DTIC Special Adjustments Budget; with Minister

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Meeting Summary

Video: DTICC on Adjusted Budget & Revised Annual Performance Plan

Audio: SC Trade 10 July 2020

The DTIC budget was reduced by 16% or R1.77 billion to R9.31 billion from R11 billion. Approximately 59% or R5.52 billion - instead of R7 billion - goes to the various incentive programmes which will be disbursed to companies. Transfers to DTIC entities is 18% or R1.65 billion of the adjusted budget. Operational expenditure (mainly compensation of employees and goods and services) is 21% or R1.96 billion with the main cost drivers being DTIC office accommodation and foreign economic offices.

Department of Trade, Industry and Competition (DTIC) said to improve growth prospects for the domestic economy, interventions include the implementation of:
• R500 billion COVID-19 economic recovery package.
• Master Plans for the automotive sector, poultry industry and retail (clothing, textiles, leather and footwear industries) while others are being developed.
• Integrated Resource Plan 2019, which will open the way for considerable investments in renewable energy generation (particularly wind power) and related components manufacturing.
• Investment projects announced at the second Investment Conference in 2019.
• Opportunities brought about by the African Continental Free Trade Area (AfCFTA) coming into effect.
• Public sector’s localisation drive, including improved enforcement of product designations.
• Re-imagined Industrial Strategy.
• Special Economic Zones (SEZs) policy and the revitalisation of Industrial Parks.
• Black Industrialist Programme.

All Members shared concerns about the budget cuts particularly to Programmes 4 Industrial Competitiveness and Growth and Programme 6 Industrial Financing. Members voiced particular concerns for the development of industrial parks and digital hubs. It was suggested that a more detailed report be given on this.

Members stated that there needs to be employment opportunities for young people, black women and people with disabilities. These programmes need to be advertised and these people need to be informed about this opportunities especially in rural areas. There is a need for localisation to be encouraged and enforced. The BRICS trade imbalance needs to be rectified.

DTIC said with a positive attitude and self-confidence in South Africa’s trade, with all tiers of government and sectors of society working together, it is possible to survive our current situation. 

Meeting report

[Due to delayed YouTube online streaming, Minister Ebrahim Patel introductory remarks are not captured]

DTIC Director General, Mr Lionel October, stated that National Treasury in the Supplementary Budget of 24 June 2020 estimates the real GDP growth for 2020 to be -7.2%. Against the backdrop of weaker global growth fundamentals and significant domestic constraints such as the outbreak of COVID-19; constrained fiscal outlook; and higher tariff increases, South Africa’s real GDP growth is set to remain under pressure for the foreseeable future. DTIC priorities were refined given the impact of COVID-19, the domestic socio-economic environment and government’s limited fiscal resources.

The South African economy lost 38 000 jobs in Q1 2020. This reduces the total number of employed from 16.42 million people in Q4 2019 to 16.38 million in Q1 2020. South Africa is facing a rise in youth and women unemployment due to uneven access to economic opportunities. However, government has measures in place such as the Youth Employment Service and IDC Transformation Fund targeting both youth and women. Government departments are required to ensure that their programs expedite social and economic transformation such as gender equality, youth employment and inclusive growth.

South Africa’s trade balance with the rest of the world recorded a surplus of R87 billion in Q4 2019 from R32.9 billion in Q3 2019. The trade surplus resulted from an increase in the value of net gold and merchandise exports, alongside a contraction in merchandise imports. Exports increased due largely by the demand for citrus in the European market and also a sharp rise in the international prices of platinum group metals (PGMs) and iron ore; and imports contracted as a result of the decline in the value of imported minerals, in particular, crude oil amongst others.

Exports to Africa amounted to R93 billion in Q4 of 2019 while imports from the region amounted to R41 billion resulting in a trade surplus of R51 billion. However, South African exports to the continent were largely driven by preferential trade arrangements in the Southern Africa region (SADC & SACU).

