Minister on COVID-19 measures as it pertains to the DTICs mandate; DTIC Budget: Committee Report discussion

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Trade, Industry and Competition

26 May 2020
Chairperson: Mr D Nkosi (ANC)
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Meeting Summary

Video: Portfolio Committee on Trade and Industry, 26, May 2020

The Committee was briefed by the Minister of Trade, Industry and Competition on government’s measures against COVID-19.

The Minister responded to outstanding questions from the previous meeting, which he had been unable to attend, on the re-opening of industries, the provision of protective equipment, projections of the effect of the pandemic on gross domestic product and trade policy.

The Minister explained that the government was shifting from encouraging people to stay at home to making workplaces safe, and he outlined the rationale behind the shift in strategy, which had become possible because the strict lockdown had successfully pushed the projected peak of infections far enough into the future that the country had had time to prepare. He likened the range of containment measures that were now going to be implemented to a much larger and sharper set of tools, as compared to the single blunt tool of strict lockdown.

The Minister took further questions from committee members on the rate of infection in different parts of the country and different sectors of the economy, the effect of grandstanding on the government’s response, the public consultation process on the level 3 regulations and the re-opening of certain industries, using Section 11 of the National Credit Act, the level 4 clothing regulations, beneficiation programmes and other economic opportunities, the availability of protective equipment in schools, localisation and transformation, and ensuring compliance with workplace safety regulations.

The Committee considered the concluding remarks and recommendations to be included in its report on the Department of Trade, Industry and Competition’s strategic and annual performance plans for 2020/21.


Meeting report

The Chairperson explained that the meeting agenda had changed. Instead of a briefing by the International Trade Administration Commission (ITAC), the committee would be briefed by Minister of Trade, Industry and Competition, Mr Ebrahim Patel. The briefing from ITAC would take place the next week. He invited the Minister to address the Committee.

Briefing by the Minister
Minister Patel thanked the Committee for accommodating his absence from the previous meeting and for the good wishes from some members. He also thanked the Deputy Minister and the Director-General of the Department of Trade, Industry and Competition (DTIC) for taking responsibility for delivering the presentation in his place, at very short notice. He said that he would answer outstanding questions from the previous meeting and elaborate on the contents of the presentation in light of the President’s national address on 24 May. He offered his condolences to the families of all those who had died, including a two-year-old baby and a nine-year-old boy. The deaths underlined the seriousness of the crisis and the need to protect the lives and livelihoods of all South Africans. There was a need to strike a balance between allowing people to work and generate wealth on the one hand, and preventing avoidable deaths on the other.

South Africa had learnt from the experiences of other countries. The country was now undertaking an important shift from encouraging people to stay at home to making workplaces safe. The shift was taking place now for several reasons. First, there was consistent evidence that the lockdown had flattened the curve of infection and the projected peak of infection had been pushed back by a few months. Second, there was much greater public awareness of the danger of the virus and the need to take individual steps to lower the risk of transmission. Third, businesses had put measures in place to make their workplaces safe. Fourth, the healthcare system had been strengthened, notably through public-private partnerships. Private companies had also stepped forward. For example, Volkswagen was setting up a 4000 bed field hospital in an unused part of a factory in the Eastern Cape. Finally, critical stocks had been secured and the level of screening and testing had been expanded. These developments had given the government confidence in moving toward a more flexible approach to containing the virus. They would function as a much larger and sharper set of tools for achieving this with less collateral damage, as compared to the single blunt tool of strict lockdown. The full extent of the regulations at risk level 3 would be made available.

Minister Patel responded to questions from the previous meeting on the re-opening of certain industries. Restaurants would be allowed to sell food to be eaten at home, not only at drive-throughs, and furniture factories and retailers would be allowed to resume operation. The shift to risk level 3 would allow between 7 and 8 million people to return to work. This was undoubtedly a good thing but it would create new risk points, in public transport, workplaces and shopping areas. Mitigating the risk would require cooperation.

