DTIC 2020/21 Special Adjustment Budget; with Ministry

Meeting report

Opening Remarks
The attendance of Members on the platform was confirmed.

The Chairperson welcomed Members and stated that the main agenda item would be the briefing by the Minister of Trade, Industry and Competition. Referring to the item on the legal opinion on the National Lottery Commission (NLC), the Chairperson informed the Committee that although he had hoped to have feedback from the Legal Services by the time of the meeting, he had not received it and so the item would therefore be deferred to the following meeting. He put the agenda up for adoption.

Mr M Cuthbert (DA) wished to speak on the matter of the NLC. Initially, the Chairperson informed him that it had been removed from the agenda but it was agreed that the amended agenda had not yet been adopted.

Mr Cuthbert stated that the DA had obtained a legal opinion that said that the NLC had acted unlawfully by failing to disclose the 2018/19 and the 2019/20 Proactive Grant beneficiaries as well as the failure to release the list of Covid Relief Fund beneficiaries. He would be presenting the legal opinion to the Chairperson and would be laying criminal charges against the NLC for failing to fulfil its duties in the public interest and failing to provide transparency, as necessary. Following that he would be writing to the DA Chief Whip and to the Speaker to report the failure of the Chairperson to permit the Committee to discuss the matter. The party would also be writing to the Speaker because the Parliamentary Legal Advisor had not been able to provide a legal opinion in 28 days. It had taken the DA one and a half days to solicit a legal opinion.

Mr Cuthbert could not believe in this day and age, they were trying to skirt around issues and not allowing transparency to take place, especially in the light of the number of corrupt actions during Covid-19. It was important that the public knew how money was being spent. In that respect, the Chairperson had abrogated his duties.

Mr Cuthbert said he had had respect for the Chairperson when he was Mayor of Ekurhuleni where he had done a sterling job but he was very disappointed at the way in which he had conducted himself in the matter of the NLC. He would be taking the matter forward.

The Chairperson asked Mr Cuthbert what he called the statement that he had made as he, the Chairperson, had told the Committee that the matter would be dealt with at the next meeting.

Mr Cuthbert responded that he was addressing the Chairperson on the matter as the Chairperson had failed to provide a legal opinion and so he had obtained his own. On top of that he believed that it was a stalling tactic to move the matter from meeting to meeting. Members of the Committee asked why the DA continued to bring up the NLC matter. His response was that if it had been handled in the first place, he and his colleague would not have to continuously raise the issue.

The Chairperson noted the statement but he would not get into the matter in that meeting.

Mr D Macpherson (DA) stated that the Chairperson had made a commitment at the last meeting but he had unilaterally decided to remove the item from the agenda. He wanted to motivate to put it back on the agenda.

The Chairperson interjected, stating that Mr Macpherson’s colleague had spoken on the matter.

Mr Macpherson wanted to know whose decision it was to unilaterally remove the matter from the agenda.

The Chairperson responded that the item was on the agenda but as he had not received the feedback before the meeting, as expected, he was asking that the matter be removed from the agenda.

Mr S Mbuyane (ANC) stated that no one had removed anything from the agenda. The report on the NLC was not available so the item had to fall away.  He advised Mr Macpherson that the Committee could not have an item on the agenda when there was no report. He proposed the adoption of the agenda.

Ms P Mantashe (ANC) was worried when the personality of the Chairperson was attacked in the Committee but she rose in support of the adoption of the agenda as proposed by Mr Mbuyane. She supported the removal of the item on the NLC because the report was not yet ready and that was beyond his control. Members would not stand for the Chairperson being attacked in front of the Committee.

The Chairperson asked if there were any objections to the adoption of the agenda.

Mr Macpherson objected and wanted a vote on the agenda.

The Committee Secretary explained that the Committee could not vote unless Mr Macpherson proposed an amendment to the agenda.

Mr Macpherson proposed that the debacle and the embarrassing way that the Committee had dealt with the NLC and the non-legal opinion be placed on the agenda.

Mr Cuthbert seconded the motion.

An altercation erupted as the Chair interrupted Mr Cuthbert who wished to clarify the matter by informing the Members that they were aiding and abetting an illegal action and should not be surprised when the might of the law fell down on them. It was all very well to try and avoid the issue but it was now out there and people were following the issue as people would be brought to justice.

Ms Mantashe asked on which item Mr Cuthbert was speaking. He could not come and bully the Members.

The Chairperson called for the adoption of the motion.