South Africa’s trade with BRICS has been dominated by China: exports (R35 billion) and imports (R58 billion) followed by India: exports and imports at same value of R16 billion each in Q4 2019. As a result, SA recorded a huge trade deficit with its BRICS counterparts of R26 billion in Q4 2019. The increase in imports, particularly manufactured imports from BRICS remains four times greater than that of exports on average. This disparity is reflected in the country’s trade balance, which has been consistently negative. With stronger and more effective interaction at government level and greater private sector participation, intra-BRICS trade could increase significantly.

To improve growth prospects for the domestic economy, interventions include the implementation of:
• R500 billion COVID-19 economic recovery package.
• Master Plans for the automotive sector, poultry industry and retail (clothing, textiles, leather and footwear industries) while others are being developed.
• Integrated Resource Plan 2019, which will open the way for considerable investments in renewable energy generation (particularly wind power) and related components manufacturing.
• Investment projects announced at the second Investment Conference in 2019.
• Opportunities brought about by the African Continental Free Trade Area (AfCFTA) coming into effect.
• Public sector’s localisation drive, including improved enforcement of product designations.
• Re-imagined Industrial Strategy.
• Special Economic Zones (SEZs) policy and the revitalisation of Industrial Parks.
• Black Industrialist Programme.

The Director General outlined the changes to each of the DTIC programme (see document).

The DTIC budget was reduced by 16% or R1.77 billion to R9.31 billion from R11 billion. Approximately 59% or R5.52 billion - instead of R7 billion - goes to the various incentive programmes which will be disbursed to companies. Transfers to DTIC entities is 18% or R1.65 billion of the adjusted budget. Operational expenditure (mainly compensation of employees and goods and services) is 21% or R1.96 billion with the main cost drivers being DTIC office accommodation and foreign economic offices.

Discussion
Ms H Boshoff (DA) noted the economic blow to DTIC. A 16% budget cut of R1.77bn is of concern as DTIC will not be able to recover from this. She questioned the R26 billion deficit with BRICS partners – what will be done to bring about change with these partners? She welcomed the localization policy. She pointed out that there were no industrial parks in Mpumalanga. If they were to have industrial park, forests could be used to boost furniture industry and she asked what can be done to get this up and running. She asked for a report about industrial partners and investors and their commitments. There have been continual talks on regulatory changes to credit, gambling and alcohol regulations but they have not seen anything on paper and she asked when this will take place.

Ms Boshoff spoke to the allegations about the National Lotteries Commission. What is being done to adhere to the legal opinion and when will a report be given? She asked how the steps to take South Africa forward were different to pre-Covid and how it would be different post-Covid.

The Chairperson stated that invitation will be sent to the National Lotteries Commission and DTIC to report to Parliament about this in the next term.

Mr M Dangor (ANC) said that there needs to be a positive attitude towards South Africa. This needs to start within the Committee, then spread to business to trade unions to civil society and translate to the rest of the country. He asked if it is possible to put money into development by bringing together all the funders and financial institutions. Jurisdiction is contested about industrial parks and she asked if the Committee and the Department can assist in resolving this. He suggested that cooperatives to look at would be clothing and furniture manufacturing and that South Africa become an agro processing hub for Africa. Sugar quality should be improved for export as South Africa cannot compete with Brazil at this time. The price of steel is exorbitant, and people are selling scrap which creates a problem. He asked if the country can create a pharmaceutical centre to help during the crisis. There is a need to promote trade and exports.

Ms B Mathevula (EFF) said that due to high transaction costs and poor market research many new black industrial sectors find it difficult to access markets. What programmes has DTIC put in place to assist them? Since the government has implemented special economic zones and industrial parks, how many jobs has it created specifically for women,youth and people with disabilities? Is DTIC promoting black manufacturers and assisting them in accessing capital and markets? Has DTIC considered opening a special economic zone per region to create more jobs, especially for women, youth and people with disabilities.

