ITAC contribution to government’s COVID-19 response; DTI & EDD’s 2019/20 Quarter 4 performance

Meeting report

Opening Remarks
The Chairperson welcomed Members of the Committee as well as DG Lionel October from the Department of Trade, Industry and Competition (DTIC) and Chief Commissioner Mr Meluleki Nzimande from the International Trade Administration Commission of South Africa (ITAC).

The Chairperson explained that ITAC’s aim was to foster economic growth and development in order to raise incomes and promote investment and employment in South Africa and within the Common Customs Union Area by establishing an efficient and effective system for the administration of international trade subject to the International Trade Administration Act and the Southern African Customs Union Agreement. ITAC would explain its role during Covid-19. Thereafter there would be a briefing from the Department of Trade and Industry (DTI) and the Department of Economic Development (EDD) on their Fourth Quarter Reports.

Ms J Hermans (ANC) congratulated Mr M Cuthbert (DA) on the arrival of his new baby.

Mr Cuthbert asked for the list of Covid-19 donor as promised at the last meeting that he had attended.

The Committee Secretary stated that he had received the list of donors and would forward the list to Committee Members.

Mr Nzimande, Chief Commissioner of ITAC, began a presentation on ITAC’s contribution to the COVID-19 response but was interrupted by technical issues.

The Chairperson requested the DTIC to present the report on the former Department of Trade and Industry (DTI). Dr Pule would report on behalf of the former Economic Development Department (EDD).

Briefing by DTI
DG Lionel October reminded Members that the presentation would be the last by the two Departments as the two had fully amalgamated as from 1 April 2020.

Global growth was projected at -3.0% in 2020 but set to increase to 5.8% in 2021. SA was likely to feel the effects of COVID-19 from both domestic and international fronts. A further difficulty was the higher tariff barriers and renewed tensions between the United States and China. The DG assured Members that everyone expected a quick return for the global economy. SA had had negative growth in third and fourth quarters which meant that SA went into the Covid-19 lockdown on the back foot. It was the first time that SA had experienced a negative growth in the fourth quarter. The International Monetary Fund predicted -5% growth in 2020 but expected a quick recovery to 4.0% in 2021. The SA  Reserve Bank, however, predicted -7% in 2020 but expected a rebound to 3.8% in 2021 and 2.9% in 2022.

South Africa’s trade balance with the rest of the world had recorded a surplus of R23 billion in Quarter 4 from R5 billion in Quarter 3. 45 000 jobs were created in the last Quarter in 2019/20, resulting in total employment of 16.4 million. However, on a year-on-year basis, the South African economy had lost 108 000 jobs.

The DG noted that interventions included implementation of the R500 billion COVID-19 economic recovery package and revitalisation of the implementation of the master plans for the automotive sector, poultry industry and retail sector of clothing, textiles, leather and footwear industries. He explained that the quarter had only ended on 31 March 2020 but by mid-February 2020 Covid-19 had begun to impact on the Department, particularly in respect of overseas engagements which meant that the Department achieved only 16 out of 25 targets. A key intervention was a 62% bone-in chicken portions and 42% boneless portions import tariff that was gazetted in March 2020 to curb poultry imports as per the Master Plan agreement to protect the SA poultry industry.

The total DTI budget for 2019/20 was R10 084 727 and expenditure had been R9 969 603 which was a spend 98.86%. The underspend was as a result of the Covid-19 disruption at the end of the Quarter.

Briefing by EDD
Dr Molefe Pule , Acting DDG: Competition Policy and Economic Planning, DTIC, presented the Fourth Quarter results for EDD.

One of the important acts in relation to Covid-19 was that the Consumer and Customer Protection and National Disaster Management Regulations and Directions had enabled joint work on price gouging between the Competition Commission (CC) and the National Consumer Commission (NCC).

Dr Pule referred to a few examples of the success of the Massmart deal. Rhodes Foods Group, a food canning company in Groot Drakenstein, Western Cape, was listed as a supplier to the Walmart US market and had received its first order. Glenmart, a family-owned Christmas cricket manufacturing business in Ballito, KwaZulu-Natal, had also been listed as a supplier and had received an order.

Dr Pule explained that the work on the Social Economy Policy had not been completed although consultation on the Green Paper had taken place nationally between 27-28 February 2019 and provincially between August 2019 and November 2019. A no-cost extension was granted until the end of March 2021. The White Paper finalisation process would be led by Deputy Minister Nomalungelo Gina.