The Committee Secretary stated that the Committee would first have to vote on the motion of adopting the agenda which excluded the discussion on the NLC. He would call the names and request a vote in favour of that agenda:
Mr Mbuyane Yes
Mr Macpherson No
Ms J Hermans (ANC) Yes
Ms J Moatshe (ANC) Yes
Mr W Thring (ACDP)  No
Ms Mantashe  Yes
Mr Cuthbert     No
Mr F Mulder (FF+) No
Ms Y Yako (EFF)  Abstaining
Ms N Motaung (ANC) Yes

Votes for the Agenda without the item on the NLC – 5
Votes Against – 4
Abstentions – 1

The Chairperson announced that the agenda was adopted, with the exclusion of the item on the NLC. He welcomed the Minister of TIC and the Department of Trade, Industry and Competition (DTIC).

Briefing by the Minister of Trade, Industry and Competition
Mr Ebrahim Patel, Minister of Trade, Industry and Competition, greeted everyone and wished the Chairperson well on his birthday earlier in the week. He also congratulated Mr Cuthbert on the birth of his first child.

The Minister stated that he had tabled the original Annual Performance Plan (APP) in Parliament in April 2020. That Plan had been based on work that had commenced in October 2019 and was completed by February 2020. The Plan been based on the government’s thinking in the new administration. He had added, at the time, that the implementation of the National Sector Master Plans would be aligned to the government’s response to Covid-19, both during the period of the Disaster Management lockdown and as the country adapted to the new economic reality. He had then indicated that a revised plan might need to be submitted to Parliament.

The Minister noted that the country had changed significantly since he had presented the original APP. Covid-19 was having a very serious impact and the efforts taken to limit the damage were causing significant impact on the country in terms of growth and jobs, and the country was not yet out of the woods. It was his view, and the view of people across the world, that the pandemic would continue to disrupt workplaces and have a negative effect on consumer and investor confidence. The country had already seen that, as people moved back to a higher level of openness, especially in the workplace, the transmission of the virus was causing periodic shutdowns and absence by groups of workers. In addition, the country was facing budget cuts that flowed partially from the impact of Covid-19 and the need by government to direct resources more critically in fighting the pandemic, particularly the more vulnerable people and firms. There had been very significant and substantial budget cuts.

In moments of crisis, one’s resilience was tested and one was required to dig deep into one’s reserves of creativity, goodwill and the “can do” SA spirit. Using that as a framework, the Annual Performance Plan had been re-formulated. The Minister and the Deputy Ministers, Deputy Minister Ms Nomalungelo Gina and Deputy Minister Mr Fikile Majola, had met with the Director-General (DG) and senior management of the Department and had assessed the impact of the pandemic on the economy and the work that the DTIC had been done and was continuing to do. They had looked at what the future holds, and in the course of those engagements, each of the ten Programme Heads were given a very specific brief: how could he or she do more with the lower resources available and how could he or she re-focus the work in the APP to deal more specifically with the challenges that society faced, be they economic reconstruction, saving of jobs or greater support for companies?

What the Minister had tabled was the re-formulated APP. It incorporated a number of changes. The re-imagined industrial strategy outlined by President Ramaphosa in his State of the Nation Address in June 2019 at the start of the Sixth Administration was important then. It was even more vital in the face of the new challenges and it would drive the work of the Department over the medium term. The Sector Master Plans would continue to be developed. The Department had a whole range of cross-cutting measures to reinvigorate key industries and focus on growth potential to the rest of the African continent. As a result of the current experience, the Minister had sought to build greater resilience in supply chains through localisation.

The new Annual Performance Plan had been circulated to Members who would see that there had been a number of changes to address the issues that the Minister had raised. The APP used available policy tools to address the economic challenges and to use the opportunities available. It was an APP in which the DTIC had had a 16% reduction in budget, which was a very significant and deep cut in the available resources. Following such a cut, one should prudently cut one’s outputs, the number of targets and ambitions, but the Department could not do that when so many employers, consumers, South Africans in general, were under enormous pressure. The Department would need to increase the number of outputs measured by the performance indicators in the APP. It had increased those indicators by 17% despite the 16% drop in resources. The Department had chosen to take the tougher road and do more with less. He asked the Committee to be understanding when challenges were faced in the time to come. Neither he nor the Deputy Ministers wanted to cut targets when there was a need to limit the damage and to try to achieve the National Development goals.
The Minister illustrated the new approach by looking at four challenges: resources; protecting industrial capacity in SA; identifying opportunities for growth; ensuring that the goal of economic inclusivity and support was not abandoned.

