade, services, construction and manufacturing. The net number of employed people in SA had increased by 21 000 from 16.29 million to 16.31 million. Nevertheless, the official unemployment rate rose to 29% in Q2. That was the highest unemployment rate since Q1 2008 as people entered the market faster than jobs could be created. In Q2 2019, SA had a trade surplus of R2.8 billion after recording a R4.8 billion deficit in Q1 2019.
The Credit Amendment Act had been signed into law by the President and an implementation plan had been presented by the Minister to the Portfolio Committee. The Liquor Amendment Act Regulations had been drafted and submitted. Dti had also drafted amendment regulations on the provision of Data Extract and a notice to advertise for comments had been submitted.
Six months into the 2019/20 financial year, expenditure was at R4.4 billion or 98% of the actual drawings. That compared positively to an expenditure of 86.6% in 2018/19. R2.2 billion was disbursed to the beneficiaries across the various incentive scheme programmes, followed by transfers to departmental entities at R1.4 billion. Spending was on track and in line with performance objectives.
Briefing on EDD 2019/10 Quarter Performance
Dr Monde Tom, Director-General, EDD, briefed said that the increased GDP in the Second Quarter of 3.1% was attributed to mining, business services and trade. However, agriculture, construction and transport contracted. Unemployment was 0.1% higher. As the labour force had increased by 141 000 people, there were 78 000 more unemployed people. Government had created 56 000 jobs and together agriculture and mining had created 38 000 jobs. Job losses occurred in manufacturing, construction and trade.
Following the Presidential Jobs Summit, the Temporary Employer/Employee Relief Scheme (TERS) had been established to replace the old Training Layoff Scheme for companies in financial distress. The scheme alleviated laying-off workers by providing a training allowance that replaced salaries at 75% of the salary.
EDD had been an active member of the TERS committee since its inception in October 2018. This committee had approved 26 applications out of 35 applications in nine months. That was an improvement on the 56 approvals by the old Training Lay-off Scheme over ten years. The concerns were that allowances be released timeously and that the scheme be more widely marketed.
As at 30 September 2019, EDD had spent R549.8 million of an allocated budget of R1.1. billion, i.e. 53% of the total budget. Transfers to entities made up R482.1 million while the Department itself had spent R67.7 million or 46% of the baseline allocation. The compensation of employees was lower than budgeted due to resignations. Spending on Goods and Services had increased due to increased legal cases.
The Competition Amendment Act, No. 18 of 2018 had been published in Government Notice No. 42231 of 14 February 2019. On 6 July 2019, the President had promulgated certain sections of the Act to commence its implementation.
Mr M Cuthbert (DA) raised a concern about written questions that had been sent to the Department. He had submitted written questions regarding staff suspended on pay two months earlier and had received no answers. According to the standing orders, a Department had to respond within ten days, unless the Minister wrote to the Speaker and asked for an extension. It was absolutely unacceptable. Neither he or his office had received that information and he could not understand why not. He thought that it was important and in the public interest to receive the answers timeously.
Mr Cuthbert noted the closure of Saldanha Steel by ArcelorMittal. It proved that corporate welfare did the economy no good and the Minister had to take a hard line in terms of allowing new market entrants into the country. When one placed a 22% customs duty on goods and introduced other protectionist measures to protect a company that was obviously archaic and used outdated methods to produce its goods and created a monopolistic monolith, it was not good for the country. He saw the sweet irony in asking a private company to sell it. That was rich – for a Minister to ask a private company to do his bidding.
Mr Cuthbert noted that expenditure on incentives was expected to increase in the third and fourth Quarters. He was hoping not to see a hockey stick where fiscal dumping took place and incentives were handed out willy-nilly in order to make targets. He hoped that the DG could provide the Committee with some information in terms of what the Department was doing in providing incentives.
He asked EDD for details of the legal services that had caused the budget to be exceeded by a drastic amount. He asked if it had anything to do with Ndzabandzaba Attorneys, and that EDD should provide any other details available.
Ms P Mantashe (ANC) appreciated the reports from both Departments that would be merging. She asked dti about the deficit in trade with the BRICS countries. How was that going to be changed so that South Africans could benefit. South Africans were being hit hard by the deficit. How did government intend to ensure that it sang from the same book with consulates internationally regarding the ease of business? In Germany people were given a really tough time when trying to get visas. She was awaiting details which she would forward to DG October. There should be a monitoring tool and co-operation with the Department of International Relations to ensure that everyone sang from the same hymn book.