Ms Irene Ramafola, Chief Director: Office of the CFO, dtic and former CFO of EDD, presented the personnel statistics and the budget. As at 31 March 2020, the Department had spent R966.3 million out of an adjusted allocation of R989.6 million i.e. 98% of the total adjusted allocated budget.

Discussion
Mr W Thring (ACDP) noted that gross capital infrastructure expenditure had dipped by 10%. Government infrastructure capital had dropped by 17% in the Fourth Quarter. What did the Department  attribute that dip of 17% to, noting that some government departments were incapable of spending their capital budget? There was a R26 billion trade deficit with BRICS partners in the fourth quarter. That had been a perennial problem over the past five years. What was being done to reduce the deficit with the BRICS partners?

Mr Thring noted that small businesses had been decimated by Covid-19. He noted that one million to three million jobs would be lost as a result of Covid-19. He was concerned that the SMME businesses seemed to have been taken over by foreigners. He was particularly concerned because a lot of small businesses, especially in informal settlements, had been taken over by foreigners, particularly cell phone businesses, spaza shops and hairdressers. That was a challenge. What programmes had the Department implemented over the past few years to assist SMMEs in the informal sector?

Mr F Mulder (FF+) noted that Mr October and Dr Pule had both made extensive mention of  the influence of Covid-19 on the Departments, especially during the quarter that was under review. Could they say whether the downgrade by three major credit bureaux during the lockdown had an influence on the SA economy? There had been no mention of the credit downgrades in the presentations.

Mr Mulder asked Ms Ramafola about the gender statistics in EDD. He had been sitting in Committees for many years, especially in the Trade and Industry Committee where gender equity was a very important factor. So how had it happened that the Department had far exceeded its gender equity target. Women in the Department was above 60% and even in the executive, female employees numbered 54%. Was that fair?

Mr Cuthbert asked what had happened to Mr Mondi Tom who usually reported on behalf of the EDD. No apology had been given. He requested an explanation as to why another individual had presented on his behalf. Had some people been phased out as a result of both Departments being merged?

He asked Mr October what was going on with the Incentive Development and Administration Division (IDAD) of the Department. The Division had only reached one target. From written correspondence that he had received, he believed that it was because the DDG spent too much time on sabbatical leave instead of running her Division and ensuring that it reached its targets. He held no grudges against anyone who wanted to develop themselves and to develop their skills set to be able to contribute towards the collective economy, but he had a serious problem when senior staff members were on prolonged periods of leave and there was an economic crisis.

Mr Cuthbert asked if he could be provided, in writing, with information about the personnel in the merged Department, including the levels of vacancies. He had received some vague information regarding human resources in the presentation. He wanted to know specifically where the Department was in terms of shortages of staff and what measures were being taken to address the matter.
Was the public getting bang for its buck?

Ms Hermans commented that before Covid-19 hit, the economy was already on a downward trajectory so they needed to have a bigger focus on township and rural economies. Covid-19 had shined a spotlight on huge areas of underdevelopment in the economy and had affected the poorest of the poor communities. As the Committee reflected on the fourth quarter, Members would never have thought that they would be in a first quarter that was the way it was across the world, and in SA in particular. The DTIC had to drive programmes at higher levels to assist all South Africans. Things needed to be done out of the box to turn things around for all South Africans.

Mr S Mbuyane (ANC) asked both Departments about the strategic goals that spoke to the promotion of industrial development. In terms of the re-imagined economic policy and the master plans, what was the status quo? What was the status of the broad-based economic intervention to achieve the inclusive goals? He asked the DG about the merger in dealing with employment creation. How did the shift in policy direction affect the Department in terms of the broader approach to economic development?

He asked about the price discrimination and buyer power regulations in seeking to address price gouging. What was the benchmark in relation to section 1(a) regarding historically disadvantaged individuals? The most important regulation was the extension until 31 December 2020 of the Tax Law Amendment. It had to be communicated so that people could participate.

Ms N Motaung (ANC) asked the DG to explain why of the four targets in the 4th Quarter plan; the Incentive Development and Administration Division had only achieved one target. Regarding the Youth Employment Service programme in which 3 660 jobs had been created; she asked how many women were included in that number. She asked the EDD CFO how the epidemic would affect the fiscus. She noted that the Tirisano project had, for a second time, been the cause of the Department underspending. Could the Department assist the Tirisano fund to do its work properly?

Mr October responded to Mr Thring’s question about the dramatic decline in gross domestic infrastructure spending. The real problem is there was government spending which included municipal spending of -17% and a lack of SoE spending. The SoE problems were well-known but the reason for low government spending was municipal infrastructure spending. He agreed that was government’s Achilles heel and the one thing that had to be solved to get the government recovery package going. The capability of the municipalities to manage infrastructure projects was a challenge.

