In a virtual meeting, the Select Committee was briefed on the annual reports for 2019/20 of the
the Department of Trade and Industry (DTI) and the Department of Economic Development (EDD), which had since completed their merger into the Department of Trade, Industry and Competition (DTIC).
The Deputy Minister said the DTI took responsibility for the re-imagined industrial policy, which sought to deepen partnerships at the sectoral level in order to increase the economic output in productive sectors. These were largely manufacturing entities, with a focus on key services such as film-making and global business services (call centres). The Department had focused on the implementation of the automotive master plan, and had concluded two new master plans. The retail-clothing, textile, leather and footwear master plan stakeholders had agreed to a fundamental re-orientation from imports to locally produced goods, with domestic manufacturers expected to supply R67-billion worth of retail purchases annually over a period of time, grow the value chain employment to about 320 000 jobs, and substantially increase investment. A second master plan covered the poultry sector, resulting in an agreement on measures to deepen levels of local production and position the industry for greater levels of exports.
The DTI continued to work intensively with provincial stakeholders to facilitate investment in South Africa’s operational Special Economic Zones (SEZs). The Dube TradePort and OR Tambo International Airport SEZs had been approved for expansion in 2019. The OR Tambo SEZ had been expanded to include the Tshwane Auto City, an ambitious partnership with Ford, the Gauteng province and Tshwane Metro to develop a R6.7 billion automotive hub.
African economic integration had received a boost during the financial year, with ratifications of the African Continental Free Trade Agreement (AfCFTA) crossing the hurdle required for it to come into effect. Much of the work required to commence trading under the new agreement had commenced in this period, with officials of the Department working closely with trading partners to finalise terms.
The Department then presented details of the Trade and Industry and Economic Development performance reports, covering the highlights, the challenges, their financial performances, the audit opinions and progress with specific programmes.
The Committee’s main concern, as expressed by the Chairperson, was that although Members appreciated its comprehensive nature, there was no specific reference to what the Department’s programmes meant to the individual provinces. For example, with the incentives for SEZs and the industrial parks, the Committee did not know what international trade and economic development meant in this context. What activities were taking place as a result of the various programmes?
A Member asked about the difference in the under-expenditure in the past two financial years, and what could have led to it. The Committee also questioned why incentives seemed to favour the larger centres, while it was the smaller centres with fewer resources that needed financial support.
Chairperson’s opening remarks
The Chairperson said the last meeting that he attended was on 10 October 2020. He later tested positive for COVID-19 and had been sick since that time. Even now, he had not 100% recovered. Yesterday, he had to meet a cardiologist, because he had ended up having a high blood pressure, and problem with his kidneys. Next Thursday he would be admitted just to check whether there were no blockages around his heart. Those were the implications of COVID-19. He expressed gratitude for still being alive. He had been lucky, because others could not make it. There were a lot of people who had passed on. Parliament had not been spared. One of the Members of Parliament who was in the Committee on the DTIC, Ms Tozama Mantashe (ANC), had passed away on the evening of 1 February. Other MPs who had passed away included Ms Nombulelo Hermans from the Portfolio Committee on Employment and Labour, Ms Nomvuzo Francisca Shabalala, Minister Jackson Mthembu, Professor Belinda Bozzoli, and other Members that he may not have remembered by name. There were also many staff members who had also passed away during this period. The Committee was also informed early last month that the Deputy Minister’s brother and his wife had both passed away early in January. The Committee wanted to send its condolences to all the families of those who passed away, and also to the Deputy Minister, to whom the Committee sent heartfelt condolences.
Deputy Minister’s overview
Ms Nomalungelo Gina, Deputy Minister of Trade and Industry, welcomed the Chairperson’s recovery, and said the Department was with him in its prayers. She extended condolences to the families of the Members who had passed away, especially to the family of Ms Mantashe.
She said the President and his delegation were assessing the progress of the Tshwane Special Economic Zone (SEZ), especially the partnership with the Ford Motor Company. Ford had pledged and committed to the President at the Investment Conference, so the delegation was assessing the progress of what Ford was doing as the anchor investor in the area. She added that at 11:00, she would need to attend the Council of Ministers on assessing the progress of the African Continental Free Trade Agreement (AfCFTA).
The realisation of the AfCFTA raised the question, what could be done to open up opportunities. There was excitement about the prospects -- it was a meeting that could not be missed -- so that was why she had asked to be excused from the Select Committee (SC) meeting. The Department wanted to thank the SC for the work that happened last year when it came to its oversight responsibilities. They had seen the Committee working against the challenging environment that was posed by COVID-19. Even now, the Department fully understood that there were many challenges that COVID-19 was still posing to government, but appreciated that amidst all those challenges, the SC still kept pushing, keeping the Department on its toes.
This pandemic had directed the Department as to what its approach should be when it looked at economic development and the localisation of manufacturing in the context of re-imagining industrialisation in South Africa. It had put the Department on its toes again to see what it could do even more to make sure that when it talked of economic recovery and economic growth, there were new ways that it could look at it, with the assistance of Committee Members. The realisation of the AfCFTA was posing a huge challenge for the Department, but also opening up many opportunities to South Africa to see what it could contribute to the economic growth of the whole continent, and the opportunities for South African companies to take part in this agreement.
She was grateful to the officials who had diligently worked tirelessly last year to make sure that there was a seamless merging of the two departments -- the Department of Trade and Industry and the Department of Economic Development -- in consultation with the unions. The Department knew that tensions often arose regarding where to place people and so forth, but the way it was managed had meant that everything went well. The Department was now meeting as a single entity – the Department of Trade, Industry and Competition (DTIC).