She was happy with expenditure patterns and the improvement in expenditure over 2018/19 was good. She appreciated the new markets opened because it was good for the economy, but numbers would tell the full story.
Ms Mantashe asked EDD for details for the non-performance in transport and construction. On TERS, she noted that the provinces that had not utilised TERS were the poorest provinces where many jobs had been lost. How were they going to educate people in those provinces about the opportunities?
She added that the country was losing a lot of resources as a result of the illicit outflow of money. The Committee had been crying about that since 2014. At some point R12 million had been found by the Hawks in the boot of a car belonging to a foreign businessman in East London. No tax was paid on illicit money and the country was losing a lot of money. What was EDD doing to try and stop illicit outflows?
Mr S Mbuyane (ANC) noted that there were a lot of master plans. Was there a single master plan that spoke to all issues of national importance? What were the plans for resuscitating the economy in townships and rural economies? Maybe there should be a township and rural master plan. The ease of doing business was important in towns and rural areas. Was there an education awareness programme for those people? It seemed that there was only one province in the country and that was Gauteng. He reminded the DG that there were provinces outside Gauteng and they were mostly rural? Were there Black Industrialists in the rural provinces? It seemed that they were mostly in Gauteng. What was happening in Gauteng?
Mr Mbuyane also asked dti what was happening in the Nkomazi Special Economic Zone. He asked for a progress report. He asked how the agro-processing fund worked and who benefitted. Was there an update on the downstream steel industry? Did it deal only with steel?
He asked EDD about the unemployment rate and the jobs lost in construction, transport and trade. That was the core mandate of the Department. Was there a plan for resuscitation of those industries?
Ms Y Yako (EFF) appreciated the reports but she found that both presentations were jargon-filled with a lot of detail. On slide 20, Dti had said that 416 companies benefitted from the programme. What were they exporting, mainly? Slide 43 showed that a portion of the budget went to “industrial development”. Where did the Department channel the money specifically? The country was lacking in industrial development.
She noted that the EDD had spoken of the big decline in agriculture. What was the plan? Where were the problem areas? Was there a specific timeframe for overturning those areas? She saw large jobs increase in agriculture although the sector was decline. That did not make sense. Why was the Eastern Cape not represented in the incentive assistance programme? Had no one from the Eastern Cape applied? Did EDD have a rural development plan?
Mr W Thring (ACDC) stated that the ACDC had a concern about the sectors under stress: agriculture, manufacturing and trade. What were the turnaround strategies to drive the sector north instead of them continuing to go south? With regards to the agriculture sector, he had come across a group of farmers in the Eastern Cape who were working together across colour line, producing and developing skills, and were doing very well without involvement government. Could one not look at that best practice and forget about colour and grow the economy? He had stories about what was actually happening. A gogo was producing five tons of maize where she had previously only produced one ton before farmers had shown her how to do it.
Mr Thring raised a concern about the difficulty that international businesspeople were having in obtaining visas. The Samsung CEO had been looking at investing in the Riverhorse Industrial Park but had had to leave the country because of a challenge with visas and work permits. The country was talking about foreign direct investment and yet when requesting visas, some of the key role players had been turned away. The Industrial Development Corporation (IDC) should be the driving force of commercially sustainable industrial development, but that was not happening, so what was it doing incorrectly? Referring to the closing of the steel plant in Saldanha, he stated that business needed confidence in the SOEs, but 95% of SOEs were not performing optimally, particularly those flagged by the Auditor-General. What was the plan to deal with that?
Ms Mantashe was not happy with SOEs but she was happy that Transnet had said it would not require money from government. She asked about the number of jobs created because, during the election build-up, the ANC had committed to reduce unemployment at the end of the day. She would like the numbers so that the ANC would know whether it was meeting its commitment.
