In this virtual meeting, the Standing Committee on Appropriations received a briefing from the Department of Trade, Industry and Competition (DTIC), B-BBEE Commission, National Empowerment Fund (NEF) and the Competition Commission and their role in stimulating the country’s economy. The Industrial Development Corporation was also scheduled to present but the Committee requested a separate session. IDC is expected to present at a later date.
At a time when South Africa is experiencing serious economic challenges, the Committee Chairperson said that the work of the Department and its entities will be pivotal in stimulating growth and transformation.
DTIC reported that its primary objectives include creating an enabling environment for inclusive growth, deepening the country’s industrialisation base and creating targeted transformation measures. DTIC provided examples of the practical actions it has taken to fulfil these objectives. These included the implementation of four Master Plans in different sectors of the economy which have already shown a positive impact and have increased the level of localization. The Master Plans seek to promote food security, rural development, women empowerment, job creation and foreign exchange amongst other goals. DTIC reported that it has secured R1.7 billion investment towards raising poultry productive capacity and R13 billion towards expanding automotive manufacturing. Another critical intervention is the development of industrial parks which aim to revitalise areas whose economic development was stifled under the apartheid regime. DTIC seeks to expand the economy to include more participants and to ensure that more parts of the population including women, young people, black South Africans and the rural poor can contribute and benefit from the growth story. The Committee asked what specific measures the DTIC has set in place to ensure that marginalised communities are able to benefit from all of its programmes.
The B-BBEE Commission reported that its 2019 annual monitoring concluded that 29% of business ownership was black, 3.3% of JSE listed entities are black owned and that black women ownership increased from 10% in 2018 to 12% in 2019. Despite having made some progress, a major challenge noted by the Commission is fronting where companies claim to have black ownership but fail to provide legal documentation supporting this. In other cases, businesses create the impression of abiding by B-BBEE codes, however, black partners are deprived of voting rights and do not participate meaningfully in decision making. Over 80% of the complaints received by the Commission relate to fronting.
The Competition Commission reported that during the COVID-19 period, it has received over 1700 complaints about price gouging and exploitation of consumers. It has been involved in advocacy work during which it engaged directly with retailers to prevent any further exploitation and successfully intervened in the dairy sector. The Commission is currently doing an analysis into the impact of its interventions on specific product prices as well as data prices which were reduced by 35% following engagements with service providers. These reports will be finalised in the following months.
NEF reported that to date since its inception it has approved over R10 billion to black entrepreneurs across the country and has successfully supported the creating of 101 183 jobs. In addition to providing financial support, NEF offers non-financial support such advisory services, entrepreneurial training and portfolio management to beneficiaries. During the lockdown, over R207 million was approved through NEF Black Industrialist Business Fund – none of these transactions have been flagged for investigation. Members asked NEF to provide a comprehensive list of the businesses it has supported as well as information on whether these companies are still operating and actively contributing towards economic growth.
Members agreed that the DTIC and its entities will play a crucial role in addressing the country’s current economic challenges. As informative as the presentations were, the Committee seeks to engage specifically with each entity in separate meetings. A recommendation was made to potentially host a full day workshop with the DTIC to facilitate a more substantive discussion.
The Chairperson welcomed the Department led by the Minister, Mr Ebrahim Patel, and the Deputy Minister, Ms Nomalungelo Gina. The Chairperson highlighted that the Committee was meeting with DTIC under difficult economic conditions and a high unemployment rate exacerbated by the COVID-19 pandemic. The meeting follows a difficult Medium-Term Budget Policy Speech presented by the Minister of Finance on 28 October 2020. Prior to this, President Ramaphosa had presented South Africa's Economic Reconstruction and Recovery Plan which shed light on how it will get out of its current economic situation and pursue sustainable and inclusive growth. DTIC and its institutions are at the heart of this and will largely determine how restore our economy.