Management of Resources
In Programme 1, one strategy to look at the better use of resources would be the creation of shared services to cut the overhead costs of those units within DTIC as a whole, and to speed up integration of the old departments of DTI and EDD so that, in the second phase of integration, the Department eliminated duplication and allocated resources to where those resources could have greater impact.
The review had not looked at only one programme, but at different programmes. For example, Programme 6 would look at greater coordination and integration between the DTIC incentives and grants and the Industrial Development Corporation (IDC) and National Empowerment Fund (NEF) loans to so that companies could get better service when they applied for financial assistance. By sharing the technical work that they did, the overhead costs could be cut. Programme 3 dealt with Special Economic Zones (SEZs) and the Industrial Arts. There was not much money for SEZs so the APP proposed building, more coherently, a performance management unit that would be available to ensure that SEZs functioned better and when new SEZs were proposed, there would be better assistance and support from the national Department so that it was not simply a banking facility that made money available to the SEZs. The Programme would assist slow performing SEZs. Programme 10, which dealt with research, would work on building up capabilities and using insights from analytical work and research to enhance each of Programmes 2 to 9 so that each got more value for its money.  Where faced with resource constraints, the spirit of the above approaches would permeate the work of all ten programmes.

Protection of industrial capacity
The current challenge was that consumers were not buying as much in many areas as they did before. That placed firms, companies, small businesses, and even large businesses which were the suppliers, under enormous strain. Typically, what happened was that many firms closed and workers were left unemployed and when the economy recovered, firms slowly re-stocked. The Department had learnt that when a firm or a sector closed down, went into business rescue and later into insolvency, the ability to assemble everything and start up again was not always possible. In order to ensure that SA did not lose those resources, DTIC would attempt to support local companies and to protect local companies where it could be done and where there was a sound business case, although the Minister acknowledged that it could not be done everywhere.

Programme 2 dealt with trade and would refocus on internal trade measures to protect SA’s industrial base and to identify what more could be done to build new markets. Programme 6 would introduce measures to save jobs. As it made resources available, it had to make partnership agreements with companies to save jobs and keep the industrial capacity running. Programme 8 which dealt with investments, i.e. Invest SA, would adjust investment targets set when there was still a relatively strong appetite for investment in developing countries, but even if it were tougher out there, Programme 8 had to determine how to focus on the commitments of the R600 billion that had been promised. Often  that entailed following up, obtaining the necessary papers or support to get things going so that companies that had said they intended investing in SA were able to get up and running in SA. Not all investment would be secured in the short term but he was sure, in the long term, SA would be an attractive place for investment. Programme 9  would look at previous competition commitments and would try to land as many of those commitments as possible to bring SMMEs and black suppliers into the market. Programme 9 would also look at mergers and acquisitions to ensure that the key goals of the Competition Act were achieved. The implementation of B-BBEE requirements would also receive attention.

That was a defensive strategy but an active strategy was also needed, so there was a third broad focus.

Focus on African Continent
In identifying opportunities for growth, DTIC was looking at the African Continent, an area that had enormous potential in the long term but SA had to unlock much of that potential in the short-term for itself and for the rest of the continent. Programme 2 would look to fast track the operationalisation of the African Continental Free Trade Area. It would also see what could be done to bring as many African countries as possible on board. Programme 7 would build in a stronger broad African focus in its export focus. The idea was also to look at new markets and opportunities. Programme 4 would create strategies to help SA industries to manufacture more personal protective equipment such as masks and ventilators but also other products. The Minister had met with major retailers in hardware, retail and fast food outlets to identify opportunities to bring work that was currently outsourced overseas back into SA. Programme 10 would look at new opportunities for SA in the recovery period by analysing trade and other data.

Ensuring Inclusivity and Support
During the Minister’s last engagement with the Committee, he had made the argument why inclusivity remained a critical focus of government and one that should unite the efforts of all South Africans to ensure that the transformation already achieved was supported and protected and to bring more youth and women into the economy at the current time. The Black Industrialist Programme had to be maintained. Programme 5 was looking at the Companies Act to see what should be reviewed and what changes should be fast tracked. Programme 9 was looking at price increases and excessive pricing so that vulnerable consumers and small businesses were not unfairly taken advantage of during the current situation when normal supply mechanisms were not always available. Unscrupulous suppliers would not be allowed to take advantage of the situation.

The Minister stated that much of what was in the original APP remained valid because the instruments to achieve outcomes were valid but in the light of the greater urgency that Covid-19 and the impact that it had had on the country, there was a need to review and focus the work to achieve a lot more by setting ambitious targets. It would be hard because there were fewer resources and staff worked under difficult circumstances, as did the staff in many businesses in the current economy. Even in the difficult circumstances, it was necessary to try to do more, even while recognising the budget cuts and the new set of realities.

The Minister explained that his intention had been to sketch the conception of the APP and the logic of the revised plan. He asked the Committee that the DG be allowed to take the Committee through the presentation which would provide more details.

Presentation by DTIC on its revised 2020/21 Annual Performance Plans
Mr Lionel October, DG, DTIC, explained that because the Minister had provided the broad overview, he would look at the global and domestic overview and go to the details of the changes made to the APP.

