Steel & Sugar industries with Ministry; National Lotteries Commission beneficiaries

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Trade, Industry and Competition

28 July 2020
Chairperson: Mr D Nkosi (ANC)
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Meeting Summary

Audio: Minister on ongoing crisis in the steel and sugar industries 

The Portfolio Committee on Trade and Industry held a virtual meeting to receive a briefing from the Minister of Trade and Industry on the sugar and steel industries and the Masterplans being prepared for those industries. The Committee was joined by a number of Members of the National Council of Provinces Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour.

The Minister explained that the immediate challenge was to address imports in sugar. In the Masterplan, the agreement that had been reached was that local users, i.e. food producers, soft drink producers and retailers had agreed to buy local sugar but, in return, the industry had agreed to keep processes stable and to work on a transformation model to enable small scale black farmers to get into a more commercially rewarding part of the industry. The long term drivers would be to diversify the sugar industry’s output and the use of the farms. Firstly, sugar could be a feedstock into other industries, such as the biofuel industry and the Department of Mineral Resources and Energy was looking at a bio-fuel strategy. The second part was the diversification of the land and the products produced on the sugar fields of the country to alleviate the dependence on the fortunes of sugar. The Masterplan also looked at the Health Promotion Levy and an exemption from a section of the Competition Act to allow role players to collaborate in transforming and developing the industry. The Masterplan had not been drawn up by officials sitting in offices; it was done via very active engagement with the sector and the bringing together of parties involved in the industry working closely together to save the industry and provide jobs and livelihoods to South Africans.

The Minister stated that the steel Industry had been challenged since the previous global crisis a decade earlier when China had built up a strong infrastructure programme and its steel industry was developed. There was a glut of steel as the supply was greater than the demand and that had put price pressures on local industry, making it essential to build greater resilience in the local industry. He had appointed facilitators to work with local industry and trade unions on a Masterplan. He expected a draft of the Masterplan to be available in the next few weeks. The Department and the ministerial facilitator and technical facilitator provided details of the Sugar Masterplan and the situation in the steel industry, including efforts to save livelihoods in Saldanha following the closure of the ArcelorMittal plant.

Members had diverse views on the policy approach and specific aspects of the Masterplan programme. Members asked about the implementation timeline for the Sugar Masterplan. How many Africans owned sugar mills? Was there a plan to create more black millers? Would there be any funding to change the ownership patterns in the industry? Was there any relief fund for the sugar industry for Covid-19 relief?  What had determined that pattern of voting decided upon in the sugar association? How could people diversify if they did not have land?

How soon would Members receive the biofuel strategy? Was the sugar tax (Health Promotion Levy) doing what it was supposed to do? What was the national interest and who determined the national interest? How would restrictions be imposed on deep sea sugar imports without flouting international trade agreements? How would retailers create a new demand for 150 000 tons of local sugar? What was the risk noted in the Sugar Masterplan, what would the risk cost and who was expected to fund that risk? What was government’s financial and legislative contribution?

Concerning steel, Members wanted to know if there were mechanisms to ensure that China was not dumping steel in South Africa. Had there been talks with the Chinese and what strategies had been put in place against Chinese colonial-type movements in Africa and other parts of the world? Why was ArcelorMittal (AMSA) afforded protection through the almost 25% import tariff despite continually shedding jobs? What should people in the scrap metal industry do to remain viable, to feed their families and keep people in jobs following the ban on the export of scrap metal? Who was consulted on that and why did scrap metal dealers feel largely excluded? How many scrap metal dealers were there and would there be subsidies for them?

The Chairperson reported that National Lottery Commission had submitted the names of beneficiaries who had received funds from the Covid-19 fund and the amounts received, as well as the names of those who had received funds in 2017/18 and 2019/20 where the information had not been published in the Annual reports as required by law. That information was now publicly available.

Meeting report

Opening Remarks
The Chairperson greeted everyone and held a moment of silence for those affected by Covid-19.

The Committee Secretary ensured that the Committee was quorate. The Portfolio Committee on Trade and Industry was joined by several Members of the Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour.
The Chairperson wished the Minister well in his recovery from Covid-19.

Remarks by the Minister of Trade and Industry
Minister Ebrahim Patel noted that he would speak on sugar and steel, two crucial industries but he had a couple of preliminary remarks to make. He sent his condolences to the family of the late Shakes Cele who had passed away from Covid-19. He had been a very strong and committed Member of Parliament. He had done much in the way of addressing competition, supporting small businesses and highlighting the interest of vulnerable communities. The Minister also extended the ministry’s best wishes to Ms R Moatshe (ANC) who was a Member of the Committee and was currently fighting the virus. He sincerely appreciated the warm wishes that he had received from the Committee Members and many other South Africans.

Minister Patel informed the Committee that his two Deputy Ministers - Deputy Minister Fikile Majola and Deputy Minister Ms Nomalungelo Gina were present in the meeting. He would be making a few introductory remarks but then two Chief Directors from the Department of Trade, Industry and Competition (DTIC) would present the details of progress in the two industries. Ms Ncumisa Mcata-Mhlauli, Chief Director in Agro-Processing in the Industrial Competitiveness and Growth Division, would be briefing the Committee on developments in the sugar industry. He also welcomed Mr Harald Harvey, who was a ministerial facilitator who had worked tirelessly with the industry players to create a Sugar Industry Masterplan. He would provide some of the texture of the engagements. It was testimony to the enormous effort that Harald had put in that the Masterplan had been completed earlier than originally planned. Dr Umeesha Naidoo, Chief Director in the Metal Department in Minerals Processing and Construction Oil and Gas (ICGD) would provide details on the steel industry.

The Minister indicated that he might not be able to attend the entire meeting but the colleagues from the Department were well-versed on the issues. The steel and sugar industries were both industries that had experienced enormous challenges over the last number of years. The 2020 Annual Performance Plan of the DTIC had referred to three Masterplans and it just so happened that two were those to be discussed in the meeting: sugar and steel.