Overview by Minister
Minister Ebrahim Patel said that, when taken together, the presentations will hopefully give a sense of the work done by DTIC and its entities, bearing in mind this is only a small group of the entities. The overall focus of the meeting is the role of DTIC and its entities in stimulating economic growth. Following the impact of the pandemic, the most pertinent question is: how to reignite growth? GDP growth involves consumption + investment + government spending + exports - imports. The work of DTIC is to consider what can be done in each of these areas. However, this is largely influenced by current constraints such as the framework presented on government spending and the overarching fiscal and economic challenges.
Growth always comes with many dilemmas:
1. The nature of growth and how to make it as inclusive and broad-based as possible.
2. Where to seek growth such as through extraction of mineral resources or deepening of industrialization.
3. How does one ensure growth occurs while greening the economy and being environmentally sustainable.
4. How to ensure growth is spatially equitable and not concentrated in a few economic hubs, while the rest of the country remains in recessionary conditions.
The role of state is critical and goes beyond the budget.
The Minister acknowledged that although the Appropriations Committee’s oversight role concerns the budget, reallocations and appropriations, it is crucial to fully consider factors which foster economic growth and stability. This includes generic policies such as law and order, a reliable property rights regime and broad social stability. Additionally, the regulatory and policy environment followed by the state is crucial. The role of infrastructure and industrialisation are two key drivers of the country’s economic strategy. The state’s function also extends to ensuring that markets work for the society – which requires sound competition policies, tax policies and procurement policies. Government has to consider how its spending across all spheres is contributing towards economic growth and inclusion. The effectiveness of all of these factors depends on the degree of coordination as no single tool can achieve policy outcomes. This presents more significant questions about the macro-organisation of the state. Part of the work of South Africa’s government is to create a more coherent state with deeper coordination and an understanding of the inherent policy trade-offs that must occur.
Following President Ramaphosa’s State of the Nation Address (SONA), DTIC presented its broad vision to Parliament during which six focal areas were outlined:
- Improve dynamism of the economy
- Promotion of investment
- Development of new markets
- Transformation of the economy
- Equitable spatial development
- Development of a capable state.
DTIC has since pursued several actions towards achieving the six goals of its overall mission. These include but are not limited to the implementation of four Master Plans in different sectors of the economy which have already shown a positive impact and have increased the level of localization. The Master Plans seek to promote food security, rural development, women empowerment, job creation and foreign exchange amongst other goals. DTIC has secured pledges exceeding R600 billion from local and foreign investors and is working on how to translate these into physical infrastructure. Another focus has been the African Continental Free Trade Area (AfCFTA) which can provide South Africa and the entire continent better economies of scale given a larger market. DTIC also has engagements with BRICS countries, the European Union and the United States.
On transformation of the economy, DTIC seeks to expand the economy to include more participants and to ensure that more parts of the population including women, young people, black South Africans and the rural poor can contribute and benefit from the growth story. DTIC also seeks to create Special Economic Zones (SEZs) to enable equitable spatial development across all provinces. Lastly, DTIC wants to ensure that the state is able to effectively and efficiently do its job.
The Minister highlighted that the DTIC presentation is a selection of case studies that aim to detail how its broader vision will be translated into practical interventions. DTIC has a range of agencies and it aims to work together to achieve coherence across its entities to stimulate economic growth in the country. Deputy Minister Gina has done extensive work towards transformation and ensuring that the economy becomes more capable of serving the needs of all South Africans.
Department of Trade, Industry and Competition (DTIC) presentation
Mr Lionel October, DTIC Director General, accompanied by a full delegation, reported that high-growth emerging economies share the following characteristics:
- Centrality of industrial policy within countries economic policy,
- Strong partnerships between private-sector and government,
- Use of the full array of policy tools to achieve inclusive growth and development, and
- Responsiveness of government policy and programmes to changing environments, and emerging risks and opportunities
Up until now, South Africa has predominantly focused on fiscal and monetary policy but now needs to make use of the entire policy toolkit including industrial policy, trade policy, localization policy and social policy to drive growth. The key point is that DTIC sees industrialisation and development as synonymous; therefore, the industrial sector must be developed for living standards to improve.