The Chairperson stated that a recommendation had been made to Parliament regarding the Budget Review and Recommendations Report (BRRR) (see here and here). A few issues were raised for the Ministry to look at. One of the issues raised was the engagement of the Finance Department but also the monitoring and enforcement of the local content requirement which was legislated under the Preferential Procurement Policy Framework Act. The issue of the allocation of incentive programmes was also raised. Areas discussed included industrialisation, investment, industrial de-centralisation and creating of job opportunities. The Committee had a challenge with two issues, the forensic investigations into the NRCS and SABS. The Committee needed an engagement with the Ministry and Department around that. The issue of the grant for SABS to help with SMME was important, particularly when it came to local content verification in the Medium-Term Expenditure Framework. The NRCS was part of the procurement process and the implementation of the modernization project was important. For that reason, the Committee might wish to continue engaging with the DG.
The Chairperson noted that there were questions that the DG would not be able to answer that day so some answers might have to be submitted in writing.
Response by dti
Mr October informed Mr Cuthbert that parliamentary questions 1132 and 567 had been replied to and submitted to the Questions office. He would forward proof of the submission of the questions and would have to look into the bottle necks or problems.
Mr October promised to table a detailed report on the expenditure on legal services in the dti. The dti had been the lonely voice of industrialisation and the Incentives Programme had been a champion of an industrial economy. Dti had spread the incentives across all sectors, especially in the labour intensive sectors like textiles and footwear. The Department was still working on spreading into the rural provinces but that was why the Industrial Parks in the townships and the Special Economic Zones had been introduced and spread across all provinces. He had a very detailed Incentives Report available that he would forward to the Committee.
Mr October agreed with Ms Mantashe that BRICS was the subject of intense debate and people were currently in Brazil for the BRICS meeting. China and Brazil were major exporters of labour intensive products which was a threat to SA in terms of imports but SA wanted to be in the club as a way of getting investments, which was better than SA just being a dumping ground. There had been extensive investment in SA manufacturing by China which was using SA as a base for exports. They were in Coega and were manufacturing vehicles there rather than importing them. China was using Port Elizabeth as an export base. He admitted that China and Brazil did export a lot to SA, especially in the poultry and sugar industry, and dti would need guidance from the Committee as to how to deal with the BRICS relationship.
Regarding the problem with visas in Germany, he agreed that there had been inordinate delays although it had improved somewhat in recent months but InvestSA could help with visas. Ms Mantashe could give him the details but he reiterated that the situation was improving with the new Minister of Home Affairs. Dti had frequently had to actively intervene with the Department of Home Affairs. The Proctor and Gamble investment had required engineers from Egypt but SA’s own embassy had been refusing to issue the visas so dti had had to intervene with the Department of Home Affairs. Dti had a one-stop shop working on visas, which they called the premium visa unit, but that unit could expedite visas. Minister Motsoaledi had been working hard and had cancelled the red tape and the requirement of birth certificates for children entering the country. He had been very active in turning around the Department of Home Affairs.
Mr October told Mr Mbuyane that dti had started with seven sector master plans in the new industrial strategy but it had now spread to 15. The one positive was that now all departments were sitting in the same room as the private sector to build the master plan. Dti had learnt that one could only build an economy when government and the private sector worked together as equal partners. Through the 15 master plans across government, departments were forced to work with the private sector, but he took the point that too many cooks could spoil the broth.
Concerning Mr Mbuyane’s interest in the Nkomazi Special Economic Zone (SEZ), the DG explained that the Mpumalanga Development Agency had been managing that SEZ but the Mpumalanga Provincial Government had dissolved the Agency, fired the board and fired the management team, so there had been delays but he could report that the new administration had put everything back in place. It was an important SEZ because it dealt with agro-processing.
Mr October agreed with Ms Yako that the money was spread across many sectors but the dti was not getting traction. He told Ms Yako that the dti would give the response in writing but the iron law of economics was the law of supply and demand. Dti was supporting the supply side with incentives to open factories, etc. but selling was the problem. Because of the legacy of SA, including the low wages and property deprivation, most of the population was poor and so the domestic market in SA was very small. Factories were not running at full capacity because they were looking for markets. Dti was trying to open up markets in the Middle East, Asia and, of course, Africa. There was a glut of products internationally. All countries were producing, so buying locally was important. There were strong fundamentals but the small internal market was the problem. That was an issue that needed a much bigger discussion.
The visa situation was an embarrassment but dti had a fulltime unit, the One Stop Shop, which would try and assist in managing the visas. The aim of the B-BBEE programme was not about colour. They were trying to forget about colour. Before only one colour was allowed to have a business, now the Dti was trying to open the gates to black people as that would deracialise the economy.