Minister’s Remarks on the Sugar Industry
The sugar industry challenges had been expressed in the import of sugar, particularly from Brazil and also from other countries and there had been enormous challenges particularly in KwaZulu-Natal, but also in other provinces. Margins had become thinner, making it difficult to be sustainable and businesses had been weakened.

During the previous year a decision had been taken to put in place a Masterplan in the sugar industry and a meeting had been convened with established farmers, millers, small scale farmers, trade unions, retailers and the industrial off-takers, those who were industrial users of sugar. Harald had arranged the technical discussions. The entire process was chaired by Minister Thokozile Didiza (Minister of Agriculture, Land Reform and Rural Development) and himself. They had pulled together a number of plenary sessions at which the differences between parties were ventilated and issues were articulated. Essentially, they had looked at two issues. The first issue was the short term responses required to put the industry on a more sustainable path and to rescue businesses, i.e. those things that could be done in the short term. The second issue was to build resilience in the sector and that could only be done by making structural changes in the industry. The details would be in the presentation.

The Minister explained that the immediate challenge was to address imports in sugar. In the Masterplan, which was in its final stage of iteration, was basically a trade-off between cost pressures that local retailers and food producers had with the industry on the one hand and, on the other hand, the increase in the level of imports that the sugar industry, especially the growers, identified as their challenge. The agreement that was reached was that local users, i.e. food producers, soft drink producers and retailers, agreed to buy local sugar but in return, the industry had agreed to keep processes stable and work on a transformation model to enable small scale black farmers to get into a more commercially rewarding part of the industry for the period of the agreement.

However, those were short term solutions that could perhaps give a few years, but it was important to use that time well. The long term drivers would be to diversify the sugar industry’s output and the use of the farms. Although the immediate problem was that of imports, in the long term there was the greater awareness of health issues that was leading to a reduction in excessive consumption of sugar by South Africans and that had been identified by the Department of Health as having an adverse impact on health. So the demand for sugar by consumers was decreasing. At the same time, the sources of supply were diversifying in the sense that there were more imports of sugar. To address that, there were two elements in the response and the approach of the industry and government. Firstly, sugar could be a feedstock into other industries, such as the biofuel industry, but it had to benefit and be affordable to the country. Brazil had built a strong bio-ethanol industry and sugar was used to produce petrol for cars and other vehicles in Brazil. The Department of Mineral Resources and Energy (DMRE) was looking at a bio-fuel strategy. The second part of the long-term plan was the diversification of the land and the products produced on the sugar fields of the country. Government was looking at assisting medium and small scale farmers. Large scale farmers had found ways of diversifying their crops. They had gone into the production of nuts, essential oils, and other products. Those were all ways of ensuring that the farmlands were used for a diversity of crops to alleviate dependence on the fortunes of sugar. That was the broad approach.

The Minister assured the Committee that the Masterplan was not done by officials sitting in offices in Pretoria. It was done with very active engagement with the sector and the bringing together of parties involved in the industry and they had worked closely together to saving the industry and providing jobs and livelihoods to South Africans. The Chief Director, Ms Mcata-Mhlauli, would take the Committee through some of the detail and some of the work that had been done. Harald Harvey would provide some of the texture and the dynamics of the process. He informed the Committee that he had gazetted some weeks ago the transformation, the Masterplan and the institutional arrangements in the sugar industry.

Minister’s remarks on the Steel Industry
The second part of the presentation would be on the steel industry. By way of introduction, the Minister stated that the steel Industry had been challenged since the previous global crisis a decade ago when China had built up a strong infrastructure programme and the steel industry was developed. Shortly after the crisis, the Chinese had begun exporting steel and that had led to challenges in the steel industry. There was a glut of steel as the supply was greater than the demand and that had put price pressures on local industry.

When he and the Department had looked at the challenges that the local industry was facing, it was apparent that it was essential to build greater resilience. He had appointed facilitators to work with local industry and trade unions on a Masterplan. He expected a draft of the Masterplan to be available in the next few weeks. It would be made available to the industry for their comments. He and the Department would only be able to provide those details in more broad terms. Unlike the sugar industry, there was not yet a completed Masterplan for the steel industry.

The Minister on the current position
The Minister explained that the sugar industry was in the process of preparing an application to the Competition Commission to get an exemption from the Competition Act in terms of certain conditions of the Act to enable the millers and others to put into practice the plan that was outlined in the Masterplan. He had designated the sugar industry as per the Competition Act. This enabled the Commission to consider the application. When the application was complete, there would be a signing ceremony. In the meantime the sugar industry was working on some elements of the Masterplan.

The Steel industry would be provided with a draft of the Masterplan, based on the discussions held with the sector. In anticipation of dealing with the problems of the steel industry, he had gazetted a temporary halt to the export of scrap metal to give local industry an important feedstock. Once he had received comments from steel and labour, he hoped to convene a plenary session and then sign off on the Steel Masterplan No 1.0 for steel implementation. Thereafter the Masterplan would be improved progressively over time. Covid-19 had impacted severely on the steel industry and had aggravated challenges in an industry that had already been struggling before Covid-19. He was trying to move with as much speed as was prudent under the circumstances to give the steel industry the certainty that it needed about commitments that government could make and that the industry and its workers had to make to build SA’s steel industry.

DTIC presentation on the Sugar Industry
Ms Mncata-Mhlaudi noted that key challenges facing the sugar industry included the global sugar price that had declined below the local cost of production, with no real prospect of improvement. The Health Promotion Levy (HPL, commonly known as Sugar Tax) and eSwatini imports had significantly reduced demand for locally produced sugar resulting in 50% plus of raw sugar currently being exported at a loss and a 20-40% excess capacity in milling and refining. The majority of growers and millers were losing money, with many under severe pressure. It was highly likely that there would be an acceleration of small-scale growers exiting the industry.