The work that the DTIC would report on had started when the two departments were still separate, and she wanted to highlight some of their successes. The DTI had looked at master plans. It had an automatic master plan that was completed last year, and the implementation of the master plan elements had been agreed to in a tripartite agreement between Government, the automotive sector and the trade unions. There was already a significant production level increase from January to December 2019, earning the sector increased foreign investment in South Africa. The poultry master plan was one of the successes, as well as the sugar master plan. The sugar master plan came about towards the end of 2020, and the Department reported that it had been finalised. The retail, clothing, textile, footwear and leather (R-CTFL) master plan was out, and it had been agreed to. With the agreement, the Department was happy that all stakeholders had agreed on a reorientation from imports to locally manufactured products. For the Department, when one looked at the growth of the local value chain, it indicated that there were more job opportunities. The Department was still working on the steel and financial master plans. Those plans were started in the financial year that the Department was reporting on, and it would be finalising them.
The Department was also happy to report on the progress with the SEZs -- for example, the Dube-Trade Port. There had been expansion and intervention in that area. The Department also wanted to report on the interventions in other SEZs which had been designated in other provinces. There had been SEZs designated, but otherwise one had not seen much of a take-off, but the Department was intervening, for example, in the Free State, North West, Limpopo and the Northern Cape. In the Northern Cape, it was promising, with “a lot of investors in the pipeline”.
The Department was working on the revitalisation of industrial parks, but what was exciting was the introduction of digital hubs, with the purpose of enabling of innovation, especially for the youth-owned technology companies, which was a field where it was “encouraging our youth to play, and to take part in innovation business ideas”.
When it came to development, the Department had strengthened the Industrial Development Corporation’s (IDC’s) focus on jobs, green energy and black industrialisation. It had introduced the price preference system (PPS) on exports which had assisted in the development of mini mills and foundries, where much work was taking place; piloted the two pieces of legislation through Parliament right now; and was working on the initiated social and solidarity economic policy framework, which would be coming to the SC very soon to get guidance moving forward.
The Department was proud of its continuous achievement of a clean audit. It needed to make sure that whatever it did, it also maintained the clean audit report that these two departments were known for. Now that the two departments were merged, it was an area which the DTIC would want to focus on.
The Deputy Minister concluded that the Department wished to have the same healthy relationship that it had with the SC throughout the years. It committed itself to working hand in hand with the SC in making sure that it brought the lives of South Africa’s people to a better situation, and to uplifting the economy of the country.
Mr Shabeer Khan, Chief Financial Officer (CFO): DTIC, was leading delegation, and Dr Molefe Pule, Acting Deputy Director General (DDG): Competition Policy and Economic Planning, and other senior officials would support him.
This report would be the last report that covered the DTI and EDD separately, as the Department was already fully integrated. There had been a number of delays in the finalisation of the annual report. Normally, the report was tabled at the end of September. However, the Minister of Finance had gazetted amendments to the Public Finance Management Act (PFMA), allowing departments to finalise their financial statements two months later. That had pushed all of the dates out.
Department of Trade and Industry (DTI) Annual Report 2019/2020
The Department commenced the presentation by reporting that both the DTI and the EDD had received clean audits -- unqualified audit opinions with no findings.
The Minister’s foreword referred to a number of performance highlights:
The DTI took responsibility for the re-imagined industrial policy, which sought to deepen partnerships at the sector level to increase economic output in productive sectors -- largely manufacturing, with a focus on key services such as film-making and global business services (call centres).
The Department had focused on implementation of the automotive master plan, and had concluded two new master plans. The automotive industry had achieved a record production output in 2019, and was a significant earner of foreign exchange for South Africa.
The R-CTFL master plan stakeholders had agreed to a fundamental re-orientation from imports to locally produced goods, with domestic manufacturers expected to supply R67-billion worth of retail purchases annually over a period of time, to grow value chain employment to about 320 000 jobs, and substantially increase investment.
The master plan had had an almost immediate impact, with investments of R6.7 billion pledged by key firms at the Investment Conference in 2019.
A second master plan completed in the financial year had covered the poultry sector, resulting in an agreement on measures to deepen levels of local production and position the industry for greater levels of exports. Poultry local production had increased over the first eight months of 2020.
The Department had worked with stakeholders to develop the sugar master plan, launched shortly after the end of this accounting period. Work was also undertaken on a steel and furniture plan.
The DTI continued to work intensively with provincial stakeholders to facilitate investment in South Africa’s operational (SEZs). The Dube-Trade Port and OR Tambo International Airport SEZs were approved for expansion in 2019. The OR Tambo SEZ had been expanded to include the Tshwane Auto City, an ambitious partnership with Ford, the Gauteng province and Tshwane Metro, to develop a R6.7 billion automotive hub.
The project was announced at South Africa’s third Investment Conference, at which investors pledged investments amounting to R109.6 billion. The Department was working with these investors to convert the pledges to operational investments that employ South Africans and grow the economy.
African economic integration had received a boost during the financial year, with ratifications of the AfCFTA crossing the hurdle required for it to come into effect. Much of the work required to commence trading under the new agreement had commenced in the period, with officials of the Department working closely with trading partners to finalise terms.
Programme 2: International Trade and Economic Development:
Two status reports produced on progress for Tripartite Free Trade Agreement (TFTA) negotiations.
Four status reports produced on progress for Continental Free Trade Area (C-FTA) negotiations.
Two reports on implementation of the Southern African Development Community (SADC)-European Union (EU) Economic Partnership Agreement (EPA).
16 status reports produced on engagements with the Brazil, Russia, India, China and South Africa (BRICS) bloc, the G20, the African Growth and Opportunity Act (AGOA), and the UK Brexit).
Programme 3: Special Economic Zones (SEZ) and Economic Transformation:
Two SEZs submitted to theMinister for designation.
Two implementation reports on industrial parks submitted to the Minister.