He reiterated that South Africa had a positive trade balance overall but the country had a deficit with China. In response, the Department had a two-fold strategy in place. It was trying to get China to produce goods in SA and not make SA a dumping ground, e.g. Hisense and automotive products were produced in SA. The intention is that China should produce in SA and export from SA. DTIC was also encouraging the export of value-added products to China e.g. beef and other value-added products.

Mr October informed Mr Mulder that the credit bureau downgrades had raised the cost of government borrowing but they had also impacted on confidence and therefore investments. A cutback in investments was as a result of those downgrades.

Mr October suggested that Mr Cuthbert’s question might be above his pay grade but he understood that Dr Monde Tom’s contract had been until the end of the financial year and he was no longer an employee of DTIC. Dr Pule had been working in senior management in EDD and had therefore stepped in to do the final EDD report. It was a legacy report. He assured that Committee that the next report on Quarter 1 from 1 April to 30 June 2020 would give an update of the staffing if DTIC, including the full amalgamation, number of employees, number of vacancies and so on. Currently the Department was busy with the NMOG, the national macro structure of the state, and was working closely with the Presidency and the Department of Public Service Administration (DPSA). He could say that there had been a smooth and happy integration and the Department was fully amalgamated.

In replying to both Mr Cuthbert and Ms Motaung’s questions on underspending in IDAD, Mr October pointed out that IDAD was the division that ran the trade missions and that half of the programmes for the fourth quarter were cancelled in February/March 2020 due to Covid-19. That was why the target had not been met. In addition, the money from that Division went to subsidise private companies when they undertook a trade mission but that had not happened and so the money was not transferred out. The other target not met was the topping up of investments. DTIC gave about 20% of what a private sector put in as an investment but from January/early February, companies had cut investment spending so the DTI had spent much less on its incentive of contributing 20% to investments. The only reason for the decline in spending in that Division was the Covid-19 events and the reduction in private investments.

Mr October told Ms Hermans that he took the point she made and thanked her for her guidance and clear leadership. DTIC was trying to be proactive. Within days of the disaster being declared, DTIC had created a R600/R700 million fund to help distressed companies and to help companies with new development, such as the manufacture of PPEs. DITC was focussing on the rural areas and had been having sessions with Industrial Parks and Special Economic Zones where investments were proceeding regardless of Covid-19, e.g. the fuel cell plant, the R17 million investment by Ford, etc.

He informed Mr Mbuyane that the re-imagined economic policy was the old Industrial Policy Action Plan but was based on the clothing and automotive master plans which had been highly successful and the whole of government was working on the concept of master plans. The President was spearheading the policy. The main reason for the lower expenditure was because private companies had applied for less funding as they had not invested and, in addition, trade missions had been cancelled.

Dr Pule stated that EDD was required to engage with provinces to hold roadshows on economic development. EDD predominantly assisted SMMTs and small players in the economy by unblocking red tape and helping them with registrations and support to get businesses up and running. That had been a longstanding deliverable.  During Quarter 4, EDD had conducted roadshows in the provinces and then coordinated stakeholders with the agencies that could help, such as SARS, SIFA, IDC, etc. In addition, EDD was working on the Social Economic Policy and other policies. EDD performed other legislative processes. EDD’s value-add had always been around coordination to ensure economic development and growth.

In response to Mr Mulder’s question on the credit rating downgrade, Dr Pule referred to the fact that both the DG and Ms Hermans had mentioned, i.e. that the economic performance prior to the lockdown had been a concern and that would have affected the rating. It would have affected performance in the Department and in the state of the economy.

Mr Ndzimande explained to Mr Mbuyane that the technical work of any regulation included consultation in terms of the levels for the benchmarks and various gazettes would be published. One critical part was the subsequent publication of guidelines. During the month of May, the Competition Commission had published guidelines relating to the regulations. An important part of regulations and benchmarks was the continuing assessment of economic conditions and the continuing review of any levels that were set in the form of a regulation or benchmark. As far as he understood Mr Mbuyane, the question was what motivated and advised the levels set. Constant assessment of conditions, and consulting with important stakeholders was an important part of that. It was not just about publication of regulations, but also the publishing of guidelines, as relevant. An echo in Mr Mbuyane’s question was the question of ensuring that there was sufficient communication with the relevant stakeholders, i.e. SMMEs and community organisations and that meant roadshows and other relevant engagements with the communities and SMMEs. The details had to be clearly explained so that the ordinary South African could readily understand. It was government’s work to communicate and to explain legislation.   