Ms Mncata-Mhlaudi said that the masterplan had been created to enable growth in the sugar industry, given the crisis within the industry that was threatening thousands of jobs. Seven Task Teams would be established to drive specific areas of implementation and an Executive Oversight Committee and Implementation Office would be established. The industry had been designated in terms of the Competition Act for an exemption, which would allow the industry stakeholders to begin working together to implement the Masterplan.

Mr Harald Harvey, Technical Specialist and Ministerial Advisor, emphasised that there were two stages in the Masterplan: firstly, stabilisation of the industry and, secondly, the sustainability phase. In phase 1, seven specific time-based actions had been determined.  Firstly, the intention was to restore sugar pricing, especially that from eSwatini. In Year 1, local retailers and industry would ensure that 80% of all sugar was sourced from the local sugar industry, going up to 95%. The figures might change as Covid-19 had created a challenge in that the market had shrunk quite severely. For example, beverage sales had dropped phenomenally. It was also agreed that the sugar industry would keep prices in line with inflation and that linked to the assurance from government that the HPL would not keep changing and the annual 10% increase would not be implemented in the current year. Strategic trade protection would entail trade measures to limit deep sea imports.

Mr Harvey stated that the Masterplan ensured a commitment to employment levels and a foundational role for small scale growers who currently form 80% of the growers but produce only 20% of the sugar cane. There was a commitment to change ownership patterns throughout the value chain. The final commitment was to seek exemption in terms of section 10 of the Competition Act to permit industry-wide collaboration.
It was possible that individual firms would close but if a mill in one of the most fertile geographic areas closed, that could have a serious impact on the industry. Although there were calls for black-owned mills to be established, in the long term, mills had to be carefully managed because sugar for human consumption was declining. Determining which agricultural crops would be introduced depended on factors such as security measures if, for example, one were growing crops of nuts, but downstream there was a lot of work going on in ethanol.

Mr Harvey noted that the plan was for an entrepreneurial state to work with industry. Government was working with eSwatini to optimise the differential global markets and to work together as African producers of sugar.

Development in steel and metal fabrication
Dr Umeesha informed Members that an excess in the steelmaking capacity of about 440 million tonnes continued to be the biggest challenge in the global steel sector, particularly considering the slow global economic growth. Increasing price volatility, global trade, margin pressure and rising debt were creating difficult operating conditions for steel makers and steel manufacturers in developing economies, including SA, were disproportionally affected. Primary and value-added products were equally challenged by the surplus supply. In addition the Covid-19 pandemic had aggravated the excess capacity as mills globally had not reduced production and were looking to sell at low prices to raise cash.

Dr Naidoo concluded with a reference to the proposed Steel and Metal Fabrication Sector Masterplan. A lot of engagements had been held with industry in developing the existing short-term interventions provided to the steel value chain. The process to develop the Masterplan to address long-term growth, sustainability and transformation, was well underway. DTIC was partnering with labour to effect the social compact. In the short-term there was an urgent need to assist the value chain to cope with the impact of Covid-19. The turnaround action-oriented plan was based on identified competitiveness improvements, measures to increase demand, reduce levels of imports and reposition the industry to be resilient under the intense global pressures.

The Chairperson thanked the presenters and invited Members to comment.

Ms J Hermans (ANC) asked what the implementation timeline was for the Sugar Masterplan because in an industry under so much stress, it had to happen as soon as possible. The Minister had noted the agility in the arrangements but she asked that the agility be coupled with speed. She had heard a lot about sugar growers but was there a plan to create more black millers? Would there be any funding to change the ownership patterns in the industry? She was sure that it would cost hundreds of millions of Rand to make a serious dent in the transformation agenda of government.

Ms Y Yako (EFF) pointed out that she was hearing a lot about Covid monies going to private companies to manufacture PPEs. As she had previously said, if there had been a state-owned company making PPEs, one would know exactly how they were being made, where the money was going, etc.

In terms of diversification of sugar diversification, Ms Yako asked if the talks had begun and how soon would Members have the biofuel strategy. How far was government in terms of black millers? As long as that was not talked about, the industry would continue to benefit only a few and there would be no transformation, and as long as no land was given to the black farmers to operate, there would be no diversification in the industry.

Ms N Motaung (ANC) asked, out of 22 500 farmers, how many were Africans? How many Africans owned sugar mills? How were those who had less capacity to diversify? What about amendments to the Regulations when they did not form part of the key challenges? She highly commended the development of the Masterplan.

Mr F Mulder (FF+) wished the Minister well and a speedy recovery. He was not going to go into the text, nor was he going to talk about transformation, be it blackness or whiteness. With all respect, the country was far too deep in trouble to talk about that. He wanted to talk about rational business principles. The country had recognised the fact that everything had changed and nothing would be the same again. One could compare the situation to a river that had flooded and removed everything in its path, leaving nothing the same as it had been. That was where the country was with the post-Covid-19 economy, especially in the sugar and steel industries.

He believed that the sugar industry was in trouble before Covid-19, especially because of drought, cheap imports, a lack of competition in the market, and, of course the sugar tax. It was not a topic for this Committee but one had to ask if it was doing what it should be doing. The sugar tax was one of the biggest obstacles in the industry for black and white millers. He reiterated that one had to question whether it was doing what it was supposed to do. He complimented the Minister on the Masterplans into which a lot of thought had gone but the removal of the obstacles was essential for the industry to survive.

Regarding steel, Mr Mulder believed that the Masterplan could work but it was necessary to monitor imports, especially from China, to ensure no dumping. China should not become the new colonists of SA and the SA economy should not become dependent on China. The FF+ felt very strongly that the lockdown regulations should be lifted because that was one of the greatest obstacles to the development of the steel industry.