Minister Patel responded to questions from the previous meeting on the importance of personal protective equipment (PPE) and the pressing need to reopen the economy. He said that PPEs would be even more important at risk level 3 because many people who had been staying in their homes would now be moving around in public. PPE production was being expanded, especially for healthcare workers. Local manufacturers of PPE had been assisted to expand their production capacity, and more than 20 other businesses had been asked to repurpose their operations to produce necessary goods. Gown production had been increased from about 600 000 units per month to about 2 million. Surgical mask production had increased from about 6.5 million masks per month before lockdown and was expected to exceed 10 million in June or July. The clothing industry was expected to reach a production capacity of 60 million cloth masks per month. The companies engaged in these efforts included black-owned companies such as U-Mask, South African-owned companies such as Green Line, Quality Safety, North Safety and Respitec, and affiliates of global companies such as 3M. Information on a locally-produced continuous positive airway pressure (CPAP) machine would be published within the next few days. The DTIC was responsible for supporting the production of PPE and other essential supplies such as food and ventilators, while the Department of Health and National Treasury were seeing to their procurement. He stressed that the provision of essential supplies, in addition to being part of the country’s health response, were also an economic response and an opportunity, especially for local small businesses. Economic inclusion and transformation remained absolutely critical. There was a dynamic link between the reopening of the economy and the country’s ability to deal with poverty and hunger.

Minister Patel answered questions about projections of the impact of COVID-19 on gross domestic product (GDP). It had always been clear that the impact on the economy would be severe. The Department constantly updated its projections of its scale and immediate effects. It was regrettable that the article in which the Minister had been quoted as saying that projections of the impact of the pandemic on GDP were “thumb-sucking” did not fully capture his comments. The Department had written to the editor of the newspaper in which the article had appeared and could share this with the Committee. Certain calculations that had been made were very simplistic. For example, the cost of the lockdown had been estimated as R13bn per day. This figure had been reached by dividing GDP by 365, without taking into account the fact that key sectors of the economy had been operating during the lockdown. However, there was no question that the impact of the pandemic would be very significant. Many commentators had said that it would cause the sharpest downturn since the Great Depression of the 1930s.

Minister Patel answered questions about trade policy. South Africa had not signed the joint statement on global supply chains to the World Trade Centre (WTO) because it was working on a statement with other African countries that provided for a more developmental approach that prioritised local jobs and industry in the production of critical supplies, and stated that the country’s key responsibility was to neighbouring countries and its own citizens.

Minister Patel said he would be happy to share the Department’s rationale for certain regulations if given the time.

Ms N Motaung (ANC) asked whether the government had measured the rate of infection in different sectors of the economy. How did it compare to the rate in the general population?

Minister Patel replied that the government had been monitoring the impact of infections in the food supply chain since the start of the lockdown and was beginning to look at other critical parts of the economy. Hotspots were being identified in the retail sector. The most recent data showed that the infection rate in the five biggest grocery retailers was ten times higher than the national average, despite the sanitary and social distancing measures they had implemented. If the entire country reached this level of infection the health system would be under serious strain.

Ms J Hermans (ANC) asked the Minister what he thought the effect of grandstanding by some committee members was on the government’s efforts to walk the fine line between lives and livelihoods.

Minister Patel replied that grandstanding was a well-known phenomenon in politics. The present issues were very serious and South Africans were looking to their leaders in all spheres of government to apply themselves diligently and do the right thing. There was no textbook response to the pandemic and nobody had a monopoly on wisdom, but grandstanding played no role in saving a life. The country had to work together.

Ms Hermans recalled that the sugar industry had been in distress since before the pandemic. She reminded the Minister that the regulations would expire at the end of June. The committee had been working to expedite transformation in this sector for a very long time and the regulations would allow South African Farmers Development Association (SAFDA) to fully participate in the sugar industry.

Minister Patel replied that the agreement had already been extended by three months. The Department was looking to put a longer term agreement in place and if this could not be achieved in time, another short extension might be necessary. The industry had already been facing enormous challenges before the pandemic. These challenges related not only to growth but also to transformation. The Department had worked hard with industry in 2019 to develop a set of commitments which would be formally signed when lockdown restrictions allowed, at which time the Department would be able to brief the committee.

Mr D Macpherson (DA) asked why the Minister was not allowing submissions from the public on the level 3 regulations, as had been done when the country moved to level 4.

Minister Patel explained that the entire framework from level 5 to level 1 had been opened to public comment. The level 4 regulations had been the most urgent, but comments had also been received on lower levels. These comments were taken into account as the level 3 regulations were being developed. Specific comments from political parties on the level 3 regulations had also been considered.

Mr Macpherson asked whether the Minister supported the smoking ban. A recent study had shown that 90% of smokers had continued to buy cigarettes despite the ban, proving that the ban had been ineffective and merely forced people to buy them on the black market, at the expense of up to R1.5bn per year in lost tax revenue. Did the Minister think the ban was fair on retailers or consumers?

Minister Patel replied that the President had given some context for the smoking ban. In accordance with parliamentary convention he declined to comment on the merits of the matter as it was before the courts.