In response to the Chairperson’s questions, the DG confirmed that the dti had transferred money to SABS and had seconded an IT person and a finance person to the NCRS and were trying to recruit a permanent person as well as the secondments. Dti and SABS were working on turnaround plans and would give a detailed report to the Committee.
Dr Tom asked the Chairperson for a timeframe for submitting written responses as some questions needed comprehensive responses. He agreed with Mr Cuthbert that legal services expenditure had shown a high spike in expenditure which was a result of the mergers. The other area was around the forensic investigations in the Competition Commission. EDD had prepared the implementation plan for the Competition Amendment Act and that had required engagement with legal services for the Act and the regulations.
To understand the Saldanha issue, one had to understand the whole industry that was the backbone of the economy and the challenges were similar. One challenge was the input cost of scrap metal but one had to understand the role of Illicit trading in scrap metal. He would be happy to make a presentation for Members to understand the challenges.
He told Ms Mantashe that the point was that there was no construction development. Construction was not working fully because government was not investing in infrastructure so that there was a challenge in both infrastructure projects and the expectations for the industry and a lesson that EDD had learnt was that expectations impacted negatively on industries like construction. Regarding the illicit activities, teams had been set up to do work around counterfeiting, especially on the clothing and textile side, as well as the scrap metal issue. EDD had increased activity with SARS on the scrap metal at the borders. EDD was engaging with the Department of Mineral Resources to work on the problem of Zama-zamas.
Dr Tom informed Mr Mbuyane stated that EDD had a socio-economic strategy. The townships and rural economy was part of the socio-economic strategy and EDD was aligning the Annual Performance Plans of the provincial departments to the Key Performance Plans of the provinces to assist socio-economic development. Provinces had identified pilot sites for socio-economic development. For example, Ennerdale in Gauteng, next to Lenasia, was where work was being done because the community had come forward as it felt that there was no economic activity in the area. The distress that they were in was the same as the distress in Mdantsane. EDD was putting the infrastructure in place as well as the necessary security and that created markets around economic activities that were already happening.
Dr Tom was unsure what Ms Yako was asking. Statistics regarding the decrease in agriculture and the increase in agricultural jobs came from StatsSA. Ms Yako had to remember that agriculture was moving from a small base which might account for the increase in jobs. He was not sure that he had understood her question clearly but that was what StatsSA had reported.
Ms Yako asked if EDD had not questioned StatsSA about why the agricultural industry had declined but jobs were increasing. What were Members supposed to do with information that did not correlate?
Dr Monde explained that in slide 5, agriculture had declined by 4% but in slide 14, jobs had grown. It was possible because slide 5 was what had been reported in Q1. The EDD did not have the GDP information for Q2. That information would be coming the following month.
Ms Yako asked if Dr Tom would include an item updating the correlation in the next report.
The Chairperson suggested that other questions could be answered in writing. A point that came up quite a bit in the economy were the issues of race and gender. If one looked at race and gender within the statistics, those were the points that the Committee would have to look at. How did the Committee ensure that the majority of citizens participated in the economy? Race and gender became strategically important and the Committee would have to look at that.
The Chairperson asked the DG to give input on the sugar industry. SASA was presenting for 30 minutes and then each group could have 5 minutes.
Briefing by dti on the Sugar Industry
Mr October explained that progress had been made. The main issue had been the lack of transformation in the industry and he could say that good progress had been made at including black farmers in the sugar industry and the SA Sugar Association. The second issue was that the industry was in stress because of the sugar levy and the global oversupply of sugar. The dti was close to completion of a master plan to revive the sector. The Department had presented a comprehensive briefing two months earlier and so the presentation would consist of an update.
Ms Ncumisa Mcata-Mhlauli, Chief Director: Agro-Processing Unit, dti, briefed the Committee. She noted that at the Committee meeting of 4 September 2019, the dti had promised to give Members an update. The SASA (SA Sugar Association) leaders would give additional information.
The Regulatory Framework had been developed within the context of the Sugar Act No 9 of 1978, the Sugar Industry Agreement of 2000 and the SASA constitution. The regulations were transitional regulations and would apply from 1 April 2020 until 31 March 2024.