Mr D Macpherson (DA) hoped that his questions could be answered on the day.  The Masterplan seemed a little simplistic. He had assumed it would be a bit more intensive and he worried that it was out of date, considering what had happened over the past few months. The Masterplan spoke of creating new demand of 150 000 tons through the retailers. How would that happen? It spoke of creating demand through diversification of output and the use of farms. He and the Minister had spoken about it before but the government had spoken about it for 10 years, so how would the Master unblock 10 years of stalling? The Minister had spoken about the HPL and about ongoing engagements but the ongoing engagements with National Treasury never seemed to end. It had been introduced three years earlier and National Treasury just increased the levy each year. With respect, National Treasury was not listening, so what engagements were taking place? Why could there not be a moratorium on HPL? He noted that the Minister talked about the national interest. What was the national interest and who determined the national interest?

Mr Macpherson said that the Minister spoke of the risk but risk came with a cost. What was the risk, what would the risk cost and who was expected to fund that risk? By the Masterplan’s own admission, the sugar industry had provided exceptional donations of billions of Rand to small scale farmers, the Solidarity Fund, personal protective equipment, etc. However, he did not see government doing anything. So what was government’s financial and legislative contribution? It was not moving on HPL or diversification, so what was it doing?

Finally, he addressed the South African Customs Union (SACU) agreement. Swaziland had violated that agreement by exporting below cost sugar and Botswana had abolished the sugar tariff. The Swaziland problem had been ongoing for years. What was government doing to uphold its end of the bargain and ensuring that members of SACU followed the regulations and kept low cost sugar out of the country?

Mr M Cuthbert (DA) wished Minister Patel well and hoped that his family was safe. His Economics lecturer had told him not to think in binaries. The world had moved on from the Cold War period where there was free economy fundamentalism versus a command control economy. Every time the DTIC issued policy or regulations, it seemed that the country was stuck in the Soviet era with more control for the state and more meddling by the state and not allowing businesses and the market to flourish. His Economics lecturer must have been incorrect. State and command control economies were alive and well in SA.

Mr Cuthbert asked why ArcelorMittal (AMSA) was afforded protection through the almost 25% import tariff despite continually shedding jobs. Government had a number of social contracts with AMSA to protect jobs, but AMSA did not uphold its end of the bargain. Even the way in which the presentation was made had suggested that the Department had consulted with AMSA and when AMSA had rejected the proposal, it had been dumped. Other businesses did not get that kind of audience with that ministry. He could not understand why AMSA did.  The steel industry was doomed because SA had corporate welfare where a foreign-owned company was better protected than SA-owned companies and downstream steel users. He did not understand the contradiction and asked if it could be made clear to him.

Mr Cuthbert referred to the Regulations preventing the export of scrap steel. It was a very bad move because government was trying to create an artificial market out of thin air. Mills and foundries had not honoured their commitment to view scrap metal since March 2020. Granted there had been lockdown, but he could not understand how the International Trade Administration Commission of South Africa (ITAC) had been allowed to delay the process so long and to prevent the export of steel. What should people in that industry do to remain viable, to feed their families and keep people in jobs? It was counter-intuitive and lacked economic sense at its core. He asked the Minister why the permits had taken so long and what the hold-up had been. Why had Commissioner Nzimande (Chief Commissioner of ITAC) delayed the process in that manner? There had been a process of inspection at mills and foundries and, surely, ITAC inspectors would have seen that there was something terribly wrong because the mills and foundries were not keeping their part of the deal as far as the preferential pricing system was concerned.

Mr Cuthbert added that the steel export tax was a terrible idea. The Committee should reject it. There was no demand for that scrap steel. It was a hindrance to the market. There was no local demand for the scrap steel, as experienced since 2013. There could be no beneficiation if there was no market. Who was consulted on that and why did scrap metal dealers feel largely excluded? How could the policy decision be imposed on them without taking the views of the sector into account?

Mr S Mbuyane (ANC) wished the Minister well. The Minister would recall that the sugar industry had presented a transformation plan in 2018 with targets, such as 51% of cane would be delivered by black farmers within five years. DTIC needed to clarify whether the target would be met.

He cautioned that the transformation plan should not be overshadowed by the Masterplan. There had to be an integrated approach to manage the challenges facing the industry. He had concerns about the membership and voting. The Committee had been told that it was “one, one, one”. If one group did not agree with a matter on the table, would it need support from another? What had determined that pattern of voting?

Mr Mbuyane noted that R142 million had been allocated to small scale growers. Was that enough, especially with Covid-19? He informed the Chairperson that the Committee should have a session with Black farmers so that they could say whether they were covered by the funds and the Plan. Was there any relief fund for the sugar industry from DTIC for Covid-19 relief? The two industries were white-dominated and owned by whites. How could people diversify if they did not have land? Expensive houses were being built by the whites. Black people did not have the money to build houses.

Ms P Mantashe (ANC) rejected the proposal by the DA Member for the removal of the scrap metal tax. It was necessary to protect jobs in the country. Most businesses in SA that were run by expatriates used imported metal. What would be done differently to change that? There had been a blood bath of jobs but there was nothing on the Masterplan about re-skilling workers.

Ms Mantashe said that legislation and regulations about transformation had been enacted in 1998 but that had not been enforced to ensure transformation. No one must boast about the new legislation for transformation. The Department had to move with speed. It made her blood boil. What about allocations for small farmers? What was in the Masterplan to allow black farmers to get premium payments sooner than later or they would be dead? The sugar industry was the source of a lot of employment in most of the provinces in SA. How many farmers were there in SA? How many scrap metal dealers were there? She heard nothing about subsidies for them. Only a few industries were supported.

Mr W Thring (ACDP) stated that the ACDP wished the Minister well. What was the role of the seven task teams indicated on slide 13? What were the focus areas? He had thought it was to do with biofuels, etc. Could that be unpacked? Regarding the deep sea imports, how would restrictions be imposed on deep sea sugar imports without flouting international trade agreements?