Two implementation reports on the Broad-Based Black Economic Empowerment (B-BBEE) Amendment Act and regulations submitted to the Minister.
67 interventions to provide non-financial support to black industrialists (BIs) in the Industrial Policy Action Plan (IPAP) sectors.
Programme 4: Industrial Development:
Four designation requests prepared for the Minister -- plastic pipes and fittings products; bulk material handling (conveyor system equipment); ester oil; and instrument transformers.
One IPAP implementation report was prepared.
• The Re-imagined Industrial Strategy was approved by the Cabinet Lekgotla in June 2019.
Two master plans -- the R-CTFL value chain and the poultry sector -- were launched at the President’s Investment Conference as part of the implementation of the Reimagined Industrial Strategy. Implementation was in progress through the establishment of executive oversight committees (EOCs) and technical task teams.
Programme 5: Consumer and Corporate Regulation:
The Socio-economic Impact Assessment System (SEAIS) report was revised and certified by the Department of Planning, Monitoring and Evaluation (DPME) for submission of the Companies Bill to the National Economic Development and Labour Council (NEDLAC) on 16 May 2019. The SEIAS report revision was based on the changes made to the Bill during the NEDLAC process.
Four progress reports on the development of the Companies Amendment Bill were developed for the Minister’s approval.
27 education and awareness workshops on policies and legislation were conducted, and a report produced for the Minister’s approval.
Programme 6: Incentive Development and Administration:
R32.208 billion in projected investments was leveraged from projects/enterprises approved.
18 242 projected new jobs would be supported from enterprises approved.
24 247 projected jobs would be retained from approved enterprises.
510 enterprises/projects were approved for financial support across all incentives.
Programme 7: Trade Investment South Africa:
R2.672 billion of export sales was generated.
828 companies were financially assisted through Export Marketing Investment Assistance (EMIA).
Programme 8: Investment South Africa:
R220 852 billion in investment projects was facilitated in the pipeline.
Mr Khan commented that the Department ensured that its work of providing financial support where it was needed was spread across the country.
Special Economic Zones
Since 2016/17, the SEZs had received a total of R5.2 billion for regional industrial development, of which the two zones in the Eastern Cape had been the biggest benefactors, receiving R3.2 billion. Overall, the SEZs had reported the creation of over 15 000 jobs and the generation of R17.7 billion in investments, which was three times more than the claims paid out. In the 2019/20 financial year, claims worth R1.4 billion had been disbursed to projects across five zones.
Industrial Parks Revitalisation Programme (IPRP)
The IPRP was initiated in 2015/16, and to date R760 million had been approved for funding of phase 1 (revitalization) and phase 2, with Gauteng province receiving the bulk of the funding allocations. This could be ascribed to three of the larger state-owned industrial parks, Babelegi IP, Garankuwa IP and Ekandustria IP, being located within the borders of the province. These parks hosted a number a small, medium and micro enterprises (SMMEs) and provided approximately 14 352 employment opportunities. During 2019/2020, 393 construction-related job opportunities were created and R38 million spent on SMMEs.
IPRP planned programmes for 2020/21 included:
A digital hub programme: This would be implemented in 2020/2021.The goal was to nurture innovation and encourage technology development in an inclusive manner across the South African economy.
An eco-industrial park programme: the DTIC and the United Nations Industrial Development Organisation (UNIDO) would sign a memorandum of understanding (MOU) in 2020/21 to fund the role out of the Enterprise Incubation Programme (EIP), to address resource efficient and cleaner production (RECP) in industrial parks.
Presenting an overview of the Department’s financial performance, it reported that as at 31 March 2020, it had spent R9.97 billion (98.9%) of the allocated budget of R10 billion. Of this, R5.7 billion (57.6%) was disbursed to the beneficiaries across the various incentive programme, with R3.2 billion going to beneficiaries in the auto, black industrialist, and agro processing sectors, and industrial loans for manufacturers under the manufacturing development incentives. About R1.5 billion was financial support for bulk infrastructure, top structures and critical infrastructure to improve industrialisation, regional development, exports and employment, as well as to attract foreign and domestic direct investment to the SEZs, industrial parks and in the economic areas of various municipalities. R1.32 billion (13.3%) was transferred to public entities. R982.4 million (9.9%) was disbursed to the external programmes, whilst non-profit organisations as well as international organisations, of which South Africa was a member, accounted for R208.5 million (2.1%). Spending on operational costs was R1.7 billion (17.2%).
Programme 6: Incentives Development and Administration, had received the bulk of the budget. These funds were used to support companies in various sectors.
(See page 17 of the document for full details.)
2019/20 Audit Report
The DTI and its 11 entities had achieved financially unqualified opinions with no findings, commonly known as a “clean audit” opinion.
The South African Bureau of Standards (SABS) and the South African National Accreditation System (SANAS) had obtained unqualified audit opinions with findings, while the National Regulator for Compulsory Specifications (NRCS) obtained a qualified opinion. SABS had been found to have made material adjustments to the financial statements, and there had been non-compliance with Treasury regulations 29.2.2. SANAS had also made material adjustments to its financial statements. The NRCS findings had included revenue from non-exchange transactions (levies from compulsory specifications), material misstatements in the financial statements, and non-compliance with supply chain legislation resulting in irregular expenditure.
Human Resource Performance
There had been effective planning and governance of the National Macro Organisation of Government (NMOG) project.
Successful negotiations were conducted with organised labour on the matching and placement of staff in the organisational structure of the new DTIC.
The merger of the DTI and EDD into the new the DTIC had been seamless.
The turnover rate was recorded as 3% against the annualised target of 6.8%. The retention rate was 97%.
The number of women in senior management service (SMS) level posts was 54%, against the target of 50%.