The South African Sugar Association constitution was amended. The issue raised by Members at the previous meeting was voting within SASA and the following voting rights had been agreed upon:
Voting - All questions arising at general and special meetings of the Association shall be determined by a majority representing at least two-thirds of the delegates present at the meeting, provided that such majority must include at least 1 vote from the Millers’ Section and the Growers’ Section and that the votes from the Growers’ Section must include at least 1 vote by a delegate representing SACGA and at least 1 vote by a delegate representing SAFDA.
The Draft Sugar Industry Master Plan was nearing completion. The key issue in the short term was to secure the market and the plan proposed:
- eSwatini harmonization or industry-to-industry revenue pooling arrangement
-Downstream user commitments to “buy 100% local”, backed by producer price-restraint commitments
-Government commitment to not extend HPL/introduce product taxes on non-nutritive and low-calorie sweeteners
In addition, the master plan looked at the industry capacity re-balancing in the medium term and diversification in the long term.
Ms Mcata-Mhlauli indicated that SASA had agreed with the Regulations and the next step would be to gazette the Regulations before the end of the year. The regulations were for five years as it was anticipated that changes would be needed once the masterplan had become to take effect.
The Chairperson noted that sugar cane had a future.
Briefing by the South African Sugar Industry (SASA)
Mr Hans Hackmann, Chairperson, SASA, appreciated the support and guidance of the Portfolio Committee and the dti during the difficult time. The amendments incorporated SAFDA as a fully-fledged member of SASA.
Transformation interventions included activities that had amounted to R142 million per annum for black sugarcane farmers. The funding supported a subsidy for transport costs by black farmers, access to seed cane of appropriate varieties and also a SASA levy subsidy. The impact of interventions on black farmers’ financial status in current season ensured that black farmers received 15% above the basic sugar price per ton. R58 million per annum has been committed to other transformation initiatives.
The B-BBEE status of the sugarcane farming sector was to be measured. Transformation targets by the end of the five-year period included a target that cane delivered by black farmers would increase by more than 50% by end of 5-year period. Contributions to the SASA transformation interventions could be claimed appropriately in a farmer’s Agri-BEE Scorecard. SASA would be developing a new farmers’ database that would include each farmer’s B-BBEE status. Millers were generally at B-BBEE level 6 but wanted to move to Level 3. Two millers were already at Level 1.
The Sugar Industry Transformation Masterplan was complete.
-Phase 1 decelerated the irreparable damage of Sugar Tax (HPL), managed tariff protection, stopped the flood of eSwatini sugar imports, secured SA sugar supply in exchange for responsible sugar pricing and the development of the Sugarcane Industry Blueprint.
-Phase 2 would reset the foundations of the sugar industry by implementing regulatory and institutional enablers for the bio-economy and begin implementation of the industry restructuring.
- Phase 3 was intended to invest and deliver a bio-economy which would require the implementation of the blueprint plans.
SA Canegrowers Association (SACGA)
Mr Rex Talmage, Chairperson, SACGA, wholeheartedly supported the presentation made by the Chairman of SASA and was happy to be engaged in the industry’s transformation plan and the initiatives. He looked forward to playing an equally constructive part in the future and also remedying the inequalities that the Chairman had talked about, the transformation imperatives and to save the industry, which was super-critical if one assessed the number of jobs that had been lost in the time of crisis. If the ship was not stablised, there would be many more jobs lost. That was a key focus of the Canegrowers Association.
SA Sugar Millers Association (SASMA)
Mr John du Plessis, Chairperson, SASMA, echoed the sentiments of the previous speakers and re-iterated the urgency of some of the issues that had been raised in terms of getting the interim arrangements in place as soon as possible and to continue with the masterplan. Sugar was an important part of the rural sector and an important employer in that sector. He assured the Committee that the Millers Association was putting all its efforts into a positive and sustainable solution. He thanked dti for pulling the initiative together. The millers were bleeding as could be seen in the media and so there was some urgency. They were all working on the transformation issues. He was looking forward to the comments from the Committee in supporting the initiative.