Mr Thring asked about the best practices that had worked in the sugar industry. There had been an article regarding sugarcane growers and Tongaat Hulett in KwaZulu-Natal, where the coming together of those with experience and those without experience in the industry had proved to be a winning formula. In the steel industry, the involvement of the Chinese, both in SA, and in East and West Africa, was a concern. There should have been strategies put in place to prevent the SA steel industry from being decimated as it had been. Had there been talks with the Chinese and what strategies had been put in place against Chinese colonial-type movements in Africa and other parts of the world?
Mr M Mmoeimang (ANC; Northern Cape) said that the Masterplan was a game changer but one had to look at it in the new situation that had emerged. The last three months had indicated that the role of the state was a must following the pandemic. Learning from that, he appreciated that the crisis had led to a larger role for the state in the economy. He was pleased to see the State intervening in Saldanha to salvage industry in the town, particularly in the light of the role that industrialisation played in creating jobs. The intervention with SCAW could also link to how government intervened in Saldanha. It was necessary to ensure that the intervention was used to boost job creation. Government needed to be able to learn from the Asian Tigers who were uncompromising on the role of the state in taking advantage of the mineral riches. Government should not be satisfied that AMSA was not happy with the R500 m. Given the situation, it was important to do everything possible to salvage the 2 000 job losses and it was critical that IDC meet the requirements of AMSA to salvage jobs.

The Committee Secretary read two questions into the record that Ms B Mathevula (EFF; Limpopo) had asked on the chat section of the online platform: What method did the Minister’s Department use to reach out to the sugar growers from rural area as he had indicated that they were struggling with technology? Out of R142 million which had been budgeted to support black sugar cane farmers, had the Department considered women, youth and people with disabilities?

The Minister noted the wide range of comments and the divergence of views. He stated that the role of government was to take the position put to the people in the elections and that identified the broad thrust of interventions that government would be undertaking. He requested that Mr Harvey and the officials of the Department respond to the comments and questions.

Mr Harvey responded to questions on the Sugar Industry Masterplan. He informed Ms Hermans that the timelines were in the Masterplan, and, although the DTIC was in a holding pattern awaiting the decision of the Competition Commission, to all intents and purposes, timelines were being met and being implemented. The industry re-structuring discussions needed to take place within six months of the exemption being granted. The issue of transformation in the industry was a concern and Members were right to ask. If one were to be completely factual, there was to one black-owned sugar mill supported by Illovo. All of the 80% small scale growers were African Black and predominantly farming on communal land, although there were land reform areas linked to some of the mills in Mpumalanga and KwaZulu-Natal. The Masterplan sought to speed up and propel on a more fundamental basis what had come out of the discussion process within the industry, including the R1 billion of funding over five years. However, it also sought a forward integration down the values chain into the milling layer and the new value streams that came out of the diversification process would result in a different ownership models, e.g. the restructuring of Tongaat-Hulett, and would include small scale growers as well as their employees in an ownership model. The Masterplan supported fundamental transformation led by a Task Team but it had to be on the back of the future vision on a sustainable basis.

Mr Harvey stated that the new biofuels framework had been gazetted by government so, after many, many years of debate on a difficult field because of the subsidy costs and the requirements, there was movement on that front. On the sugar tax, he suggested that Mr Macpherson and Mr Mulder looked at the budget before Parliament. They would see that there was no increase on the HPL in the current financial year. The Masterplan was predicated on the assumption that there was a moratorium on the HPL. That was what government was bringing, as well as trade tariffs, etc.

He explained to Mr Macpherson that the 150 000 tons of sugar coming back to the market was replacing imported sugar so the no-name/house brand sugar that was currently largely imported sugar from eSwatini would be replaced by at least 80% locally produced sugar and moving upwards. Five years ago, there had been 1.5 tons of imported sugar in the market and that was now down to 1.2 tons. It was about bringing down the quantity of imported sugar. However, eSwatini was not dumping sugar. eSwatini genuinely had lower cost production because all sugar cane fields were on irrigated land which gave farmers higher yields per hectare than in SA. Wages were also lower in eSwatini, so the growers were selling at a profit. That was why SA had to play as a team with eSwatini. Botswana had removed the excise tariff on raw sugar but it had no refining capacity so the tariff on refined sugar from deep sea imports was unchanged.

Regarding the national interest and the risk, fundamentally, it was a patriotic plan all along the value chain, including back local growers, millers, etc. as there were a million livelihoods on the line. One had to be patriotic and buy locally produced sugar.

He added that the free market debate was somewhat moot in a world where the global sugar market worldwide was run as an instrument of social policies. The cost of sugar in most countries was below the cost of producing sugar. It was subsidised, particularly in India, as a way of driving income for rural growers and small scale growers. SA did not want to protect an industry on an unsustainable basis but to allow it to go through a transition founded on strong economic and competitive principles. There would be a sharing of risk by different players. In the Masterplan, as they invested in the downstream industries of bio-fuel, etc, there would a combination of risk by the millers and the growers, new investors and the Independent Development Corporation (IDC).

Mr Harvey addressed the question of allocations to small growers as asked by Ms Mantashe. The reality was that the supplementary and additional funds out of the transformation plan were being paid and would continue to be paid. What the Masterplan was trying to do was to retain small scale growers while one of the seven Task Teams would develop a Small Scale Masterplan. The future of small scale growers could not be based on discretionary payments. There was a need to look at mechanisms by which a structurally different cost structure be built so that small scale growers could be reasonably compensated for their produce, but, on the other hand, there was also a need to look at the costs of small scale growers who bought their inputs on a subscale basis, e.g. buying of fertilisers, etc. Lots of small growers were competing for transport and small scale growers were paying higher electricity prices than the large scale growers. All small scale growers were involved in the development of the Masterplan and the intention was to create a sustainable industry, not to produce sugar at the lowest possible price because, in that case, one would go with a single mass producer.