The global growth was projected at -4.9% in 2020 rebounding to 5.4% in 2021.The biggest risk to SA outlook would be a reduction in demand for SA’s exports. In the first quarter of 2020, GDP in SA had declined by 2%. Mining and manufacturing were the hardest hit due to the subdued global demand taking a toll on the developed world, and most notably China. The IMF and World Bank had suggested that South Africa’s GDP growth prospects for 2020 would be reduced to -5.8% and to 4.0% in 2021. All the projections showed that SA could come back into growth in 2021.

The South African economy had lost 38 000 jobs in Q1 2020. The biggest job losers in Q1 2020 were the finance sector; community and social services; and agriculture sectors.  South Africa was facing a rise in youth and women unemployment due to uneven access to economic opportunities. South Africa’s trade balance with the rest of the world had recorded a surplus of R87 billion in Q4 2019 from R32.9 billion in Q3 2019 as a result of an increase in the value of net gold and merchandise exports, alongside a contraction in merchandise imports. The DG stated that the Department would no longer bow to pressure from SoEs and private businesses to allow low cost imports.

Although there was a R1.77 billion reduction in the budget of the DITC, the DG assured the Committee that DTIC remained a very focused Department and would work with the 17 entities and 45 pieces of legislation more effectively, despite the budget cut. He pointed out that Programme 1 was working on best practices to protect employees from Covid-19 infections. The Department would also introduce shared services in respect of human resources, legal services and so on.

Changes to the DTIC Budget
Following the tabling of the Special Adjusted Budget by the Minister of Finance on 24 June 2020, the DTIC’s budget was reduced by 16% or R1.77 billion to R9.31 billion. The original total budget was R11 billion. Approximately 59% or R5.52 billion would be disbursed to companies across the various incentive programmes. Transfers to the departmental entities accounted for 18% or R1.65 billion of the adjusted budget. Operational expenditure, which comprised mainly compensation of employees, and goods and services was 21% or R1.96 billion of the total budget. The main cost drivers were the public private partnership (PPP) agreement for office accommodation at the DTIC campus and the foreign economic offices.

In summary, the DG stated that the DTIC would work with the revised budget but 59% of the money would go to preserve and grow the industrial base. There would be a reduction in the operational expenditure but the change to more e-meetings and other measures ensured that savings could be made.

Discussion
The Chairperson thanked the DG. A report from the Research Unit had been circulated to Members.
With the changes in the budget, the Chairperson wanted to check which performance targets had been affected. That linked to issues highlighted by the research unit. Public corporations and private enterprises would receive reduced support because of suspensions and postponements. What did the DITC think would be the impact of that reduced support on the economy?  Regarding the R500 million package prioritised for businesses in distress, he asked what the criteria is for the selection of businesses to be assisted. Was the R500 million part of the IDC funds or was it separate from the IDC funds?

Ms Y Yako (EFF) stated that she had questions for both the Minister and the DG. The Minister had mentioned the building of a performance management unit to assist the Special Economic Zones (SEZs). What were the measures used previously for an SEZ to account for its performance? The Department was running out of budget and so money should not go to project after project but more money should go to giving capacity to those SEZs.

Ms Yako asked why there was not a state-owned company producing PPEs for the whole country which would meet one standard. Instead there were scattered companies producing PPEs all over the country. Who benefited from the Black Industrial Programme? It seemed to benefit a few, the elite and mostly men. She had asked the Department to give her a list and to show how the demographic was spread across the programme. She appreciated the focus on the furniture industry as she had previously highlighted that it was an industry that was dying but could bring so much revenue, especially in terms of jobs, to the country.

Mr F Mulder (FF+) stated that the country found itself in a really difficult situation. There was no easy way out. Previously, the Minister had talked about how he could re-open the economy. That was exactly what he was talking about, but he was not talking about economic growth. With the budget reduction of R1.77 billion, the DTIC had less of what it needed more of. He welcomed the fact that more focus would be put on localisation. The future is in localisation, and export markets when the world economy allowed it. He was concerned about the fact that a lot of the policies in use were policies that had not worked in the past. The FF+ had offered to interact with the Minister about how the FF+ saw the future of the economy and the Minister had indicated that he was happy to sit with the FF+, which believed that certain things should be done differently. The decreased budget would result in decreased results. Mr Mulder urged everyone to relook at the situation because the budget would not exist on its own but in conjunction with other departments. On its own, one could not do much more with the budget. However, one should take an extra step and look into the future.

Ms R Moatshe (ANC) noted that the presentation had referred to the postponement of some Master Plans. Which Master Plans would be postponed?