South African Farmers Development Association (SAFDA)
Mr Siyabonga Madlala, Chief Executive Officer, SAFDA, thanked the Portfolio Committee for its intervention that had helped SASA transform, at least structurally, to accommodate the voice of SAFDA. It was difficult for SAFDA when it was confronted with balancing transformation of the industry while the industry was on its knees. While he was excited by the presentation by SASA, some of the challenges that SAFDA was facing, were challenges that it should not be facing anymore. SASA had come up with the Phase 1 interventions that were imposed on the industry by the Portfolio Committee. As the beneficiaries thereof, they were excited but they were not leading the narrative of the industry debates. The interventions were dealing with a big number, R142 million, given to farmers but in drips and drabs, so that it was not impactful. There were hang-over attitudes from the past. SAFDA wanted to lead the transformation so that it could decide what was needed.
In Phase 2, SADFDA was now sitting in the SASA council and participating in the debates but there were conflicts of interest everywhere but that the outcomes would be embraced by all. The gap between the small scale farmers and the commercial was huge. The problem was that the industry used a standard of “average cost of production”. Everything was about averages but the 10% of the small-scale farmers was lost in the average. The industry had to change the payment system. It was unbelievable that sugar cane farmers had to pay for their own transport to the mills. It was a fundamental problem as the small scale farmers were furthest away from the mills. He did not know how it was agreed that farmers should pay to transport their own sugar to the mills. When the farmers bought goods and vegetables, they had to pay for their own transport, so why, when the millers were buying goods, did farmers have to pay for transport? Those were fundamental issues to make farmers profitable. All farmers had to benefit and not only some. The industry was now pro-transformation because of the intervention.
The Chairperson explained that cooperation in the industry was non-negotiable. If they were still looking at issues of engaging each other, they would be wasting time when they had to work together or there would be no business. The plan had to be completed and implemented. Transformation, growth, diversity and eSwatini were the issues. One had to ask what partnership could be developed with eSwatini.
Mr Thring asked how one looked at unlocking potential in Ingonyama trust areas. 70% of land in Ethekwini was run by the Trust and a large percentage of the province. How did one unlock that potential?
How had the “Huletts/Steinhoff” saga, as it was now known, impacted the sugar industry and the transformation? What punitive measures, if any, had been taken against those who had been cooking the books at Huletts?
Mr Thring stated that he had had some small-scale sugar farmers come to him to tell him about the threats from warlords just north of King Shaka airport. They masqueraded as traditional leaders and demanded that the small-scale black farmers should hand over their sugar cane farms because of the demand for land in the area. What protection was there for small scale farmers?
Ms Yako appreciated the presentations and the honesty of SAFDA. SAFDA’s complaint was that there was not enough money being given to it. Could National Treasury not also assist in making the farmers sustainable? Industry did not want to be stagnant and so they had spoken of diversification. Had the Department of Energy been involved? They would be able to make suggestions of what could be done with the sugar in a way that they could assist in the end results of diversification. In the masterplan, she had not got a sense of a plan to ensure a black-owned mill. Having a white-owned mill did not help. When would they build a black-owned mill otherwise the money would remain in the hands of whites?
Ms Mantashe applauded the industry and the support of the dti and appreciated the recognition of the Committee’s recommendations. She was worried about the state of the industry itself. Dti would continue to assist but ITAC remained a problem. She hoped that transformation would not regress. The five-year arrangements had to be extended to become a permanent feature.
Mr D Macpherson (DA) was taken aback that the draft master plan was only two landscape pages in volume. There were no details and no specifics. There was no understanding of what it meant. There were just vague generalities. What did rebalancing and diversification agreement consist of? What was crop diversification? Which crops would work in the different provinces? Who was going to fund the new crops? He was not sure if anyone in the dti had farmed in the past 12 months, but new crops did not happen overnight. It was not a short to medium term plan. There was no content in sentences like accelerate and enable public and private diversification projects. What did it mean? The plan talked in generalities because there was no policy or legislation that underpinned diversification. There was nothing to anchor the plan. Where was the draft legislation that would underpin the plan? It would not work without an anchor.
Mr Macpherson noted that ensuring that there were no job losses, despite falling prices, had been made the problem of industry and not government. There was very little, if any, financial support being put on the table. That did not have to be cash. The NEDLAC Health Promotion Levy (HPL or sugar tax) had been increased again in the past budget. If dti was serious about assisting the industry, it would have negotiated a moratorium on that levy. That would be a significant contribution. What were the views of National Treasury and the Department of Health on the masterplan? What was the engagement between the Minister of Trade and Industry and the International Trade Administration Commission (ITAC), considering that the Committee had resolved in its Budget Report that the Minister should make an application for a change in the sugar tariffs? He was sure that the application had not been made.