Mr Harvey responded to Mr Thring’s question about the seven Task Teams:
TT1 was responsible for harmonisation. Its job was to structure the long-term relationship with eSwatini.
TT2 was effectively the employment strategy and so, in the short term, it had to deal with job retention, and in the long term, it had to find the optimal employment level and where in the value chain government would support job creation.
TT3 was the Small Scale Grower Task Team.
TT4 would deal with transformation by building on the current plan so that there would be fundamental changes of ownership through the extent of the value chain.
TT5 dealt with crop diversification. Sugarcane was a difficult crop to replace as it was effectively a weed and grew robustly where the growers lived. Its value to volume ratio was such that there were not massive incentives for people to steal one’s crop. It did not require intense care as did the alternatives. The answer was to incentivise large scale growers to engage in crop diversification, such as in macadamia nuts as they were doing at the moment. Valuable crops, such as nuts, needed security systems, including CCTV, to protect the crops which small scale growers could not afford to install. Small scale growers would focus on sugar cane but not all would be able to sustain themselves. The Department of Agriculture, Land Reform and Rural Development (DALRRD) had come to the party and had done immense work with its Farmers Support Programme and by facilitating the sustainability of small scale growers through the current period, but also by supporting diversification. The private sector, e.g. Coca Cola Bottlers, had made significant investments and there were investments in fertiliser businesses, etc.
TT6 was working on value chain diversification. It was working on things like bioplastic, industrial solvents and different forms of alcohol production. DTIC had been worked with Illovo and its ethanol business. During Covid-19, all Illovo’s normal production had been shut down in order to produce hand sanitiser.
TT7 was the product tax task team. It would negotiate with National Treasury on issues of taxation, etc. and work with the NEDLAC Task Team that was looking at whether HPL had had the anticipated impact on health and obesity. A report on the economic impact of the HPL had just been tabled with NEDLAC.

Mr Harvey said that, as far as deep sea imports were concerned, DTIC was looking at the mechanisms in place and whether they had achieved the objective. The Minister, DTIC and ITAC were very alive to the commitments under the WTO, international law and treaties. They were looking at real exchange rates (RER) and other commitments and obligations. All protections offered to the industry would adhere to those commitments and obligations.

Ms Mncata-Mhlaudi informed the Committee that the Biofuels Regulatory Framework had been approved by Cabinet in December 2019 and so was in place. The Department of Mineral Resources and Energy (DMRE) had created a Biofuels Implementation Task Team which would look at the issues of diversification of sugar into bio products. The framework also looked at crop diversification, such as sunflowers and sorghum, etc. The Task Team was looking at the Biofuels Farmers Support Programme and the Biofuels Producers Support Programme. Sugar was being prioritised for biofuel feedstock and DTIC had been in touch with the sugar farmers and had informed them of the biofuels products. DTIC wanted to fast track the process but she admitted that DMRE had been hampered by the Covid-19 pandemic. There would be subsidies for the farmers who would be involved in the growing of sunflowers and sorghum, as well as for the manufacturers of biofuel products. National Treasury was involved in the Task Team to advise on the funding of the subsidies in the Biofuels Regulatory Framework. Harald Harvey was on point there.

Ms Mncata-Mhlaudi added that the DALRRD, under Minister Thokozile Didiza, was currently developing the Agriculture and Agro-Processing Masterplan which was also looking at crop diversification. The Minister was looking at Macadamia and vegetables and so on. Already some farmers were switching to other crops. The farmers had confirmed that.

Ms Mncata-Mhlaudi stated that, in terms of transformation, the South African Sugar Association (SASA) had presented a transformation plan that had been supported by members and had made a commitment of R1 billion. That was part of the Masterplan. The figure that she had was that R142 million was spent but she knew that more had since been spent. More importantly, there had been skills development and farmers had been supported with transportation of the cane, and so. There was a clear transformation plan that had been tabled with the Portfolio Committee in the previous year.

Lastly, she spoke of the funding support that DTIC was bringing to the table. DTIC had industrial finance for Agri-Processing support. There was also the Industrial Development Corporation (IDC) that was looking at loans. Support was also provided by the DALRRD and the Black Industrialists Fund. Support was there but it was a matter of working with the South African Farmers Development Association (SAFDA) and SASA to monitor the implementation of support. Regulations would be finalised before the end of 2024. As soon as the Competition Commission processes were complete, everything could move forward.

Ms Mncata-Mhlaudi noted that Mr Harvey had covered the other issues in some detail but assured Members that all of their issues were covered in the Masterplan.

Dr Naidoo responded to the questions on the imports of steel from China. Over the past five years, DTIC had put in place over 40 actions to address steel import issues. There had been efforts to address illegal imports, under invoicing and misdeclarations. There had been positive results in clothing and textiles and the Interagency group including the SA Revenue Service (SARS), DTIC, National Treasury and they were talking to SARS about transferring methods developed in clothing and textile industry to the steel value chain.

In terms of the questions on the protection offered to the primary steel industry, she stated that in DTIC’s engagement with the downstream industry, there had been an overwhelming majority of companies that had indicated the need to retain the primary steel industry in SA, both in terms of accessibility and also the quality of locally produced steel versus imports. The steel industry was essential to beneficiation of iron ore and coal which were further processed to produce steel.

She explained that scrap metal was utilised by 123 foundries and 10 mills which used iron ferrous or non-ferrous scrap metal. She stated that there had been a number of representations to the DTIC following the lockdown about the shortage of scrap metal, hence the intervention and the Direction that was issued to investigate the bps and shortage.

Dr Naidoo stated that when AMSA had announced the closure of its Saldanha plant, government, the DTIC and State-owned enterprises had come up with a number of support measures but they had not been enough. She added that DTIC was looking at developing an Industrial Park similar to Highveld, as well as interventions with the Western Cape government, to save Saldanha.

Minister Patel stated that the three team members had answered the questions quite comprehensively. He hoped that Ms Hermans had been reassured that implementation was starting immediately. She had drawn attention to transformation in the milling industry. There was an over-capacity in milling so it was a very difficult time to transform the industry but some steps had been taken as indicated by Mr Harvey.