The Department’s staff included 3.9% of people with a disability against the target of 3.7%, and above the Cabinet target of 2%. 70 employees had been trained since May 2018 in sign language.
The vacancy rate had been 6.1% against the target of 5.1%. This was below the target due to the hold on filling positions due to the NMOG.
In youth empowerment, 45 interns were provided with experiential training. Of the 69 appointed, 24 had ound external employment. The recruitment and selection of 54 new interns for placement was completed.
In the leadership development coaching programme, the training of 48 SMS targeted employees had been completed between 2018 and 31 March 2020, and a progress report submitted.
For capacity development, there were 214 bursary holders --136 undergraduate, including Honours qualifications, 68 Master’s degree qualifications and 10 Doctorate degree qualifications. 85 new bursary applications had been approved for the 2020 intake, and 43 employees had already made use of the opportunity by registering for their studies.
30 Level 1 – 12 grievance cases were handled within an average period of 86 days, and 77% of them were resolved.
Eight SMS grievance cases were handled within an average of 90 days, and 50% of them were resolved.
35 informal discipline cases were handled within an average of 34 days.
Ten formal discipline cases were dealt with period of 542 days – General Public Sector Bargaining Council (GPSBC) matters, as well as suspensions.
Department of Economic Development (EDD) 2019/20 Annual Report
Dr Pule introduced the presentation of the Department of Economic Development, and commented that the quarter-on-quarter performance was affected by various factors.
The EDD had 16 key performance indicators (KPIs) for the 2019/2020 financial year. 184 products had been planned, 194 had been achieved, and 98% of the allocated budget was spent.
Among the highlights were the data and grocery retail market inquiries.
The data market inquiry was set up as a result of persistent concerns expressed by the public about the high level of data prices and the importance of data affordability for the South African economy and consumers. Its purpose was to understand what drove the cost of data. The EDD had collaborated with Department of Telecommunications and Postal Services (DTPS) in terms of providing funding for the inquiry, as well as discussing the implications of the provisional recommendations. The final report was issued in December 2019. Major agreements had been struck with mobile network operators – to bring down the cost of data down by approximately 30%.
The grocery retail market inquiry’s purpose was to remove hindrances to SMMEs and historically disadvantaged firms’ participation. The Inquiry also determined the impact of the expansion, and the diversification and consolidation of national supermarket chains on small and independent retailers in townships, peri-urban areas and rural areas and the informal economy. The final report was issued in November 2019. Grocery retailers had agreed to end the exclusive lease agreements which kept SMMEs out of shopping malls.
Another highlight had been the implementation of the Competition Amendment Act, No. 18 of 2018, which was published in Government Notice No. 42231 of 14 February 2019. On 6 July 2019, the President had promulgated certain sections of the Act to commence its implementation, and implementation work had been accelerated. Dr Pule added that the COVID-19 block exemptions allowed the government to support the country by ensuring that various role-players were able to interact to discuss mattes without their falling foul of competition regulations. This was facilitated by block exemptions.
The PepsiCo/Pioneer merger had been another highlight, and had been approved with certain conditions:
- PepsiCo’s common stock to the value of R1.6 billion to be issued to a South African, broad-based workers’ trust.
- Stock in PepsiCo must, after five years, be converted into a direct shareholding in Pioneer of up to 13%.
- No merger-related retrenchments for a period of five years.
- The merged company shall remain incorporated in South Africa and would remain a tax resident in South Africa.
- Aggregate productive capacity and capabilities associated with production operations and related facilities in South Africa shall be kept in place. PepsiCo committed to expanding the operations of the merged firm in South Africa over a five-year period to the value of R1 billion.
- Merging parties committed to expand the Pioneer Foods practice of maximising local production.
- The merged company shall maintain all sale and distribution agreements with companies controlled by historically disadvantaged persons and SMMEs for a period of two years.
- There would be a R600 million Development Fund for investment in: education, SMMEs, and enterprise and agricultural development.
- R300 million would be invested in developing the capacity of emerging farmers and expanding emerging farmer participation in the supply chain of the merged company.
- R200 million would be invested in education, which would include funding scholarships for historically disadvantaged engineering, agronomy and nutrition science students.
- R100 million was invested in SA entrepreneurs, as part of an incubator fund.
Dr Pule said the Deputy Minister had referred to the price preference system (PPS) extension and export tax. The slide referred to the status of this at the time of the annual report. He commented that the International Trade Administration Commission (ITAC) had finalised their investigation into the introduction of an export tax on scrap metal, and had worked with National Treasury on its implementation, expected during the next financial year.
Over the past five years, the IDC’s strong track record in facilitating economic transformation had been exhibited by its R24.5 billion funding support to black industrialists – or R42.6 billion if all black-empowered firms were collated. It had also committeed R11.7 billion to women-empowered enterprises, and R6 billion to youth-empowered enterprises.
The Deputy Minister had mentioned a significant piece of work which she was leading, which was the development of a social and solidarity policy draft white paper, which had gone through the clusters, and was now with the Minister. It would come into the Parliamentary process shortly.
The IDC had a significant role to play in the economic recovery post COVID-19.
Financial overview and Auditor-General’s report
For the year under review, the EDD had spent 98% of its budget and had obtained a clean audit opinion. This demonstrated the efforts that had been put in place by management to ensure that the internal control system remained effective and was further enhanced in certain instances. All the assurance providers had demonstrated a high level of commitment in discharging their responsibilities.
The Department had received a budget of just under R1 billion, and R966 million was spent. A big portion had been spent on Programme 3: Investment, Competition and Trade. This programme related to areas such as competition policy and the IDC.