DTIC has an approximate budget of R10 billion, 57.6% was disbursed to beneficiaries, 9.9% to external programmes and 13.3% was transferred across 16 of its public entities. Through these entities, the Department wants to create an entire ecosystem to drive growth which requires an assessment of both supply side and demand side aspects of the economy. This includes but is not limited to ensuring enterprises have access to cheap finance options, ensuring domestic markets are available, consumers are protected and that the economy is not monopolized. This is the holistic approach DTIC wants to pursue towards development. The current challenges faced by South Africa are massive and emanate from 100 years of underdevelopment in parts of the country.
DTIC’s primary objective is to stimulate growth, industrialisation and transformation which are inextricably linked. DTIC has taken practical actions toward facilitating the transformation of the economy to promote industrial development, investment, competitiveness and employment creation. Additionally, it has focused on facilitating broad-based economic participation through targeted interventions to achieve more inclusive growth. Some examples of the actions implemented for these objectives include:
- Agro-processing: R1.7 billion invested by SA Poultry Association for Poultry Master Plan
- Automotives: R3 billion investment by Ford Motor Company of South Africa and R10 billion investment by Mercedes Benz to expand plants in Port Elizabeth and East London
- Primary Minerals Processing: R300 million investment by Komatsu SA in an engine remanufacturing plant, over 2300 people trained in industrial camp
- AfCFTA: South Africa assumed role of Chair of the African Union and will be prioritising the operationalisation of AfCFTA to build an integrated market of more than one billion people
- Launched Business Process Services and investor targeting meetings in US
- Industrial Parks: revitalise areas where economic development was stifled under apartheid.
Details were provided of the implementation of the four completed Master Plans (Sugar; Poultry; Retail - Clothing, Textile Footwear Leather; Car manufacturing) and the two Master Plans in development this financial year (Steel and Metal Fabrication; Furniture).
B-BBEE Commission presentation
Ms Zodwa Ntuli, B-BBEE Commissioner, reported that as per the Codes of Good Practice for Black Economic Empowerment, entities are expected to contribute towards, ownership, management control, skills development, enterprise and supplier development and socio-economic development. This framework applies to all organs of state, public and private sector entities which undertake economic activity with the state. It is within the Commission’s mandate to monitor and investigate how well entities are complying with the Codes and to offer remedial recommendations in cases where entities are found non-compliant.
The Commission ensures that all economic progress is compared against the country’s current demographic build-up of the black population (Africans, Coloureds and Indians) as well as aligned with the National Development Plan (NDP).
Highlights in the Commission’s 2019 annual monitoring show that:
- 29% of business ownership was black
- 3.3% of JSE listed entities are black owned
- Black women ownership increased from 10% in 2018 to 12% in 2019.
The figures presented are those reported by the organs of state and public entities, these are still up for interrogation by the Commission. A major challenge has been low levels of reporting by entities. Only 43% of JSE listed entities reported and only 15% of organs of state and public entities reported. This impacts the extent to which the Commission is able to manage and monitor transformation.
A major challenge noted by the Commission is the tendency for entities to create a front of black ownership that is not supported by the necessary founding or constitution documentation. The Commission is obligated to register all black ownership transactions following the submission of supporting documents. However, it noted a high level of rejection and has referred several cases for investigation due to non-compliance. The Commission has in the past faced resistance from entities as far as engagement is concerned but since 2018, there has been a shift with more companies voluntarily approaching the Commission for recommendations.