Ms Yako had asked Biofuel and the team had provided information. One of the challenges with biofuel, as with every intervention, was the need to always measure the cost against benefits. The country needed affordable petrol as public transport, trucks, long distance transport of goods all relied on petrol and it was managing to find the moment when the wherewithal and technology made it possible to put in place a commercially viable biofuels scheme. Ms Motaung had asked some important questions and he hoped she had received adequate responses.

The Minister explained to Mr Mulder that his Department sought to apply rational business principles but sought a societal outcome, which was what public policy attempted to do across the world. The HPL was a difficult one. The sugar tax was difficult because one balanced the health of society against the livelihood concerns. He recalled the imposition of taxes on tobacco many years previously that had been hugely debated and challenged, across the world. Such taxes would come in on more products because society had to balance competing interests and policy objectives which were all valid but at times clashed with one another. One had to determine the primary concern or attempt to find the medium line between them. When his Department had spoken to the sugar producers they had immediately recognised that there were valid health concerns. They wanted a commitment on the HPL but government had indicated a need for a period of stability.

He agreed with Mr Mulder that government needed to constantly monitor steel imports and prevent dumping. That was the heart of the measures within the steel industry but it had to be done within the national obligations that SA had. The challenges were principally that in the global glut it was so very difficult to prove dumping and that was sometimes difficult as the World Trade Organisation required technical explanations for tariff barriers. He added that if there were specific issues in the lockdown regulations that were hampering the steel industry, Mr Muller should indicate those and he would be happy to see what he could do. The challenges were largely a lack of domestic demand and, for that reason, the initiative that government was working on in terms of infrastructure would be critical for the steel industry. Once that was in place, he hoped that they could have a further conversation on the matter.
The Minister hoped Mr Harvey had addressed the factual issues for Mr Macpherson. He added that the team had had the option of producing a traditional Masterplan of hundreds of pages filled with endless tables and graphs and so on. It was the standard fare of governments across the world but he had taken the decision that, instead of focusing on the principle of analyses, to shift the Masterplan to one of implementation which presented the actions that everyone needed to take. It was intended to be short and crisp.  People had different views on the challenges and one’s perspective was influenced by an economic perspective. Those upstream in the industry had a different perspective from those who were downstream. In the Masterplan, everyone had to contribute something and the focus was on implementation. Mr Harvey had indicated government’s contribution. It was a highly regulated industry. Tariffs were set by government and they were high. There was legislation that distributed the outcome of the tariff interventions, so there was an arrangement whereby the benefits of public interventions were shared between millers and farmers. That was what government brought. In government’s toolbox was regulatory capacity or the fiscal toolbox and the capacity to get people to sit around the table and find sensible solutions. The industry recognised that, without government’s intervention, there would have been no commitment to localisation by downstream users such as food producers and retailers.  Government brought social capital to bear on what needed to be done. The current situation was more difficult as government did not have the fiscal resources as there had been a decrease in tax income and a slowdown in the economy and challenges were faced by many, many businesses.

The Minister told Mr Cuthbert that he was pleased that his Economics lecturer had emphasised that modern economics was not about binaries. Economics was about blends and a heterodoxic approach. He sought to balance the many different interests. ArcelorMittal would be smiling if it heard the comments made because it had said that the SA government was not sufficiently mindful of their challenges and difficulties. He had a policy of SA first and SA policies would not be written by a foreign company. It had been a tough engagement with ArcelorMittal and would continue to be. AMSA had to pay a record penalty through the Competition Commission because of practices that were prohibited in SA law. A pricing mechanism had limited ArcelorMittal’s prices because it was an upstream monopolist and upstream monopolists very often posed enormous costs on downstream users.

The Minister addressed Mr Cuthbert on the issue of scrap metal. When he heard the various narratives, it was clear that there was enormous lobbying going on from different interests in society and government had to hear all and then work out what was in the interests of the country. What was in the interest of the country was not always in the interest of individual interests. For example, scrap metal had been going at R2.5 thousand per ton but that had gone up substantially during Covid-19 to about R4.5 thousand per ton and that would have decimated the SA industry. He had given ITAC two months to come up with a recommendation on how best to deal with it and in the meantime tariffs had been introduced. Scrap metal could still be sold in SA and there was a significant market in SA. He noted the comments on the scrap metal export tax but that policy had been put into the manifesto of the ruling party the previous year and it had received overwhelming support. It had substantial public support and he was sure that Mr Cuthbert, as a Member of Parliament, would want the public to hold government to its manifesto. He looked forward to Mr Cuthbert’s support as the matter moved forward. Years ago, when the pricing preference system had been introduced, the industry had taken government to court in Gauteng, the Western Cape and on appeal to the Supreme Court of Appeal and then to the Constitutional Court but the courts had found in favour of the SA government. He tried to find the right balance to support SA industrialisation within the framework of the law.

The Minister hoped Mr Mbuyane’s concerns had been responded to. Government tried to facilitate agreements. Small scale farmers and SASA had sat around the table and presented an agreement to government on the voting structure, etc. Government had checked if it would have a negative impact on the public and thereafter supported the agreement. Regarding Ms Mantashe’s transformational view of industry and its importance, he told her that it was not only about ownership but also about building effective economies by providing a structure that supported the industries in the country and brought in smaller players in the value chain. It was about balancing multiple objectives, so he appreciated her comments.