Regarding the suggestion that DTIC should assist the Tirisano Fund to perform, Dr Pule reminded Members that Tirisano had a board of Trustees that worked through the Industrial Development Corporation. Government had representatives on the board and government engaged through that mechanism. It was critical that government’s voice was heard in the board. As the CFO had explained, the funds came through from the Voluntary Resettlement Programme and if the money did not come through, the Tirisano Fund could not perform.
                                                                                                                                                                           
Ms Ramafola responded to the questions on gender equity. EDD had targeted a 50% split as an equitable target. However, more males had left the Department than females following the decision to amalgamate with DTI and that had skewed the equity ratios.

Ms Ramafola responded to Ms Motaung’s question about how the fiscus would be affected by Covid-19. That was an important question that should be discussed with government and not EDD only. Everyone should discuss the issue of money. Potential funding might be needed by particular sectors. Particular sectors would need additional support as they had been severely affected. Firstly, the budget would need to be revised to put money towards stimulating the economy. The country would need to stimulate investments coming in as Covid-19 retreated. Covid-19 would have a very big impact on the economy, especially as, even before Covid-19, the economy had been struggling.

She added that the Tirisano Fund affected the Department’s standing. The Department had asked that instead of National Treasury giving an allocation to the Department, it should first receive the funding and only then should it allocate the relevant funding to the Department.

Briefing by ITAC on its contribution to the COVID-19 response
Mr Meluleki Nzimande, Chief Commissioner, informed Members that ITAC had ensured that no World Trade Organisation requirements were transgressed during the Covid-19 disaster period. ITAC had assisted the national effort by ensuring that there were adequate and affordable supplies of certain products needed to curb the spread of Covid-19 and to treat patients afflicted with the virus during the national state of disaster by waiving the customs duties applicable to products such as hand sanitisers, face masks, medical equipment and medicines, and by controlling the exportation of those critical goods. Most exports during Covid-19 were to the Southern African Development Community and to the rest of Africa because so many African countries relied on South African goods, especially medicines.

ITAC monitored imports and exports of products that were essential in the fight against Covid-19 in order to enable policy makers to make informed decisions. ITAC would continue to administer trade instruments to ensure the availability of supplies needed to curb the spread Covid-19 and to treat related infections. ITAC would also monitor global trade patterns in order to respond timeously to possible unfair trade practices that might emerge as a result of Covid-19. However, Mr Ndzimande stressed that ITAC needed more financial resources.

Discussion
Mr Mbuyane noted that ITAC’s mandate was very clear: it was to foster economic growth and development in order to raise incomes and promote investment and employment in South Africa. The sugar coming in from eSwatini was impacting on the local sugar industry. Was there any intervention by ITAC to deal with the challenge? What was the relationship between ITAC, the Competition Commission and the National Consumer Council in the Covid-19 situation and what were the lessons learnt by ITAC during Covid-19?

Ms Motaung referred to slide 12. How many women and disadvantaged persons had been issued permits? How many masks had been imported into SA? During Covid-19, did SA export any essentials and, if so, to which countries?

Mr Thring asked about import facilitation and duty rebates. Could the Commissioner clarify the quantity and types of goods allowed in the country during lockdown to charitable organisations? And how were they distributed? He understood that the quantity was negligible but he still wanted to know the quantity and the process of distribution. There had been reports of a wheat shortage in SA. Had value-added tax been applied to the importing of wheat and, if so, which countries were the beneficiaries of the exemption?

Mr Thring asked how the import regulations affected the import of oil. Tankers were queuing outside the Durban harbour and that had the potential to cause fuel depots to dry up. The knock-on effect could immobilise the economy. He noted that SACU, SADC and the rest of the African continent had been prioritised with respect to the Covid-19 events and the ACDP applauded that.  Were there any other opportunities for export to Africa besides the ones mentioned by the Commissioner?

Mr Inkosi R Cebekhulu (IFP) referred to the role of ITAC when it came to exports from SA. When SA had challenges of foot and mouth disease and other animal diseases, importers of SA products were very protective and barred SA produce to their countries, although those diseases did not affect human consumption. What was the role of ITAC in protecting SA in those matters?