Over 80% of the complaints received by the Commission relate to fronting. The Commission has received 822 cases where companies approach black people to reach the mandated 26% threshold, however, this is done on paper and these individuals rarely participate meaningfully in decision-making. 386 cases have been finalised, 19 cases have been referred to the Companies and Intellectual Property Commission (CIPC) and 7 to the South African Police Service (SAPS). In some cases, black owners allege that they have been part of the entity yet they have been deprived of voting rights or have not derived economic value due to the shareholding they possess. Other fronting challenges relate to the siphoning of funds from black owned companies to predominantly non-black owned companies. The black owned companies are used to submit applications, however, once a contract has been finalised, funds are transferred to another company. Additionally, there are inconsistencies with the number of companies recording black ownership versus black voting rights. The top sectors recording fronting are mining, transport, construction and engineering.
Similarly, the Commission emphasised the need for strategic partnerships across government entities such as the Competition Commission, South African Revenue Service and Companies Tribunal, to promote a coherent approach to transformation. The Commission has concluded Memorandum of Understandings (MoUs) with nine related entities.
Ms Lindiwe Madonsela, Senior Manager: B-BBEE Commission, reported an annual increase in the number of advisory requests received by the Commission. This is an indication that entities are becoming more aware of the role of the Commission as well as a growing commitment towards the proper implementation of the legislation. This can be credited to advocacy work the Commission has undertaken across the country.
Deputy Minister Gina acknowledged the B-BBEE Commission presentation and emphasised that transformation cannot be divorced from economic growth. Without ensuring that corporations are compliant with B-BBEE legislation, the country will never succeed in addressing fronting and misrepresentation. Ultimately, thousands of South Africans will be left behind and will not have an opportunity to contribute to and benefit from the economy.
National Empowerment Fund (NEF) presentation
Ms Philisiwe Mthethwa, NEF CEO, reported that NEF is exclusively mandated to grow B-BBEE by providing funding from R250 000 up to R75 million for black owned companies across various sectors. Since its inception in 2005, NEF has been categorised as high performing and has consistently recorded numerous achievements.
A summary of performance milestones since inception is as follows:
- 1058 transactions worth more than R10.61 billion across the country
- Over R7 billion has been disbursed to companies, of which, over R3.7 billion has been repaid by investees, dispelling the notion that black enterprises do not repay loans
- 101 183 job opportunities supported, of which 68 989 were new
- 87 632 people reached in villages/townships through community investor education seminars
- Business skills training provided to 3803 potential entrepreneurs
- Over R2.1 billion disbursed to support entities in rural and township economies
- R372 million approved in property funding to advance black owned ownership, infrastructure development, job creation and increased student accommodation
- Over R1.3 billion approved for black woman-owned businesses in the past 11 years.
Despite the country’s adverse economic condition, 76% of NEF funded companies are still in operation. NEF has been a key contributor towards de-risking business to attract additional funding from both local and international commercial banks.
NEF also provides non-financial support for black enterprises such as product advisory plans, entrepreneurial facilitation, corporate government training, ongoing portfolio management and turnaround and business rescue support if needed. Notably, NEF business toolkit is available in all official languages.
NEF COVID-19 Black Industrialist Business Fund
25% of NEF portfolio was operational during lockdown. Over R207 million was approved for 33 transactions for funding of black businesses to manufacture healthcare products and supply essential foods. None of these transactions have been flagged by the Special Investigating Unit.
NEF supports various investments in the fuel sector, tourism, rural and township economies, human settlement, creative industries and media.
Mr Tembinkosi Bonakele, Commissioner, Competition Commission, presented some highlights:
- The Commission possesses powers to prosecute cartel activity from firms which already are dominant or have enough market power to raise prices to consumers – over R7 billion has been levied in penalties against contravening firms
- Market inquiries previously allowed the Commission to provide non-binding recommendations, amendments were made to provide the powers to impose legally binding remedies
- The Commission received over 1700 complaints over 3 months during the COVID-19 lockdown about price gouging and exploitation of consumers
- Current focus is on prosecuting excessively priced PPE procurement by the state.