Mr Macpherson asked why it was taking so long for the Department to invoke Section 11 of the National Credit Act.

Minister Patel said that the Department had considered a number of things. First, the banking sector as a whole had been encouraged to lend to consumers and small businesses using the exemption that had been granted in terms of the Competition Act. The Department had spoken to a range of stakeholders, and it had emerged that banks were holding back on loans not out of consideration for the National Credit Act but because they were worried about the ability of debtors to repay loans. This was the reason for putting in place the R200bn credit guarantee scheme. The opinion of the National Credit Regulator (NCR) was that activating Section 11 might enable reckless lending and that the emergency loan scheme was more circumscribed. The combined support of the Department of Small Business, DTIC, the credit guarantee scheme, the NCR and the relaxation of certain provisions of the Competition Act to allow financial institutions to work together, constituted a significant response to the problem.

Mr Macpherson asked why micro-lenders were not being allowed to operate at level 4, and whether they would be allowed to operate at level 3.

Minister Patel replied that micro-lenders would be allowed to operate at level 3.

Mr Macpherson asked why personal care services were not going to be allowed to operate at level 3. Why were they considered to be at greater risk than someone working in a supermarket?

Minister Patel explained that some personal care services, like dry cleaning, which did not involve close personal contact between the supplier and the consumer, would be allowed to operate at level 3. But services that can only be rendered through physical contact between the supplier and the consumer, such as hairdressing, presented too great a risk of transmission. The Department was however looking at additional health protocols that would allow some of these services to resume operation at level 3.

Mr Macpherson asked whether the Minister thought the drama surrounding the level 4 clothing regulations had been worth it, given that all clothing sales were going to be allowed at level 3. He doubted that retailers could have come up with regulations on how people should wear their clothes and wanted to know who had come up with them.

Minister Patel acknowledged the spirited response to the clothing regulations from civil society. He explained that the severity of the lockdown had been informed by the fact that the effect of the virus in dense informal urban settlements and among HIV-positive people was unknown at the time. The decision to allow clothing shops to sell winter clothing only had been taken by the National Corona-virus Command Council (NCCC) to ensure that the number of people moving around (the key metric determining the rate of spread of infection) was kept to an absolute minimum. The challenge had been to develop a definition of winter clothes. Initially, this had been left to retailers, but different retailers had come up with definitions and eventually they had called for the government to publish a list. The retail association submitted a list which was published as a regulation. A similar situation had unfolded in the car retail space. The government did not prescribe what anyone should wear or how they should wear it, but he acknowledged that communication could have been better.

The Department had also been asked why retailers had not been allowed to sell all the goods in their stores. The Minister explained that it would have been unfair on specialist clothing retailers if food and clothing retailers had been allowed to sell clothing. The objective of all these regulations was to save lives and protect livelihoods.

Mr W Thring (ACDP) asked for a comprehensive list of current and projected beneficiation programmes. An intensive push for beneficiation had the potential to create many jobs.

Minister Patel agreed wholeheartedly that beneficiation was a critical opportunity for the country. It would however take more than administrative fiat to convert natural resources to value-added goods. He suggested that the Committee have a session on beneficiation specifically. Fuel cells were a huge opportunity for South Africa and there were some pilot projects underway looking at the question of whether the price of energy from fuel cells could be made competitive with energy from other technologies. The hydrogen economy, which relied on platinum, was an important beneficiation opportunity for South Africa but there were others. The Department was looking at scrap metal as a feedstock for foundries and had introduced a price preference system to ensure the use of South African scrap, and the President had recently announced that an export tax on scrap metal would be explored. There were also opportunities for the beneficiation of coal, iron ore and manganese, among others. The issues were technology, capital know-how and product markets.

Mr Thring welcomed the lifting of restrictions on e-commerce. He asked the Minister to comment on further lifting of e-commerce restrictions at level 3.

Minister Patel replied that at level 3 only prohibited goods, in particular tobacco products, would not be allowed to be bought on e-commerce platforms. There were challenges however: small local businesses were concerned about the impact of e-commerce. Technology was the wave of the future, but it was the responsibility of public servants to help smaller players to embrace them.

Mr Thring said that there was huge concern about the availability of PPEs in schools. Some schools were refusing to open because they did not have sufficient PPEs. He appreciated that this fell under the mandate of the Department of Basic Education, but wanted to know how the different departments involved would communicate to ensure that PPEs were available.