Regarding sugar coming into the country below cost of production, Mr Macpherson noted that every imported ton was a ton of sugar that the industry would never sell. For as long as SA’s neighbours continued to do so without a firm stance from the government, imported sugar would continue to flood the market. What was the more non-diplomatic way of handling it because begging and pleading was not going to cut it?
Mr Mbuyane asked for clarification of the timeframes. Why 2024? What happened after 2024? Did the negotiations have to start again? He understood the vote but he did not understand how one person could represent more than one organisation in the vote because in SA, the principle was ‘one man one vote’. He was glad that hectarage was no longer part of the issue.
He asked how it was possible for eSwatini to take over the market. How would the industry secure the market? What role did SASA play in terms of securing the market? The farmers in eSwatini belonged to one of the SA structures. They were SA farmers who had run away to eSwatini and Mozambique.
Mr Mbuyane asked what was meant by re-balancing. He asked about the full value chain of diversification. Were they diversifying in respect of using sugar cane for ethanol, etc.? Or did they intend growing different crops? Were they aware that if they planted nuts, it would be 20 years before they had a viable crop?
The issue of farm quality plan concerned him. The blacks were working without water so the product was not going to be good. They could not just talk transformation because the people were poor.
He asked about the value chain in the industry. Giving money for transport did not help. How were black farmers going to live while everyone was talking transformation? If they were getting a salary, that would be different. He noted that the timelines were not realistic. Nothing would happen in November and December. The proposal that the B-BBEE Commission had to go and check whether there were fronting activities.
Ms Motaung asked about women representation in the industry.
The Chairperson said that he would ask dti to respond last. He said that stakeholders in the industry should be asked to do what they could to intervene in the sector and address the questions and the challenges. Were the stakeholders prepared to help the country, to intervene in the sector, deal with the challenges and help with the way forward? The questions were really about what was to be done? Could the stakeholders ensure that the sector grew, was diversified and representative? He wanted to know if they were on the right track. Were they addressing all the challenges? Were they able to get to a future that was more progressive, would transform the sector so that the sector would have a future as the product was something that could be grown and developed? That was his general question, but they could respond to some of the issues raised.
Mr Talmage promised a written response. His overarching response to the Chairperson’s question was that as one component of the industry, SA Canegrowers were absolutely committed to finding the solutions. They were in the process of transforming and wanted to work on internal relationships to ensure that they could “hold up the trophy together”. Divided and focused on the wrong things, the industry could not achieve the wins. There were challenges, but if everyone pulled in the right direction, the challenges could be overcome. He thanked the Committee for its support and interest in the industry, which was a key, bedrock industry in SA.
Mr Madlala found it difficult to respond on some of the questions such as the Ingonyama Trust opportunity. He was respectful of the Ingonyama but the land was available and they could be farming there, if only the economics were correct. There had been over 50 000 small scale farmers but the catastrophe that commercial farmers were facing currently was what small scale farmers had been battling with for the past 20 years but there had been no one to voice the issues of transformation and economics. He could not speak on rural farms as they had their own processes. As an industry, he was worried about the mill that might be shut down. He was worried about the issue of farmers around King Shaka being bullied but that was a matter of land reform and the matter had gone to court, so it was sub judice.
The cane payment system was a critical issue because farmers had been paid on sucrose recovery but now they were paid on recovery value which benefitted those who could farm for quality. Small scale farmers could not farm to the same level of quality but they were subjected to the same pre-payment processes. If there was any one thing that he would want immediately, it was a moratorium on the sugar tax, or that the proceeds of the tax go to the sugar industry. The sugar tax had been implemented so quickly that there had been no time to implement the remedial actions which should have gone in parallel with the tax.
Mr du Plessis wanted to give some assurances that the questions being raised were being looked at in the masterplan. The millers were centrally involved in the diversification because it would happen in that space. A lot of work had been done in terms of biofuels, including investigating investments required. The modelling had been done and it talked to enabling legislation that was required. It also talked to co-generation which was something done in a lot of sugar industries internationally and could certainly be done in SA at a time that the country was short of energy. Dti and other departments were looking at that. There was also a focus on biofuels, bio-plastics and bio-degradable plastics. They had received some input from CSIR and they were engaging with investors. There was a lot of detail that was not in the high level presentation. It went further than industrial diversification. They were looking to diversify in the farming sector and Canegrowers had been looking to see what could be done on their properties to reduce the risk.