Led by Minister Patel, the Commission has engaged with big retailers to get them to refrain voluntarily from marking up prices during the COVID-19 emergency period. It has also tracked the price movements of essential goods and products to protect consumers and the economy. The Commission reached an agreement with MTN and Vodacom to reduce data prices by 35% and zero rate education and government portals. This has been in an effort to end anti-poor pricing and to create an environment that supports a competitive digital economy. Another digital initiative is to support free public Wi-Fi.
Mr James Hodge, Chief Economist: Competition Commission, reported that although the Commission has done extensive work on food price monitoring since the beginning of lockdown, this is a long-term project that will continue as household incomes may continue being impacted. The price and availability of food will be critical beyond the pandemic. One of the Commission’s findings has been the high variability of food prices across the country. Some of the poorest regions have been paying higher prices than metropolitan areas even if they are producers of the particular product. This is an area the Commission aims to interrogate further.
Mr A Shaik Emam (NFP) asked the Minister to provide statistics on the amount of money that has been disbursed to companies for the purpose of boosting economic development. What is the success rate of these enterprises? How many retailers have been found guilty of inflated prices during the lockdown and how much has been recovered?
Mr D Joseph (DA) asked when South Africa is going to build its own cars. DTIC reported on investments in the automotive industry, however these are for export. How can DTIC support tax collection as many companies rent out their premises but the new owners are not tax compliant which is costing the country a lot of money? How can DTIC support the Minister of Finance to improve tax collection?
Mr N Kwankwa (UDM) said the COVID-19 pandemic has provided an opportunity to reset the button on the economy and to ensure that marginalised communities are able to play a meaningful role in the economy. If this is done, that means that institutions like NEF will require more support from government to ensure that more black-owned businesses benefit from the policies put in place. Additionally, the proposal previously made to merge NEF and IDC should be reviewed because government will need more entities to target specific areas of the economy.
Ms D Peters (ANC) appreciated the presentations and said it is clear from the information shared that DTIC needs to provide a workshop to further discuss these matters. She asked the B-BBEE Commission which category Chinese citizens fall under for them to qualify as B-BBEE recipients. There is currently not enough being done for the empowerment of women. What is DTIC going to do to ensure woman-led companies do not fail?
Mr X Qayiso (ANC) said he had not heard DTIC present on the establishment of manufacturing zones for cooperatives. Why can these not be included? Secondly, what is the Minister’s take on the published Public Procurement Bill on the role it should play?
The Chairperson supported Ms Peter’s proposal for scheduling a full workshop to engage further with DTIC. Currently only a small percentage of the Covid-19 R200 billion Loan Guarantee Scheme has been taken up. This is an issue that directly impacts DTIC. What has the Minister done regarding this? Has DTIC been able to assess the impact of the stimulus fund? Both of these funds were established with the intention of boosting the economy, not to remain kept in the banks.
Any outstanding questions will be submitted to the Minister in writing but the Committee may need an entire day to engage with DTIC because of the crucial role it will play in reigniting the economy.
Minister Patel response
Review of funded companies
Over the last five years DTIC has begun a review on what has been done to support black-owned companies. This data is currently being aggregated but so far the outcome shows approximately R32 billion has been invested into 900 businesses over a five-year period. 50 000 jobs have been sustained or created in the process of this support. These companies have contributed R75 billion in revenue .DTIC has also raised R30 billion in counterparty investment. DTIC is now assessing the deeper lessons that can be learnt on performance and success of the companies.
One concern is that the country has not adequately funded Development Finance Institutions (DFIs) such as NEF and IDC. These institutions have not received any funding since the 1950s and are dependent entirely on their portfolio investments and returns. This model needs to be reviewed. Brazil and China are good examples of countries which provide their DFIs with regular cash injections to ensure that they meet their development mandate.