Mr M Mmoiemang (ANC) appreciated the context provided by the Minister and the DG's presentation. The presentation gave clarity on the budget cuts, on the Covid-19 response and the funding shifts. Both Programmes 4 and 6 had a 17% cut. Programme 6 includes measures to support investment and is the largest portion of the DTIC budget. This is a concern and he needed context on both programmes.

Mr T Apleni (EFF) said that more needs to be done to empower young people and women. Especially during this period, young people need to be made aware of these programmes so they can be empowered by participating in them. Young people are not sufficiently made aware of these programmes. DTIC should take action. He gave the example of an Eastern Cape special economic zone that is lying dormant. One needs to see action with these inactive industrial zones as in this case there is only fencing around the zone.

The Chairperson shared the same concerns about the budget cuts as the rest of the Members. He was disappointed that there are budget cuts in this department which is responsible for revitalising the economy of country. He asked if the IMF and World Bank projections took into consideration the lockdown restrictions. He suggested that the country should create a disaster fund rather than reprioritising funds, which would be similar to the UIF. He had raised this with Department of Labour already. He sought clarity on Programme 1 and the Covid-19 response. He asked what was meant by NMOG Phase 2. Some industrial parks are owned by provinces who would be happier with full control and he questioned how DTIC plans on dealing with the implementing agents. The Committee needs a full account of the industrial park programme. Provincial programmes need to be appreciated and challenged if their programme does not have measurable objectives. DTICC needs to report on those programmes.

The Chairperson asked about the digital hub and if it relates only to particular area, and he was concerned about its link to the industrial parks. He asked if the municipality should be in control of the industrial park with assistance from national. He asked what the role of digital hubs in Trade and Industry and Small Business Development is. Programme 4 included personal protective equipment (PPE) development in the country and he asked where it is taking place. Supported employment enterprise. Encouraged collaboration with the labour department to produce PPE. He asked why the Solidarity Fund gave money to Dis-Chem who exploits consumers. He asked how long the President takes to assent to a bill such as the Copyright Amendment Bill as it had been a long time. The period of time the President takes to assent to a bill needs to be discussed. Parliament was only recently informed that the President decided not to sign the bill after waiting a year for his feedback.

Responses
DTIC Deputy General, Mr October, agreed that there needs to be a detailed information on the industrial parks programme plans. He will invite the managers of development financial institutions as industrial parks are owned by the development corporations of each province or municipally owned. The rent collected from these industrial parks is unfortunately not used to fix the infrastructure within the parks. This engagement needs work. The first round of funding for industrial parks was given to leverage work from the budget of the province. DTIC is not responsible for such things as fixing fences. It must be one of conditions that the income from the rent must stay and be utilised in the park. He recommended a detailed session on these industrial parks as they are fundamental to employing many people specifically within rural areas, including black women. He said that this needs to be a joint programme financed from all tiers of government. This is currently in the beginning stages.

The BRICS trade deficit is unsustainable and the level of imports is increasing. Two active measures are in place to promote trade with Russia and China for beef, wine and citrus products. China runs a deficit with SA. Government needs to increase measures to stop under-invoiced products and DTIC is currently working with SARS on this. State owned companies and municipalities that are importing must ensure to buy local. South Africa needs to change this negative trade balance. DTIC is working actively to get growth areas and interventions introduced in the industrial parks working. Management needs to be stabilized. With the two industries in Mpumalanga, DTIC needs to challenge and strengthen leadership and prioritise sugar and forestry.

The Copyright Amendment Bill, Liquor Products Amendment Bill and National Gambling Amendment Bill are currently in Parliament being dealt with by the Portfolio Committee.

South Africa needs to be self confident as nation to build the economy and trade more robustly with world. The three tiers of government working together must be addressed instead of blame shifting, there needs to be cooperation to co-invest in projects. These tiers need to use the Special Economic Zones and the District Development Model programmes to co-invest in.

The Babelegi Industrial Park in Hammanskraal is owned by the North West Development Corporation but the province does not want to build so everything is at a standstill. Lockdown afforded the opportunity to solve these political issues.