Mr W Thring (ACDP) commented that clearly the economy in SA was in trouble and the wheels were about to come off. Race-based policies that had failed had to go; understanding that the country had a history. Where policies were not helping the economy, the country could not keep trying to make such failed policies work. It was at that stage that the country needed all hands on deck, irrespective of colour or class. The country needed a SA Industrialist Programme, not a Black Industrialist Programme or a White Industrialist Programme. He believed black industrialists were as smart and as capable as any other race group and hence they should not be singled out as the only ones to receive handouts as it developed an entitlement mentality.

Mr Thring stated that SA continued to have a trade deficit with its BRICS partners, mainly because of manufactured imports. The ACDP was pushing for beneficiation. He asked what had been done to turn around the deficit with BRICs partners. What was being done differently to turn the situation around? The DG had spoken about localisation. In which sectors were localisation going to take place and when would it be done? He noted that the Furniture and the Steel Master Plans were to be developed but which Master Plans were to be postponed. Several other Master Plans were to have been developed. Despite the slides speaking to increased industrialisation and Master Plans, only five Master Plans were to be developed between 20/21 and 21/22.

Mr Thring asked the Minister how the shared service model would improve efficiencies at DTIC. The DG had spoken of shared services such as accounting but how would it work and why had it not been done before? What were the other efficiencies?

He noted that a number of Industrial Parks established pre-1994 had been closed even though they had the potential to create employment. How many of the Industrial Parks had been identified and had plans been put in place to improve the infrastructure around those IPs? He had heard a figure of 27. They had the ability to create employment.

Mr Thring noted that the value of outward and inward investments leveraged from approved projects was down from a target of R75 billion to R5 billion and from R100 billion to R40 billion, respectively. Why was that so and why were the output indicators removed from the bottom of that slide? Lastly, if PPP for office accommodation was a cost driver, what mitigation strategies were in place to reduce the cost driver? Which entities were going to be affected by the 16% reduced budget?

Mr Macpherson asked the Minister what he saw as the main policy differences in how the Department would move forward compared to how things had been done previously.  DITC was shackled to government policies that had not changed and which were largely the cause of the recession going into Covid-19. What were the policy differences?

He added that a number of entities were failing in reality and one was the National Lottery Commission (NLC) and the Minister had heard about the unwillingness of the Committee to deal with the serious allegations against it. The DA had a legal opinion that stated that the NLC had to disclose beneficiaries. Despite the Minister also telling the NLC to do so, it had refused to do so. He knew that the Minister had instituted an investigation into the NLC but how was he going to right size that ship which was failing spectacularly?

Mr Macpherson noted that the Minister and the DG had spoken passionately about trade but the International Trade Administration Commission (ITAC) was a real stumbling block to trade and localisation in SA. One example was how ITAC simply refused to allow manufacturers to import fabrics for sheets, etc. that would never be made in the country into SA, only for hospital bed sheets to be imported fully made from China because no manufacturer could obtain the fabric as the duty had made it too expensive for local production. Surely ITAC was obliged to look into such issues that made it impossible to trade.

He said that the previous Ministers and the Department had spoken of the regulatory environment for numerous years. They had spoken of regulatory change for credit since 2006; they had been talking about regulatory change on alcohol for seven years; they had been talking about regulatory change in gambling for ten years and had even ignored their own commissions with respect of online gambling.  He felt that people were pushing the Minister to say something but the DTIC had no intention of changing regulatory matters. Was there any intention of extending the I-12 tax incentive? It had been phenomenally successful and no cash payment was involved. It was done in conjunction National Treasury. He really did believe that lowering the threshold of I-12 would be extremely useful.

Mr Macpherson had fought against Industrial Parks for the past six years as DTIC could not show any investment into any Industrial Parks. The Industrial Parks had a budget of nearly R0.5 billion after the last few years but had nothing to show for it. Any Minister working on investments should consider that. Industrial Parks could only work if there were concessions by local and provincial authorities because of their remote locality.

Mr Cuthbert thanked the Minister for his well wishes. He asked when the Committee would see a report into the NLC and whether the report would be shared with the Committee. He had seen Minister Patel’s report but he had not seen any indication of when the report would be completed and whether it would be shared with the Portfolio Committee. Regarding the oral response that he had received on the Covid-19 relief fund, his question had not been so much about the beneficiaries but about the length of time it took to get relief. The pandemic would be in the country for some time but the adjudication periods meant that some good causes would only get funding by mid-November. What would be done to mitigate that long delay, noting that some of the NGOs and NPOs were currently without funding? Surrounding the reduction in budget, what would the function of the Industrial Financing Division be now that incentives had been so drastically reduced? He asked for feedback on that branch in the Department.