DTIC currently provides SARS with intelligence on the prices of import goods in the event that importers under-declare their value. This not only robs the fiscus of income but also undermines local companies. DTIC is now looking into getting businesses to make resources available to enhance SARS capacity through skills development for their officials in areas such as customs fraud. Some industries have already indicated that they would be able to assist. One of the best investments that government can make is ensuring that SARS has the resources it requires – this will easily be repaid through the collection of taxes. The Competition Commission serves as a great example – it generates more income through penalties than the overall budget it receives.
Local car production
Many years ago, South Africa pursued building its own electric vehicle; however, this cost the country a lot of money and in the end was not commercially viable. The car industry has now shifted towards self-driven vehicles and DTIC is currently trying to get the necessary technology and expertise into the country through the automotive plan.
The Minister agreed with Mr Kwankwa that the economy needs to be reset. The President’s announcement specifically calls for not only a recovery plan but a complete reconstruction to ensure that the economy is more inclusive and that the rate of growth is structurally enhanced.
Merging of entities
Should DTIC pursue merging NEF and IDC, it will potentially be able to achieve significant efficiencies. More money can be allocated towards the end users as opposed to being spent on overheads and infrastructure. The view of government is to consolidate and reduce where it can. Having more institutions has not necessarily translated to greater impact. The Minister will protect the NEF mandate should a merger be pursued.
The Minister clarified that Chinese citizens do not automatically qualify for B-BBEE programmes. However, South African citizens of Chinese descent would qualify as beneficiaries.
Over the past five years, the IDC has invested approximately R12 billion against a targeted R4.5 billion towards women owned enterprises. This has been allocated across 100 businesses. In 1996, South Africa had only 465 000 women in senior management positions, it now has over 900 000. Although progress has been made, this is only the start of a long journey.
Minister Patel replied that DTIC cannot guarantee that women owned businesses will not fail because a market economy requires businesses to be able to sustain themselves. However, what DTIC can do is provide as much support training as possible. NEF recently provided examples of the work it is doing towards women empowerment; this will be made available to the Committee.
Manufacturing cooperative zones
DTIC is a big supporter of cooperatives, this is an area primarily driven by the Minister of Small Business Development which is why it has not been specifically included in DTIC. NEF and IDC do try to locate opportunities to support community-based organisations. The IDC particularly provides support for social enterprises which are similar to cooperatives.
Covid-19 Loan Guarantee Scheme
National Treasury has oversight over the Loan Guarantee Scheme. DTIC has been talking to Treasury to see what more can be done, particularly if DFI institutions like the NEF can utilise some of the resources made available through the scheme.
DTIC is working hard on global business services and has put in a pitch to do more to promote job creation. Global business services are companies located in South Africa that provide call-centre services for customers and businesses located across the world. This sector has created approximately 275 000 jobs. DTIC worked hard to ensure that jobs were created in this sector even during the lockdown period. South Africa has been rated as the second most attractive destination for global business services.
Minister Patel said in addition to more time, DTIC needs more resources and its budget is important. He petitioned the Chairperson to make a case on behalf of DTIC for more resources. He thanked the Committee for the opportunity to present.
Mr Joseph said he had visited several retail stores during the lockdown period and had noted that people with money have the advantage of buying in bulk and benefit from such savings – this is a luxury poor people do not have. Poor people are always suffering at the end of the day. How are poor people being supported?
Mr Kwankwa said DTIC had reported on how it aims to reset the manufacturing industry, specifically for the local production of textiles, clothing and leather. This requires the capacitation of the entire value chain. What measures is DTIC putting in place to ensure that marginalised communities are major beneficiaries of this programme? It will not help to promote local production if it only empowers those who are already in a privileged position. DTIC needs to be very attentive to this and not assume that the markets will help.
Secondly, if DTIC wants to pursue a more targeted approach to growth, it is important to keep institutions separate. It makes no sense to merge entities, dilute their mandates and still expect them to be effective.