The biggest portion of the budget was “transfers to entities.” About R840 million was transferred to various entities such as ITAC, the competition authorities, the IDC and the Small Enterprise Finance Agency (Sefa). The transfers to the IDC included the Tirisano Fund for the construction industry, the
Steel Fund and the Presidential Infrastructure Coordinating Council (PICC).
Mr Khan added that the PICC had since been transferred to the Department of Public Works and Infrastructure (DPWI).
The EDD, the Competition Commission, Competition Tribunal and ITAC had all obtained clean audit outcomes. The audit opinion for the IDC -- unqualified with findings -- was due to corrected material misstatements in the financial statements.
Human Resource Management
The Department had a staff complement of 97 at the year end. It employed staff on a permanent basis, as well as through fixed term contracts for specific projects and secondments to access specific scarce skills and knowledge for its programmes, including the PICC technical unit.
The Department had achieved the national target of 2% for employing people with disabilities, and had exceeded the gender equity target of 50% in the filled and funded posts overall. It had a ratio of 54% of women in senior management positions as at 31 March 2020.
The Chairperson said the SC appreciated that there had been a report with regard to the incentives for the provinces, and would also appreciate if each of the programmes of the Department (except administration) would indicate for Members what each programme meant for finding expression in the provinces. Instead of summarising everything around the SEZs and incentives and the industrial parks, Members would like to know, whilst the Department was reporting broadly on a programme, what that programme meant for each province. Programme 3 talked about SEZs and economic transformation, while Programme 4 talked about industrial development. With all of the programmes, the SC would be interested to know what the Department was doing, or what these programmes meant in the provinces.
On the issue of SEZs and industrial parks, these incentives were around the SEZs and the industrial parks. The SC did not know what international trade and economic development meant in this context. What sort of activities were taking place in the provinces as result of this particular programme? What activities were taking place as a result of Programmes 3, 4, 5, 6, 7 and 8?
The report was based on the 2019/20 programme, but he knew that the Department had new programmes. When it was presenting the annual performance plan (APP), there had been ten programmes. He was unsure if those ten programmes were the old programmes, or the current integrated programmes.
Mr M Mmoiemang (ANC, Northern Cape) wanted to reflect on the referral that the team had made with regard to the departmental achievements on both performance and spending. When one made a comparison between 2018/19 and 2019/20, the expenditure in 2018/19 was R41 million, and in 2019/20 it was R115 million. It would be important to get a sense of the difference in the under-expenditure; what could have led to that?
He asked about the industrial parks’ revitalisation projects, which put emphasis on the industrial parks providing incubation and business development support. One would expect them to include support around market linkage facilitation, so that thie industrial parks could attract support and sustain firms. It would be helpful to get a sense of the key areas around the provinces, because there was an expectation that given the distinct development model implemented in the 44 districts, there was articulation of where things were in terms of progress. What support was the Department giving to the Northern Cape economic development cluster? Key to that was that there was an expectation that the firms located in this industrial park must be exposed to various government incentive schemes. Therefore, that elaboration would be important, just to get a sense of the incentive schemes that the Government had. Was the Department able to report progress for those 44 districts? A key challenge was to recognise that the implementation of this industrial strategy did not rely solely on the Department, and that there was a need for alignment with sister departments. He asked for an elaboration on trade facilitation, competition policy and small business development, with a view to ensuring that there was facilitation of higher education infrastructure development and economic policy, as that had to be prioritised.
It was important to get a sense of where the Department was. With the SEZs, there was much more focus on what the SC expected from them, given its expectation that the SEZs should contribute significantly to local products, employment, exports, and should attract foreign investment. Considering the point raised around the various reports issued by the Minister, it was always important to get a sense of what this support entailed, because under Programme 4 (Consumer and Corporate Relations), referrals were made to the four progress reports on the development of the Companies Amendment Bill, which had been approved by the Minister. It would be important for the Department to empower the SC on the thrust of those progress reports.
Under incentive development and administration, a point was made around the three programmes that were achieved. There were four targets, and three of them had been achieved. It would be important for the SC to receive an elaboration on that, because it fell under incentive development and administration. That was the largest programme of the DTI, because it accounted for 58.9% of the total budget allocation. If this was the case, then there was an expectation that the SC should get a sense of the target of R18 billion worth of projected investment. It would be important to get a sense of the target of 18 000 new jobs that had been set. Had the Department managed to raise those targets? What was critical was an elaboration on the 900 enterprise projects that were identified to be supported across incentives. One got a sense that it was not achieved, because it was only 512 enterprises out 900 where the target had been achieved. What was the reason for that? Was the under-expenditure related to capacity and under-performance?
Mr Khan responded to the Chairperson’s question on the work that the Department does, and whether it impacted or contributed towards the provinces, or had a provincial footprint. He said the Chairperson was correct -- as the DTI moved into the new department of the DTIC, its work largely went into ten different programmes.
He started with Programme 2, which was its international trade division, which was trade policy negotiations and cooperation. The work done in this programme largely benefited the entire country, because it was here that the trade agreements and trade negotiations with the rest of the world happened. The impact was that these trade negotiations provided market access opportunities for many companies. The trade agreements provided export opportunities for companies in each province. All provinces had export firms that benefited from access to export markets, and these provinces also consumedd imports from foreign countries that went into their production processes. The trade negotiations and programmes dealt largely with this work.
Linked to this programme was the programme on export development and promotion and outward investment. There was a clear linkage between the two programmes, because once these negotiations were agreed, Programme 7 (export development, promotion and outward investment) came in, and it took companies in the provinces and provided them with opportunities to promote their goods and services. A key part of the work done in this programme was around export development. Here, a large number of SMMEs were given opportunities to take part in this export development programme. The Department could provide a more detailed report on the companies that benefited from the programme.
On spatial industrial development and economic transformation, the report largely captured the work done on the SEZs and IPs.