The Minister hoped that Mr Thring’s questions had been adequately responded to, but added that one needed to learn from best practice and government always tried to find examples of best practice. Mr Thring had cited one in the sugar industry and government continually tried to find such examples and encourage other players to follow such examples. Government had taken steps the moment that it had realised that there was a glut in steel to introduce safeguard measures to ensure that SA had a steel industry. He realised that Mr Thring’s thinking was different from the views of Committee Members but that thinking was consistent with government’s that trade remedies should be used where warranted but carefully balanced so that they did not unnecessarily raise prices. One needed to learn the critical lessons of the pandemic, which was building strategic domestic capability, whether in protective equipment, medical equipment, a steel industry or food security. The previous day he had participated in a very important conversation. He had participated in an intra-continental meeting with African Ministers of Trade regarding food security in the context of Covid-19. There was agreement that it was Africa’s moment to localise and to build capacities and capabilities on the continent. He noted Mr Thring’s comments on utilising trade protection.

He told Mr Mmoeimang that a Masterplan was only as good as the implementation and implementation was much tougher than coming up with the plans themselves because implementation had to be navigated where there were many different points of view and it was difficult to get many workers and players to recognise the importance of the plan and be part of the system. Government had to get managers and industry players to recognise the importance of smart modern management systems, technological systems and new market development. Also, government had to get shareholders to work on a partnership model where managers had the capital to modernise plant and equipment because it was a very competitive world and those who did not do so while others did, would soon be overtaken by those who did. It meant smart government that worked as quickly as possible and one that recognised that, from time to time, things had to be done in unconventional ways. Bringing all industrial players together was fairly unconventional as opposed to getting experts writing vast plans and detailed documents.
To get things right, government had to bring together the best of the nation. That was what the Masterplan programme was about. There would be problems but it was important to learn and to adjust where necessary but it was important to get the most critical things right, and getting industries to be dynamic.

Minister Patel looked forward to DTIC being able to make further details available to the Committee and to keep Members up to date on progress being made. He thanked Mr Harvey for his selfless work with the sugar industry. He appreciated the strong support that Harald had received from officials in the Department. He thanked the Chairperson for the opportunity to wrap up on a session of engaging with interesting and insightful interventions by Committee Members on the Masterplan programme.

Summing up by the Chairperson
The Chairperson thanked the Minister. He stated that the Committee needed more time to engage with the matter but in issues of transformation, inclusivity, growth, jobs, etc., the Committee was looking at an economy which was inclusive and not just a change of faces and races but effective growth in a proper sense. There had to be cooperation with other departments, especially Mineral Resources and Energy and Agriculture, Land Reform and Rural Development. Coordinated working was critical and ensuring synchronisation across the seven task teams would be crucial to effective implementation.

The Chairperson foresaw further engagement as there were many issues that the Committee would like to engage on. He asked the Secretary to pick up further questions in writing and forward to the Minister to send responses in writing as there was not sufficient time for further questions and responses.

The Secretary confirmed that he would take any further questions in writing.

The Chairperson thanked the Minister, the Deputy Ministers and the team and requested him to make concluding remarks.

The Minister concurred with the remarks of the Chairperson. Re-arranging ownership was not sufficient. The country needed vibrant, resilient and transformed sectors. He would be leaving the meeting and wished the Committee well for the rest of the meeting.

Update on National Lottery Commission (NLC) Status
The Chairperson briefed the Committee on the status of its requests to the NLC. On 16 July 2020, the Committee had formally adopted a resolution that the NLC had to, within seven days of receipt of the letter, provide the names of beneficiaries who had received funds from the Covid-19 fund and the amounts received, as well as the names of those who had received funds in the previous years where the information had not been published in the Annual Reports, and that the NLC publish names of 2019/20 beneficiaries in the 2019/20 report.

The Chairperson had received communication from Minister in which he stated that he would table the lists in Parliament. That was a satisfactory conclusion and the documentation would immediately be distributed to Members.

The Secretary informed the Chairperson that he had just sent the email containing the documentation to Members.

Mr Cuthbert said that the NLC had no respect for the Portfolio Committee and had not met the seven-day deadline. Had the lists been distributed together with the correspondence or was there going to be another delay?

Mr Macpherson echoed Mr Cuthbert’s sentiments about the neglect to comply with the timeframe. It had been an instruction from the Committee to the NLC, so why had the response gone via the Minister’s office?

The Chairperson stated that the lists would be circulated. The deadline had been met as the current meeting was the first since the expiration of the seven working days. He asked the Secretary to explain the process and why it had gone via the Minister.

The Secretary stated that all information requested from the NLC had been received and forwarded to Members. The Department could respond to Mr Macpherson’s question but he could say that the NLC reported to the Minister who normally tabled documents from the NLC in Parliament and hence he had tabled the documents with the Speaker.

Mr Mbuyane stated that the Committee was transforming itself in understanding how the processes of the Committee worked. It was a Committee of Parliament and an entity of government reported to a Department which reported to the Committee, so it was clear that anything that the Committee needed, had to be requested from the Department, which would provide the information to Parliament.

Mr Macpherson retorted that Parliament worked like that in the mind of the ANC, but entities were directly accountable to Parliament so he still found it bizarre that the NLC sent the information to the Minister. It still begged the question of why the Committee had to request the information from the Minister and why he himself had not requested the report. That was something that the Committee should deliberate.

Mr Cuthbert noted that he had received the email with the lists.

Ms Mantashe appreciated the response to the request by the NLC. She did not know what else people wanted.

Ms Hermans stated that the NLC was on the agenda and Members had received the list and the Minister was clear that he had requested the lists, so Macpherson was incorrect. There should be no discussion as it was under Committee business.

Ms Motaung was covered by the previous two speakers.

Mr Cuthbert asked for the indulgence of the Chairperson. The lists had been received by the Portfolio Committee but he hoped that they would be published on the NLC website as they were public documents.

The Chairperson noted the point.

The Minutes of 15 July 2020 and 16 July 2020 were unanimously adopted by the Committee with no amendments.

The Secretary stated that the next meeting, which was on 18 August 2020, would deal with the Copyright Bill and the President’s referral of the Bill back to the Committee. The Legal Advisor and DTIC would attend the meeting.

Closing remarks
The Chairperson thanked the Members for their participation.

The meeting was adjourned.



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