He appealed to the Chairperson to have each DTIC entity present at a dedicated meeting to ensure that MPs are able to engage substantively. Having limited time results in the Committee having to overlook some pertinent issues. In future he would like to engage with the Competition Commission on what it is doing to ensure that there is no price fixing in the banking industry.
Ms Peters asked DTIC what challenges it sees within the poultry industry and how it is protecting the local poultry industry from foreign competition. Secondly, how are bilateral agreements with BRICS countries and developed countries benefitting South Africans? She was recently informed about the challenges experienced by South African companies trying to do business in China.
She asked NEF and IDC to provide a list of all the women-owned companies they have funded which experienced challenges regardless of the support. There is a new phenomenon in the construction industry where companies are hijacked, which beneficiaries have been victim of this? Why is it that despite having institutions like NEF, South Africa still has a high unemployment rate and low levels of transformation? One would assume that these entities would be key drivers of growth and transformation.
Mr Shaik asked why South Africa is not pursuing local production of commodities used for infrastructure development. The country currently imports all these items from other countries. Given the deteriorating state of infrastructure and potential to export to the rest of the continent, why have we not pursued local production?
Secondly, DTIC speaks of promoting localisation yet it sold an entire plant at Atlantis which had the potential to create 300 000 jobs and boost economic activity in a town that is now a ghost town. He raised concern about this decision.
He asked if the businesses funded in the last five years are still operating and contributing towards the economy. In his opinion, a lot of these companies have been closed down.
It is clear that the automotive industry, finance industry, insurance industry and food industry have all been captured. Farmers are hardly making money while retailers remain profitable. Shoprite is going into small townships and has forced small businesses out of the market. How is DTIC going to address his given that it also wants to increase exports?
The Chairperson asked the B-BBEE Commission how it measures percentage ownership, is this based on vested equity? He asked the Competition Commission about collusion and defrauding the state and asked what the legislature could do to address this. He asked NEF to comment on its impairment and on not receiving recapitalisation. This has been raised with National Treasury.
DTIC Director General response
Mr October replied that DTIC did not receive any additional funding from the stimulus package; in fact the Department received budget cuts. It did, however, petition on behalf of the call centres which employ thousands of South Africans; this was rejected. South Africa cannot have transformation and industrialisation without resources.
Protecting the poor
Mr October agreed with Mr Joseph that DTIC has an obligation to protecting the poor. For this reason, it has the Competition Commission and National Consumer Commission which intervene wherever price gouging occurs.
DTIC put up a tariff of 62% for the poultry industry as it was particularly vulnerable to cheap imports from Europe and Brazil. Imposing high tariffs always comes with the potential of conflict with other countries; however, national interests must be prioritised. This requires an assertive trade policy.
DTIC has won the battle of promoting localisation; however, there is still a need for set asides for SMMEs and black business owners. DTIC is looking forward to the Public Procurement Bill being passed to allow local industry to thrive.
The reason the country has low levels of localisation is because it currently does not have the necessary laws and regulations. These are crucial to protect the domestic industry and to ensure empowerment. DTIC has seen the most success in the textile industry where it has implemented 100% designation, requiring entities such as the South African National Defence Force (SANDF) to purchase all of its uniforms from local producers. Localisation depends largely on making all government support conditional.
Mr October agreed with Ms Peters that it is mostly multinational corporations which have benefitted the most from export opportunities. However, DTIC continues to expose smaller black owned businesses to export markets through its Industrialist Programme and has facilitated numerous international education trips for this purpose.
B-BBEE Commission response
Ms Ntuli clarified that the definition of black under the B-BBEE Act is Africans, Coloureds and Indians who are citizens by descent or who have been naturalised prior to the 27 April 1994. What is notable is that at that time there was a population of Chinese people who took the matter to the High Court demanding recognition under B-BBEE based due to the fact that they had previously been categorised as Coloured under the apartheid regime and therefore had faced the same prejudice. However, not every Chinese person who is a citizen qualifies, this relates to the specific limited population.