Regarding industrial competitiveness and growth, the Department’s work was largely focused on the master plans. Whether it was the poultry industry or the sugar industry, the companies that benefited were mainly the industries in those sectors. For example, the sugar master plan looked at the companies that were largely in KwaZulu-Natal (KZN) and Mpumalanga, while the steel master plan looked at the companies that were in Mpumalanga.
Linked to this was the work done under Invest SA, or Programme 8 (Inward Investment Attraction, Facilitation and Aftercare). Here, a key part of the work was around the Presidential Investment Drive. which was R1.3 billion. There were 152 investment projects in all nine provinces. In the auto sector there was Nissan and Ford (in Gauteng), Toyota (KZN), and Mercedes Benz and Isuzu (Eastern Cape). Some of the companies that benefited in other provinces were Nestle (Free State), Vedanta (Northern Cape), Anglo and Ivanhoe (Limpopo), PG Bison (Mpumalanga), and Amazon (Western Cape). The Department had a large footprint across the board. The work that it did in the different areas largely aimed to do that.
Looking at the consumer regulations and awareness in the area of consumer and corporate regulations, the team in this programme had a number of consumer and outreach programmes which taught and provided training to many rural areas and provinces so that people understood what these regulations were, and how these regulations impacted people on a day-to-day basis. Besides developing regulations, this work also provided consumer awareness.
On industrial finance, the Department provided a report on some of the companies and some of the provinces that benefited from the incentive programmes.
The aim of Programme 9 (competition policy) was to prevent any monopolies, but also to allow SMMEs opportunities in various parts of the country. Whether it was the grocery inquiry or the data inquiry, these had an impact on consumers across the board and across the country. Here, the work focused on having a footprint across the country.
The work in Programme 10 (economic research and coordination) was focused mainly on detailed research programmes which supported the work done in the other programmes. It was more about evidence-based decision-making.
In both the former DTI and EDD there had been under-expenditure. If one looked at the DTI, underspending was largely attributable to the global outbreak of COVID-19. The pandemic had negatively impacted many areas of the business in the last quarter of that financial year. The virus broke out in Asia around November or December 2019. This had affected a number of the Department’s export marketing initiatives, which had to be cancelled in quarter 4. There were some delayed investment milestones by companies due to capital equipment that was ordered from abroad. Because of the travel restrictions, some of these investments did not take place as anticipated in that financial year. There was also a delay in the delivery of information communications technology (ICT) equipment, which was ordered but not delivered in the financial year.
A large portion of the Department’s international footprint was having international offices in embassies and missions across the globe. Because of the travel restrictions imposed as a result of COVID-19, there were delays in the receipt of vouchers from some of these foreign offices. There was underspending on compensation, and this was largely due to the Department of Public Service and Administration (DPSA) directive that as the DTI and the EDD were merging, the departments should suspend the filling of posts, and should look into whether some of those posts were actually needed once the departments moved into the new merged department.
There had been a delay in the listing of the B-BBEE Commission. It had required a legislative change to the Act which would enable it to be a separate listed public entity.
With the EDD, the underspending was largely due to resignations of staff, resulting in reduced compensation. When the sixth administration came into being, the Minister was still on the EDD payroll, but the two new deputy ministers came on to the DTI payroll at the time, so there was underspending on the EDD side. There was also underspending on the transfer to the IDC of the Tirisano Fund. The construction industry had experienced problems. The agreement with the construction industry was that they had to pay these amounts to the National Revenue Fund before the Department could transfer the monies to the IDC. Because of the delays in some of these companies fulfilling their obligations, the Department could not then transfer the funds to the IDC.
The industrial parks programme covered various phases. The Department was currently busy with phase one, which largely looked at the security infrastructure upgrades, such as fencing and lighting, and also critical top structures and electrical requirements. Phase two was compliance to regulatory requirements such as landfill sites, waste and water treatment plants, fire, health and safety requirements, and renewable energy initiatives. These initiatives would come into being. Phase three looked at engineering designs, phase four looked at upgrading electrical infrastructure and building new top structures, and phase five looked at the development of vacant land.
As part of this broad programme, there was an important programme that would look at the marketing and promotion for the industrialists in those parks. This work had already started. If one looked at the Black Industrialist Programme, a large number of black industrialists were already located in these parks, and the work done in this area was to ensure that there was support from a financing point of view for machinery and equipment, and there was also a link and an alignment between those industrialists and the demand from a large number of retailers. The work done in Programme 3 had already started to look at this.
Mr Sipho Zikode, Deputy Director General (DDG): Special Economic Zones and Economic Transformation, DTIC, referred to the Kathu industrial parks in the Northern Cape, and said the Department had not received applications from the municipality for assistance with the IP revitalisation programme. The IPs, through the municipality or the local economic development agency, would apply for assistance, and then the Department would approve according to its criteria. Kathu had not submitted an application. It had informed the DTI that it wanted to apply for funding, but it would not be using it for the Kathu IP, but rather for some other infrastructure-related programmes in the municipality. The Department was still waiting for that application. Those in the Upington municipality had applied for the revitalisation of the Upington IP. The Department would be looking at taking the application through the approval processes, and the municipality would know the outcome very soon.
Questions also touched on business development support and market linkages. The DTI had established a programme called the Digital Hubs Programme. The Department was trying to make sure that all the IPs and SEZs would each have a digital hub, which would be a way of linking the SEZs with the community. The youths from the particular community around the SEZ or IP would have an opportunity to go to the digital hub in the SEZ or IP, and be trained in Fourth Industrial Revolution (4IR) technologies, and also be assisted with a small business incubation programme. Youths who wanted to be employed either inside the IP or outside the IP, would be assisted with getting employment. Labour services would also be provided by these digital hubs, where the youth would be linked with businesses that were looking for sector skills and expertise.