Youth development programmes do exist specifically for the youth. There is an intention for a digital hub in every province and in every industrial park. DTIC wants to champion these industrial parks to provide a quick employment opportunity to decrease unemployment. The digital hubs could give opportunities for young people and women.

There was a debate on what part of the budget should be cut. There is a need to preserve the industrial base and manufacturing. No programmes were specifically targeted; instead there was a general “hair cut” done through all programmes. The R7 billion incentive programme which is the heart of DTIC is now R5.6 billion.

The Director General gave the example of the Great Depression where the New Deal in the US brought about massive expenditure and massive investment. Europe had the Marshall Plan. South Africa needs a similar programme. This could be the only way out of our current situation. Factoring in the years of neglect in Black areas, he agreed with the disaster fund to drive a growth period.

Programme 4 and 6 is the heart of DTIC where the budget cuts hurt the most. DTIC is working with the banks. It has had discussions with ABSA, FNB, RMB and Standard Bank, as well the development financial institutions (DFIs) to combine financing to have a substantial impact.

There are insufficient funds to continue projects. It has set up a forum with all DFIs and provincial departments called the Industrial Parks Association to use the funding effectively. This was done to induce provinces to invest in the industrial parks.

On the matter of the National Lottery, DTIC has been conducting its own investigation. The Minister requires an accounting of this investigation of staff accused of fraud and nepotism. The investigation report arrives today so it will be seized with this matter. The Department will unpack the report and make recommendations and report to the Minister. DTIC is willing to accept the invitation to address this matter at the next Portfolio Committee meeting.

On the reference to Dis-Chem and the Solidarity Fund, Mr October replied that the Competition Commission acts without fear or favour. If Dis-Chem has acted in such a way, investigations should be made.

The National Macro Organisation of Government (NMOG) was implemented to cut down the number of departments and ministers. It completed this very well and is actively working smartly together.

Health protocols and digital working have been introduced due to the pandemic. DTIC has invested in remote working, hand sanitizers and masks. Desks have been rearranged with only one third of the staff at the DTIC campus at one time. There has been six positive cases.

Mr October replied that a more detailed presentation on each programme area will be given.

With the Copyright Act, a constitutional challenge was raised and this why the President did not assent to the Bill and returned it to Parliament.

Follow up questions
The Chairperson asked if there are regulations that force companies to embrace localization. He asked for the status of the commitments made at the 2018 and 2019 SA Investment Conferences.

The Chairperson asked if DTIC follows the understanding that the money from the budget cuts is suspended and there is a possibility it could come back. He asked for DTIC's view on zero based budgeting.

Responses
Mr October replied that for localization and local procurement, National Treasury has the Preferential Procurement Policy Framework Act which allows the Minister of Finance to issue practice notes to SOEs and departments to designate certain product that must be procured locally. The neoliberal position does not approve of localisation. So far, 20 products are designated for localization. It did help the clothing and textile industries. Due to Trump’s enforcement of localization, the mindset of those that were resistant can change.

Investment commitments are driven by demand, the bulk remain in place. Amazon met its commitment and employed 3 000 young people. Ford is committed to its investments. Mercedes made the commitment to build the next C class in East London. In KwaDukuza (Stanger), 3 500 jobs are expected to be created. The Department is playing the role of facilitator to make it easier to invest.

A forum has been set up to work to redirect procurement. There is an active working group to help the Department of Employment and Labour with sustainable enterprises.

The Deputy General replied about the budget cuts and zero based budgeting saying that the state must play an active role in rebuilding economy. The state plays a big role in stimulating economy. It can only be successful if people trust that government can manage its money well. The fiscal deficit must be kept under control as no country can survive this for long so there is a need to make cuts, if not then the country probably could not survive. There needs to be acceptance that the money lost from the budget cuts will not come back. This will help to control the fiscal deficit as investors will be more inclined to invest.

Meeting adjourned.

 

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