Mr S Mbuyane (ANC) asked about the reduced budget which was the new player in the market. The biggest cut was in the Incentive Programme and the Industrialisation Programme, so how was the Department going to create jobs without the incentive programme? He asked if the trade policy to protect industry could be used to protect local industry. He understood that the budget had been cut, especially in the Department. What measures would be put in place to deal with that? It was the time to look at economic policies given the situation that the country was confronted with. The theory of comparative advantage had to be considered. He was happy was that industrialisation was part of the process so that industries were promoted and the market would be protected and blocked for them. How was SA going to really create jobs with the cuts to the revenue?

Mr Mbuyane asked about the Economic Recovery Programme in terms of its ability to create stable jobs. He required more information.

Ms P Mantashe (ANC) addressed the issue raised by Members of the Committee about failed policies. They were wrong. There had been no policy failure in the current time but a pandemic had befallen the world. No policies should be done away with because they were all suitable for the kind of country that SA was. The policies were needed for the country at that time.

Ms Mantashe agreed that everyone was worried about the R1.7 billion budget cut in DTIC. She asked the DG about the programme for revitalising the Industrial Parks. Because of the blood bath of job losses, she proposed that the Department go back to those that had already been established for a second round so that they could attract business. If new Industrial Parks were established, they would all be dysfunctional.

She noted the proposed cooperation between the Department and SoEs. She recalled a Committee proposal that if development fund institutions (DFI’s) and the IDC were merged, they could assist black businesses to grow. The Minister had said that the DTIC would cooperate with private business to invest in the economy but the private sector was sitting on millions and millions of Rand that they had never invested in their own country. What was the Minister going to do to make them invest in their own country?

Ms Mantashe asked about support for entrepreneurs, SMMEs and emerging businesses. As the President had said, one thing that could be done was to concentrate on the township and rural economy. Most businesses, especially in the rural economy, were owned by foreigners. What laws could be put into place to prevent foreign nationals from owning businesses as they did not pay SA taxes and to ensure that most businesses were run by SA nationals.

Regarding the AfCFTA, she noted that when the Committee had last been briefed, the Department had said the only issue outstanding was the rules of origin: had that been finalised?  The only answer was to trade only in Africa.

Ms J Hermans (ANC) said that the 16% budget cut was very serious. If it were a haircut, it would have left the Minister bald but she appreciated the work that the Minister and his team had done to rework the APP. It had been a serious balancing act. Trade in the whole world had been affected. She noted that transformation and inclusivity would remain a priority. Despite statements by other Members, she appealed to the Minister to keep those policies as SA was a very unequal society. She agreed with keeping strategies such as localisation and maintaining and protecting the country’s industrial base.

Ms N Motaung (ANC) asked about industrial financing: how would the Department enhance the domestic industrial system to gain more funding for enterprises and streamline industrial support?

The Minister thanked the Members for the thoughtful questions. He would respond to questions on the broader frame. The DG would sweep up any detailed questions and the Deputy Ministers could respond afterwards.

The Minister stated that it was a R1.77 billion cut, i.e. closer to R1.8 billion. Ms Hermans had said that if it were his hair, he would be bald but it is actually more than a haircut; it had taken off skin, bone and flesh. When one had a cut of that magnitude, one could not simply make small adjustments and absorb it and so DTIC had looked to see where it should enhance the impact of its work.

Under Public Corporations and Private Enterprises, it was the core subsidy programme that had suffered, i.e. where the state offered a subsidy – no, not subsidy but an incentive programme offering support in return for private enterprises doing matching funding or making other commitments. That was a hard blow and so in the rest of the APP, the DTIC had tried to find other tools that could support businesses. For example, could the Department use trade tools more effectively? Were there things that the competition authorities could do that opened up a greater level of dynamism and competition in those sectors? The DTIC was re-balancing its toolkit in the light of the reduction in finance. Obviously, finances were a critical tool but when that shrunk, there were other things that could be done. Some of the adjustments were simply recognising that some companies would not utilise the incentives because they would not have a high demand for their products at the moment and their growth prospects in the next few months might cause them to delay some of their programmes, such as the upgrading of technology, etc. Those companies would take longer to rebuild and that had to be recognised. However, the incentive programmes had to play a counter-cyclical role so that when the economy went down, supportive programmes by the Department ought to inject a little bit of liquidity and confidence in those sectors.

The Minister stated that part of what the Department was seeking to do was to release more critical resources through the shared services and other arrangements. The overhead cost structure was difficult to change in the short term so the intention was to see how the Department could bring down some of the overhead costs that the DTIC and the entities faced. He and the DG had cited examples of that. One example was the industrial incentive of creating shared services, a coordinated platform to assess the viability of an application for loan funding or a grant to the DTIC, IDC and NEF. Instead of three sets of officials working on it, one set of officials could work on the application so that human resources could be released to provide post-investment support. The reduced budget required the Department to work smarter. The R500 million business relief package was funds that the DTIC had identified and transferred to the IDC, the NEF and SEFA to help them with the immediate distress funding. A big chunk of that was for those particular entities in their work relating to funding of personal protective equipment (PPE) initiatives, a question that Ms Yako had raised.