The Department was working to ensure that each province had at least one SEZ. The approval depended on the economic imperative of the area that was applying. The Department was working with provinces such as the North West and the Northern Cape to establish SEZs.
In the North West, the Bojanala municipality’s local economic development department had submitted an application for designation of the Bojanala industrial park to be turned into an SEZ. The Department was working closely with the Bojanala municipality to ensure that the location met all of the criteria. One of the most important criteria was that the SEZ must show a potential pipeline of projects that would be coming in.
In the Northern Cape, the Department was working with the Aggeneys municipality, where there was a large zinc mining company. That would be the anchor company for the Namaqua SEZ in that area. The area would be developing a large smelter, which was meant to attract other businesses. Those businesses would be located in the Namaqua SEZ. The Department was working with that municipality to ensure that the environmental impact assessment (EIA) was done, and that compliance criteria were met.
The Department was also working with the Eastern Cape, where there was an application for a third SEZ in the Wild Coast area. A special purpose vehicle had been established to assist the municipality and the local community development agencies to put together the application for approval.
There were other SEZs that were being proposed all over South Africa. The SC would get a detailed report to expand on the presentation.
Dr Shandokane Masotja, DDG: Consumer and Corporate Regulation, DTIC, said her branch was responsible for legislation, regulations and policies. She gave a list of some of the different streams of work that the branch did, to provide a broader context. It looked at credit law and policy, so the National Credit Act and the Consumer Protection Act were pieces of legislation it administered. Liquor policy and law, such as the Liquor Act, was also administered by the Department. There was also commercial law and policy, such as the Companies Act. She also mentioned the National Gambling Act.
The DTIC looked at the legislation and the policies, and there were reviews on an ongoing basis. The DTIC worked with many stakeholders from the national government, the provinces and local government, to ensure that there was coordination in its work. It also worked with entities. From a regulatory perspective, it worked with the National Consumer Commission, the National Credit Regulator, the Companies and Intellectual Property Commission (CIPC), and others.
Regarding education and awareness, the Department educated communities in rural areas, while working closely with municipalities and provincial government to coordinate seminars and workshops. A team would go into a rural area and educate people on various topics. For example, there could be someone speaking about credit law and policy. The relevant entity would be with the Department at the same time, so the entity would speak to the enforcement and implementation of that legislation and policy. If there were issues of implementation, where the communities required some support, then the entity would assist. For example, in quarter one of 2019/20, the Department had been in KZN, in areas such as Hluhluwe, Eshowe and Richmond, where such sessions had taken place.
When one looked at the Department’s APP, there would be a list of legislation that it was developing or reviewing for a particular financial year. The legislative process was a lengthy one, but the Department would be giving ongoing progress reports on what it was working on during a particular period. For example, with the Companies Amendment Bill, when the Department was in the NEDLAC process, it would report on the substantive issues that were being discussed. If there were consultations that had taken place during that process, that report would include that. It would include substantive issues and issues of consultation, and if there were legal opinions that the Department sought in that area, it would also address the legal opinions and other issues around the legalities of that legislation.
The Department would also look at other legislation. Although the focus would be on the Companies Amendment Bill, the Department would also address the other legislation where there was progress and work -- for example, the Copyright Amendment Bill, the Performers’ Protection Amendment Bill, and the National Credit Amendment Bill. That report would include those other laws that were not necessarily in the APP because of where they were in Parliament, but the Department would talk about where they were in Parliament, and the different processes that were ongoing, and whether there was a Parliamentary session. With the Copyright Amendment Bill, for example, the Department had had discussions with the USA on the issue of fair use, and the report would refer to that. The report would be comprehensive, and talk to the main legislation in the APP, but it would also go into other legislation that was administered by the Department and its branches. In every quarter, the Department would have such a report on the work taking place, either in Parliament, with other stakeholders, or with particular legislation. In the APP in this instance, the main focus was on the Companies Amendment Bill at NEDLAC.
Chairperson on need for provincial details
The Chairperson suggested focusing on the questions that had been asked, instead of going through each particular programme. He said that the SC would be meeting again with the Department when it would be tabling the APP for 2021/22, and the challenge which the committees of the NCOP faced was that they dealt with a number of departments, but they were unable to invite the Department from time to time, unlike the National Assembly. The SC was unable to say to the Department that it would just have a meeting to report on trade policy negotiations and cooperation, or at some other stage, to invite the Department to come and present on spatial industrial development and economic transformation, or on industrial competiveness and growth. The challenge was that the SC was representing provinces, and while it had an interest in what was happening globally and domestically, as well as continentally, it wanted to know what each programme meant for each province. That was why, instead of having a section that just dealt with SEZs, IPs and incentives, the SC would like a scenario where in each of the programmes, the Department specifically indicated what work it was doing in each of the provinces.
For example, in the APP tabled in May last year, if one looked at trade policy negotiation and cooperation, it stated the purpose of the programme, and the outcome – for example, to increase intra-Africa trade and support African regional development. It also listed the outputs -- the African Regional Development Programme, the implementation of trade agreements, to facilitate market access and global rulemaking to enable policy space to support and grow critical sectors. What did that mean for the provinces? The SC wanted details. How would provinces benefit from this particular programme? As the Department presented its APP, it could give the SC more details. The APPs and annual reports were high-level reports. However, because the did does not have the opportunity that the Portfolio Committee on the DTIC had, of inviting the Department from time to time to report on the details of programmes, it was important that as the Department presented its annual reports or tabled its APP, to give the SC “more meat” on each of those programmes and what those meant for the country and the provinces.