According to B-BBEE Commission statistics, 32% of owner transactions are vendor financed. This is a mix of both the existing vested ownership and the encumbered. What is crucial to note is that the Codes of Good Practice give a limitation on how long repayment can occur. Every loan arrangement cannot exceed 10 years. The B-BBEE Commission is still concerned that funding for acquisition by black people remains limited, resulting in a reliance on vendor financing which comes with numerous limitations.
Ms Ntuli noted that companies tend to reverse ownership by buying back shares after nine years because black players have failed to pay. She appealed to government to give DFIs more resources so they can provide funding to these black individuals to ensure that ownership is vested. Government funding currently stands at 4.2% compared to vendor financing which is 32%.
B-BBEE gains are significantly stifled by manipulation. This requires more resources for monitoring and due diligence from both government and the private sector to ensure that initiatives are real and make the intended impact of including black people in the economy. Although progress has been made, there is still more work to be done.
List of supported businesses
Ms Mthethwa replied that NEF would be happy to provide a list of all of the black women led businesses it has given support to. An example of a company that has shown success is Motheo Construction which has achieved higher grading since it was supported by NEF. The company now employs over 2000 people. NEF will provide a comprehensive list in writing within a week.
Impairment is an accounting principle which assesses the percentage of loans that are likely not to be repaid due to challenges faced by a business. This does not necessarily mean loans will never be repaid. In most cases, black businesses do not have high levels of equity which increases the risk. NEF completed an analysis and found that similar institutions have lower impairment rates because they take fewer unsecured risks which NEF cannot insist on because it would exclude many business owners. It is always surprising when people insist that NEF should not receive funding because of its impairment when these are actually comparative to other institutions. Additionally, NEF provides comprehensive support and mentorship to these businesses to ensure that they are sustainable and able to repay loans.
Competition Commission response
Mr Bonakele responded that if he were part of the legislature, he would ensure that the existing laws are well enforced and that there is an agency that is well capacitated. If competition policy is a priority, the first thing one must ensure is that the agency charged with enforcing it has the necessary expertise. Government has done relatively well where legislation is concerned and has made amendments which criminalise cartel activity. However, enforcement of this legislation lies with the National Prosecuting Authority (NPA) which has indicated that it has other priorities. If government wants to see more accountability, it needs to adopt an inter-institutional framework.
The South African economy is one of the worst when it comes to competition transgressions. This can be credited to the concentrated nature of the economy which stems from apartheid. South Africa has first to dismantle this legacy before it can catch up with other countries.
Retailer price fixing
The Competition Commission is currently pursuing legal action against Spar following numerous public complaints about pricing. The initial action was to engage with the retailers, a lot of whom reversed price increases. The Commission is pleased that it was able to be proactive and thus avoid pursuing prosecution against many retailers. The Minister was part of these engagements.
The Commission’s economic department is planning on doing extensive price analysis on specific products to look into the impact of its interventions. A report should be finalised in a couple of months. The same is being done on the reduction of data prices.
The Chairperson thanked Minister Patel, Deputy Minister Gina, the Director General and the heads of institutions. It is clear that the Committee still needs to engage further with DTIC and its entities however, the meeting was very informative. The Standing Committee on Appropriations looks forward to potentially having separate meetings for each of the entities to ensure that they receive the necessary support to decolonise the economy and ensure growth and transformation.
The meeting was adjourned.
- NEF: Pioneering Transformative Growth beyond the Pandemic
- Role of the DTIC and its Entities in Stimulating Economic Growth in SA
- B-BBEE Commission: Transforming the South African Economy and Promoting B-BBEE
- National Empowerment Fund (NEF): Pioneering Transformative Growth
- Competition Commission: Contribution of the Competition Commission to Growth, SME participation and transformation
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