Mr Nzimande responded to the questions. He referred to Mr Mbuyane’s question on sugar imports from eSwatini. The mandate of ITAC on slide 5 showed that ITAC was also responsible for the common customs area including, eSwatini, Lesotho and Botswana, and ITAC defended the collective market of the customs union so no duties were payable on eSwatini imports. Import taxes were levied on sugar from other countries, such as Brazil. Some of the SA sugar mills had sugar cane fields in Swaziland: there was to be a conversation with the Sugar Association about that issue. He added that he had mentioned in his presentation how surprised he was at how dependent SACU countries were on SA exports. Although it was outside the mandate of ITAC, he knew that in eSwatini there was a concern about the imbalance of trade between SA and eSwatini and so eSwatini found it strange that SA complained about sugar being imported without tax when the country bought so much from SA and the balance of trade was almost 98% in favour of SA.

Mr Nzimande explained that ITAC worked with DTIC and SARS and other bodies. In relation to the Competition Commission, a committee had been formed to fight price gouging. If there was a local producer of items that were protected, ITAC imposed a duty on importation. When ITAC removed a duty, the domestic prices went down because the domestic producer was exposed to international competition. The reason ITAC sat in the committee with the Competition Commission was to determine how the two entities could pool their resources to combat price gouging. For example, a permit was issued to Dischem to import some goods but the Competition Commission was looking at Dischem for price hiking and so in ITAC’s communication with Dischem, it informed Dischem that it was granting the permit but that action would be taken if Dischem breached any laws of the country. That was to make Dischem aware that ITAC knew of its conduct and would take decisions based on that conduct. He added that ITAC worked with the Department of Health in determining how many medicines could be exported.

Using technology well was one of ITAC’s learnings according to Mr Ndzimande, although he confessed that there had been glitches with technology when he had been attempting to present to the Committee that day. But ITAC was using technology to conduct meetings with Commissioners who no longer needed to travel from Cape Town, for example.

Mr Ndzimande explained that permit allocations were not made according to background or gender so he could not assist Ms Motaung with those figures. A large number of masks had been imported during Covid-19. More than R3 million tons of goods had been imported during Covid-19. The goods were mostly medical goods, masks and hand sanitisers. Exports at the time went largely to Botswana, Lesotho and Namibia and Angola, which he had found bought a lot from SA. Outside of SADC, Nigeria was the biggest importer.

Mr Ndzimande told Mr Thring that he did not have the import numbers in respect of charitable goods on him and would have to submit that response. There was no distinction of country of origin when tariffs were imposed but he did not know of any exemptions granted in respect wheat. ITAC had not granted exemptions.

Mr Nzimande did not have any knowledge of oil tankers waiting to enter Durban harbour but it was certainly not related to Covid-19. Permits for other products had not been withdrawn. He promised that he would check to see if ITAC was responsible for the delays. One of ITAC’s special area of interest was the African Continental Free Trade Agreement. SA had the biggest manufacturing sector in Africa and therefore the biggest export base and would benefit a lot from the Free Trade Agreement, especially in the export of motor vehicles. The automotive masterplan was intended to enhance the export of auto parts and vehicles into the continent. Work was ongoing on that front.

He addressed Mr Cebekhulu’s concern about SA meat products that were barred. That question fell within the scope of the Department of Agriculture, Forestry and Fisheries. He added that ITAC was protecting the chicken or poultry industry by levying duties on chicken imported from countries, as indicated by DG October, other than the European Union (EU) because SA had a trade agreement with the EU. At one point, SA had banned imports with animal diseases from EU as was common practice by all countries. SA also applied the practice when necessary. It was important to protect the domestic industries and to make sure that the disease did not flow into one’s territory.

Mr Ndzimande promised to check on the crude oil issue for Mr Thring.

The Chairperson agreed that the Chief Commissioner would have to forward further details of a couple of issues in writing. He thanked the Chief Commissioner for his input.

The Chief Commissioner extended his thanks and promised to send responses to two of Mr Thring’s questions.

Committee matters
The Committee Secretary informed Members that the next meetings would be on Wednesday 10 June and Friday 12 June 2020.

He announced that Parliament was looking at introducing some security measures based on the Microsoft system which might mean that Members had to log in differently. He would contact Members with the details.

The secretariat would draft a Fourth Quarter report for the meeting of 17 June 2020. The draft copy would be distributed to Members beforehand, probably by the end of the week.

The Chairperson informed Members that minutes would be distributed prior to the next meeting and he asked Members to peruse them to facilitate the adoption of the minutes.

The Secretary also promised to distribute the written responses that he had received from the National Regulator for Compulsory Standards as a follow-up to the previous meeting.

Closing remarks
The Chairperson thanked the IT team for their support. He thanked the Members for managing the technology so well.

The meeting was adjourned.