Minister Patel replied that the DTIC was focused on the production capacity of PPEs. It remained to ensure that the procurement systems absorbed the greater numbers that were being produced.

Mr Thring observed that the disruption of value chains presented an opportunity for investment and partnerships in Africa and moving away from value chains that caused harm to the economy. How did the Minister see this panning out?

Minister Patel replied that Africa as a whole had not realised its potential. It produced and exported raw materials and bought finished products from other countries. This pattern had kept Africa poor. Beneficiation was critical to changing this.

Ms P Mantashe (ANC) was concerned about the increasing numbers of cases in certain provinces. What was the government planning to do?

Minister Patel replied that the Department was also concerned about the growing number of infections in certain provinces, metros and districts. The City of Cape Town was of particular concern. Work would need to be done with local authorities to ensure that the healthcare system was not overwhelmed. Going forward, government would be putting a lot more focus on hotspots.

Ms Mantashe asked which provinces had been given a mandate to arrange for companies to repurpose their businesses for the production of PPEs. Health sector trade unions were up in arms because their members did not have PPEs. Had the possibility of repurposing been communicated to all provinces? Were the potential benefits to small businesses recognised?

Minister Patel replied it was absolutely correct that localisation should focus on opportunities for small business.

Mr J Mulder (FF+) asked whether the Minister was willing to engage with the FF+ on contributions to creating a better trade and industry future in South Africa.

Minister Patel thanked him for the offer. The government was keen to learn from as many different sources as possible. The future of the economy that the Department envisaged was one that was more inclusive, with opportunities for small businesses, young people, women and black South Africans. COVID-19 had reminded the country of the fault lines in the economy and it had punished the poor more than the rich. The country needed to work together across political parties and ideological positions to build a nation in which economic opportunities were available to all. This was why the government was working hard on transformation and diversification.

Mr S Mbuyane (ANC) asked for clarity on the risk-adjusted approach for easing the lockdown.

Minister Patel replied that the economy would be opening up more widely. Only a few sectors were still closed. The Department was also looking at measures to lower the risk of transmission from public transport, such as staggered work hours.

Mr Mbuyane asked for details on the transformation plan in the re-imagined industrial strategy. How did broad-based black economic empowerment and localisation fit in?

Minister Patel reiterated that broad-based black economic empowerment and localisation were fundamental to the Department’s industrial strategy. While the government was not closing the door to supporting all South Africans, it remained mindful of the particular challenges faced by smaller black-owned enterprises in this period.

Ms Y Yako (EFF) asked how the Ministry would ensure that companies adhere to health and safety regulations.

Minister Patel agreed that ensuring adherence to regulations was critical. The government would work with trade unions. Shop stewards would be asked to report breaches and educate workers. The Department of Employment and Labour had published a list of regulations and would send inspectors to workplaces. Local inspectors would also be involved. He stressed that the approach would be collaborative rather than punitive.

Minister Patel thanked the Committee for its questions and said that he could provide more detail in future if required.

Consideration of the first draft of the report on the Department of Trade, Industry and Competition’s Strategic and Annual Performance Plans for 2020/21
Mr Andre Hermans, Committee Secretary, said that submissions for concluding remarks and recommendations had been received from the ANC.

The Committee considered 11 submissions for the concluding remarks, on:
1) The establishment of the new DTIC.
2) The decrease in the budget for the Industrial Financing Programme.
3) The termination of the Section 12i tax incentives.
4) Ease of doing business.
5) The enhancement of the BizPortal website to allow small businesses to access it through banks.
6) The re-imagined industrial strategy.
7) Trade agreements to increase access to African markets.
8) South Africa’s stance on the WTO statement on export restrictions during the COVID-19 pandemic.
9) The activation of Section 11 of the National Credit Act.
10) Broad-based black economic empowerment compliance during the COVID-19 pandemic.
11) The revision of budgets and annual performance plans as a result of COVID-19.

Mr Macpherson, Mr Thring and Mr Mulder objected to the inclusion of number 10 on behalf of their parties.

Mr Mbuyane said that this item spoke to the transformation policy of government and there was no reason therefore not to include it.

Mr Hermans said that the objections would be noted in the minutes of the meeting.

The Committee considered one submission for the recommendations, on engaging the Minister of Finance on the enhancement of industrial financing through the Master Plans.

Mr Hermans said that the formal adoption of the report had been scheduled for Thursday 27 to give all parties the opportunity to take the report to their caucuses and allow the secretariat to prepare a final draft of the report.

The Committee discussed programming changes and the meeting was adjourned.



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