The Minister responded to Ms Yako’s question on how one had measured the success of the SEZs and how that was changing. Previously the Department had set a legislative framework introducing SEZs via Parliament and it had engaged on a policy level from time to time but other than that the Department’s main work had been to assess applications for SEZs and to provide a funding stream for the SEZs. The Department had since become convinced that the performance of SEZs had been uneven. Some had taken a long time to get there but had registered real successes, e.g. Coega Industrial Development Zone (IDZ) in the Eastern Cape, the East London IDZ and the Dube Trade Port in KwaZulu-Natal that had an IDZ within the Port. Those SEZs had better than average performance. SEZs had also been introduced in other provinces. Those SEZs were either in place or proposed but the Department had not been convinced that the speed with which development was taking place was appropriate. For example, the Richard’s Bay IDZ and the Saldanha IDZ had not had a good uptake. The Department had provided advice on request by a province, but it had re-thought the strategy in the previous year. DG October had summarised the lessons learned from a number of years of implementing SEZs. Some of them were obvious and evident. One needed good, stable governance and strong CEOs and technical staff to run the development zones, but above all, one needed a viable business plan – not a list of hopes but a plan which had been rigorously examined. The previous year, the Department had declined an application for an SEZ because that analysis had shown that there would not be a significant uptake. The Department also recognised that there were capacity challenges so the Department had requested the Development Bank and the IDC to provide skilled people to assist provinces when an SEZ proposal was to be put to government. Where a proposal was really viable, the state could give less money but assist with top structures and facilitate supplier development. Where the underlying logic of an SEZ was weak, the state would have to put in a lot of resources. Where there were fewer resources, effort had to be put into assisting existing SEZs and ensuring that proposals for new SEZs were viable and the staff from the development banks and the IDC would assist with that process. The Minister agreed that unnecessary agencies consumed resources.

The Minister addressed the question on state-owned enterprises (SOEs) and PPEs. He had provided a detailed reply to a parliamentary question asking whether there was an SOE providing PPEs. His lengthy reply had been that on the one hand the state was using state agencies to build PPEs and, on the other hand, the state was building partnerships with companies in the private sector, especially youth-owned and women-owned businesses to provide economic opportunities for entrepreneurs who wanted to get into that space. The production of face masks was one example. On the one hand, there were companies such as Sheraton which was already working with the IDC and could swiftly shift production to making face masks, but the IDC was also able to support women and youth. So the DTIC had tried to do both. CSIR would produce C-pack machines which provided oxygen for people who were Covid-19 positive and needed help with breathing, but the door was open for private companies to get involved. It was about both using facilities of the state and providing opportunities for youth and women to get into business. The advantage of supporting private sector entrepreneurs meant that the state did not have to provide all the resources. Where resources were limited, the state had to pick very carefully where it placed its focus.

He added that young players brought their own know-how and capabilities. They wanted to run their own businesses. They did not want to work in a government department. Running a company making PPEs required different skills from running a government department or ministry. Also supplying PPEs required an agility that the state did not have. For example, the Public Finance Management Act would be an impediment. Ms Yako would be pleased to know that the Department had ensured that a wide range of players was participating in producing PPEs –  state-owned enterprises, the private sector and youth were involved.

In response to the broader question by Ms Yako of who benefited from the Black Industrialist Programme, the Minister asked that the Chairperson give the Department an opportunity to respond in detail to the questions about the Black Industrialist Programme after the Budget Vote of the Department. The Department needed to inform the Committee about the details of who was benefitting. Mr Cuthbert knew about a piece of work that DTIC was involved in because he had asked a parliamentary question about it. DTIC was trying to identify the impact of its programmes broadly and a subset of that was the Black Industrialist Programme. It would take a couple of weeks to put together a proper presentation to show who benefitted and what the Industrialists made, etc. The presentation would cover all DTIC entities. The Minister had decided to make available a list of all beneficiaries of DTIC programmes.

The Minister appreciated Ms Yako’s comments on the furniture industry. It had enormous potential. Currently SA imported a great deal of furniture and it was necessary to examine what furniture was made in SA and what was imported. The state had to enhance the value proposition of SA furniture. Retailers would be requested to support local production. The BuySA campaign would also support that initiative.

In responding to Mr Mulder, the Minister stated that, in thinking about SA’s future, the Department needed to see how to manage a decreased budget. Mr Mulder suggested that DTIC needed to do things differently. A big part of the presentation was about where the Department could do things differently. However, the goals did not change, although some became even more urgent. DTIC could only achieve those goals by learning and getting smarter. Any government in the world that said it learnt nothing from experience would stagnate. He appreciated Mr Mulder’s offer to discuss the thoughts of the FF+ on how to achieve the national development goals. Those goals were to build an economy which was resilient and fast-growing in which all South Africans had a strong and active stake with large numbers of jobs created and opportunities available to youth, women and to black South Africans.