There was an urgent need to look at the tariffs and the situation around eSwatini. Trade with eSwatini was underpinned by tariff agreements and would therefore require government to be involved in whatever agreements took place. As mentioned, for every ton that came in, a ton went out at double pricing. The voting situation had been remedied and there was representation. The one vote per sector was just to protect a sector from being marginalized in the process of voting. Timelines were important. What the industry was talking about for November/December was a document that had already been agreed upon by the role players and had been sent to dti for processing. The next four years enabled the industry to address the new legislation that would be needed for the new dispensation in the sugar industry.
Mr Hackmann suggested that urgent action was needed on the items in phase 1 of the master plan, i.e. HPL and eSwatini. All other sectors benefited from the Southern African Customs Union (SACU) arrangements but sugar was not benefiting. Government support was needed. Foreign sugars had to be kept out of the SA market and the only way to do that was to increase tariff but industry had to accept that their members had to put restraints on the price of sugar.
He said that Members had asked a lot of questions and he would like to distill some of the questions and provide a written answer to all of them. Mr Thring had asked about the Huletts/Steinhoff saga. The sugar industry did not have a police force to punish the ex-directors of Huletts. He had previously shared with the Committee what the new directors were looking at and that was a positive turnaround that would save the business. Ms Yako had asked about plans for a black-owned mill. He hoped that in the transformation of the milling sector that would happen, otherwise they would need more legislative changes to make things happen. The five-year plan matched the five-year legislation so that legislation could be changed if transformation had not happened within the five years. The amendments regarding SAFDA were permanent and would not change after five years. He thanked the Committee for its interest and support.
Mr Madlala added that role players in the industry were at loggerheads and people who sat in the SASA Council were those very people who were importing sugar from eSwatini and that had led to bitter fights in meetings. There had to be penalties for those who were importing sugar from eSwatini.
The Chairperson said that the Committee saw the role players as a leadership collective that would have to take responsibility and get the industry out of the challenge while working with the Department. The Chairperson spoke about regional cumulation and explained that the Committee was looking at regional cumulation in respect of the African Continental Free Trade Agreement. The Committee was also looking at Botswana, Lesotho, Mozambique, eSwatini and Namibia as a South African value chain. There might be an over-supply of a product and so there should be some agreement on that, although a collusion on importing sugar was undermining one’s own space and making things more difficult for the country. Lots of products were dumped in the country but that product had been identified and people should do better. The Committee was looking for a response in the bigger programme. He needed a plan for how SA was going to manage the process going forward before they pointed fingers at each other. There were too many problems to discuss. He asked dti to answer his question: What was the way?
Mr October said dti and the industry was a single voice and all the issues raised by the industry were those that dti was looking at. The Department was with them 100%. Dti would shortly be releasing the detailed masterplan that would be the guiding document that would bind millers, growers and government. Everyone would sign. A facilitator had assisted and there was a very thick document providing full details. There was a detailed plan for transformation that had been put together by Empowerdex to deliver a transformation phase. The industry was in ICU and distress. Phase 1 would give immediate protection to the industry and dti supported the industry. There was a general trend away from sugar and SA had exasperated the situation with the sugar tax. SA could not afford the philosophy of free trade. If phase 1 was not successful, there would not be a phase 2 or 3. The textile and clothing industry had been saved because everyone had been forced to buy local clothing. A 100% local purchase designation had been put in place and now that was needed in the sugar industry.
The sugar industry did not have a sweet history. It was the cause of slavery and indentured labour. A large area of KwaZulu-Natal was owned by two or three millers, which was why small-scale farmers were situated so far from the mills. The millers had sold off land for residential development instead of building the industry. The industry did not want new players as there was already an over-supply. Illovo and Tongaat had to be transformed. Empowerdex was driving the process that was led by SASA. For the first time everyone was working together. The sugar industry needed government help, although he admitted that poultry and clothing also needed assistance. Those were the industries most under stress.
The Chairperson said the Department would update the Committee on the process and even respond to some of the questions. The venue for the meeting on the following day had been changed to the same venue as currently in use. He added that the meeting would conclude at that point as Members had to move into the House for a sitting.
The meeting was adjourned.
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