He noted that Mr Thring had picked up the point of Mr Mulder. He wanted to link the comments because there were connections between the points. Mr Thring said that race-based policies should go and no one group should be singled out as the only one to receive hand-outs. His question introduced a necessary and important discussion. Firstly, government did not provide handouts anymore but engaged in a more active support programme of incentives in which the recipient had to deliver on a specific mandate. Industries could get support but they, in turn, had to deliver on a specific mandate. He had explained that, at the moment, the policies did not say that only a specified group could access public funds. The funds from the IDC and the DTIC did not only go to designated groups. He knew because he had to sign off on some of the applications. It was important that he clarified that. However, government ensured that designated groups did receive support. He saw how few young entrepreneurs there were in SA, especially compared to the USA where many young people were driving the digital economy.

The Minister had asked young South Africans what the obstacle was and it was the lack of funding from banks. They could not get bank loans because they did not have experience and a history of doing business. Black SAs were not well-represented in SA business. If all were equally talented, why were the outcomes different? If everyone was equally capable despite pigmentation, then why was the representation different?  He stated that it was a result of SA’s sad history and the fact that history persisted. He stated that an historically advantaged South African not only inherited a business from his parents but his father also introduced him to the right circles of people on the golf course. Black South Africans who had been brought up in a deprived township did not have a father to leave him a business or introduce him to the right people. A worker in a poor area had no asset base to help his child obtain a loan. The dad could not meet influential people at a golf course.

So the challenge was to see how that 22-year old person from an informal sector and who was scraping an existence could be given similar opportunities to the young person whose father had had a more fortunate life history. It was that reality that government needed to confront, but its task was to provide appropriate support to both types of young people. Government wanted both young people to be successful as that resulted in taxes to the SA Revenue Service which came back to National Treasury to ensure that government could provide support. Both young people could apply but historical disadvantage had to be taken into account. That was the reason but the Minister was open to new ideas to get a better impact.

The Chairperson informed the Minister that the Members had to log in for the plenary session and he suggested that the DG should respond to questions by Monday 13 July 2020 before the close of business. He asked the Minister to wrap up.

Mr Macpherson stated that it was the second time that the Minister had not answered his question.

The Chairperson said that he had requested written responses to all questions that Committee Members had asked by Monday. He was sure that the Minister had not deliberately not responded to his question. He accepted Mr Macpherson’s comment but the arrangement that he had proposed should go ahead. The next meeting of the Portfolio Committee was on 15 July 2020. The Committee could have a discussion on programming at its next meeting.

Mr Macpherson responded that the problem was that if the responses were in writing, it was then not an engagement. He could just provide questions in writing and wait for a written response. It was not an engagement: it was a one-way discussion. It was not fair on Members that they asked questions and then the Committee ran out of time and questions were not answered. If that was the case, he would rather not attend meetings but put the questions in writing as it had the same effect.

The Chairperson suggested that in future he should perhaps limit questions to two per person and then there would be more time for engagement with the Minister. He asked that Members limit their questions in future. The Committee could pick up some of the questions the following week. He wanted to close the meeting.

The Minister agreed with Mr Macpherson. It would be helpful to have an engagement and not just programmatic responses. He suggested that Members could give programmatic questions in writing and he could respond to those in writing. However, many of the questions that he had received that day were good questions that actually required an engagement. He requested that Chairperson provide him with another opportunity to continue the discussion. He asked for 10 minutes to complete the questions quickly.

The Chairperson responded that he required an immediate conclusion as Members had to attend the plenary and there was a three-line whip and he did not want Members to face lock-out. The Minister had a minute to conclude.

The Minister said that he hoped that he would be given an opportunity to engage with questions that required more conceptual or policy answers. He reminded Members that with the new constraints, the DTIC was going to face difficult times and would not get everything right. With increased demands and fewer resources, the Deputy Ministers and the DG would be heavily engaged. He repeated that he would appreciate an opportunity to engage in deep discussion. He was tempted to offer a couple of responses quickly before he closed but he understood the Chairperson’s responsibility for getting Members to the plenary session, especially when there was a three-line whip. He thanked the Committee for the opportunity to engage. On behalf of the two Deputy Ministers, the DG and himself, he said they were looking forward to further engagement.

Closing remarks
The Chairperson thanked the Minister for his flexibility as he was sure that his time was limited. He noted that the Committee would have to manage the presentations as well. The next meeting would be on the 15th July 2020. He apologised to Members for finishing late and thanked everyone for their participation.

The meeting was adjourned.