For example, with Programme 3: Special Economic Zones and Economic Transformation, its output just said, “number of implementation reports on SEZs submitted to the Minister; number of implementation reports on the industrial parks submitted to the Minister; number of implementation reports on the economic transformations submitted to the Minister.” It just talked about numbers, and did not give the SC details of what the issues around the implementation of SEZs were. All that the SC left the meeting with was knowing that a certain number of reports had been submitted to the Minister. That meant nothing to [the SC, because it wanted the details of what was contained in those reports submitted to the Minister on SEZs. What was contained in the reports on industrial parks submitted to the Minister? He was not saying that the Department needed to give the whole report -- just the highlights of what the issues for the provinces were.
On the industrial park phases, for example, the Department was talking about phase one, phase two, etc. Could each phase have a timeframe when the Department reports in the next meeting? The Chairperson had a constituency office in an area where there was the Dimbaza IP in the Eastern Cape. In January last year, the Department had been invited by the constituency office. It had written to the Minister, somebody was sent to the province, and the constituency office had had a meeting with the Eastern Cape Development Corporation, the Mayor of the Buffalo City Metro, and the Head of Department of the Department of Economic Development (Eastern Cape). In January 2020, phase one had been completed, but 12 months later, “we were still only talking about phase two,” which had not yet been completed.
People in Dimbaza used to have jobs before 1994, but after the change in regime, those companies had left the area. However, the Government had intervened and come up with this programme of IPs, which was mainly trying to assist the former Bantustans with economic development, or industrial development, in those areas. People from these former Bantustans had been waiting since 1994 so that they could have industries in their areas. If one was going to have long-term phases, and one did not see the actual companies in those areas, it was discouraging. That was why when the Department next reports, it must indicate to the SC the timeframes of IPs.
What were the incentives for those IPs? He had raised that question in the last meeting when the Department was tabling the APPs. Whilst the Department had incentives in the SEZs, what incentive packages did it have for IPs? He was not asking for a response in the meeting, but he was saying that in preparation for the APPs that the Department would be tabling around May, it should be preparing to at least give some detail on the work that it was doing. The SC would, from time to time, invite the Department to come and present on a specific programme. In general, when the Department reported on the APPs and annual report, it could give more details, and take into account the fact that the SC would not be able to invite the Department from time to time to present on specific programmes.
Mr T Apleni (EFF, Eastern Cape) said that the presentation had made mention of a sum of R3.2 billion allocated to the Eastern Cape’s SEZs. That was a large amount. Looking at the current state of the Eastern Cape’s SEZs, could the Department indicate when one could expect to see visible results of that allocation? Could it give a breakdown of how these funds were going to be used? Who were the beneficiaries of the funds? What specific services were these beneficiaries providing?
The Chairperson replied to Mr Apleni and said that if he checked the programme, it said that the SC would be inviting provinces -- especially those that had SEZs and IPs -- to table reports on what those provinces were doing, and the support that they were getting from the national Department on SEZs, the progress they were making, and some of the issues Members were raising.
Mr Zikode said that a lot of money had been invested into the first two SEZs in South Africa, namely the Coega SEZ and the East London SEZ. These SEZs had started as industrial development zones under a different legislative regime. It was when the Department designed the new Act that those two areas had been converted into SEZs. The Coega SEZ so far had 47 operational businesses that were supported by the DTI, and 47 investors were located there now. The East London SEZ had 32 investors. These two SEZs had the biggest numbers of investors that were located in SEZs in South Africa, including the Dube Trade Port. When it came to the actual investment attracted, the Coega SEZ had attracted about R11 billion, and the East London SEZ had attracted about R3.1 billion. When it came to jobs, Coega had created 8 182 direct jobs, and East London had created 3 088 direct jobs. These SEZs had a pipeline of investors that they were working on now, with a view to establishing additional businesses. Coega was confident that about 20 more additional investors would come on board. East London was talking to about 17 new investors. When these investors were on stream, they would add an additional R18 billion worth of investments into the area. The Department would need to give the SC a report with detailed information on the performances of the SEZs and IPs and on these two major programmes.
The Chairperson commented that perhaps there should be an explanation of the incentives. He noted that there was a slide detailing the incentives in the provinces. Around R1 billion worth of incentives had gone to Gauteng and KZN. Free State had around R15 million. Could there be an explanation on why some provinces were getting big amounts of money as an incentive, while others only getting smaller amounts, especially the poor provinces? His view was that there should be a bias towards the poor provinces, so that people did not move towards the big provinces where there were opportunities. Incentives, in the way that they were being done, favoured provinces that were already better off. Now there was the problem of migration amongst provinces.
Ms Malebo Mabitje-Thompson, DDG: Industrial Finance, DTIC, responded said that the allocation of incentives to provinces was something that the Department had been battling with for a while. Some parks were getting better in terms of the uptake from the Northern Cape and the Free State. The Department would put guidelines out to industries and companies for them to make applications. Those guidelines would say, “For you to receive support, these were the kinds of things that you should have in place, and these were the kinds of outcomes that you should be looking for with any investment that you were going to make.”
From a state point of view, the Department would offer incentives that were important to achieve the National Development Agenda, whether it involved creating jobs, developing local content; companies having to procure domestically, or various other requirements that responded to national priorities. The Department would then adjudicate the applications as it received them from different provinces
The Department had partnered with different provinces -- Limpopo, Northern Cape, Free State, and Mpumalanga -- on an annual basis, and where it knew that it had a problem with uptake, it would try to work with the provincial economic development departments to help it to identify the companies, and to also influence, in a way, the provincial economic development departments’ work programme, so that they could start developing enterprises that would then be ready for the type of support programmes that the Department was offering. Over the last five years, one would see that there had progress, which was a reflection of the industrial capability that was already there in the provinces.
The Department had started work, including with the Eastern Cape government, to introduce that government to some of the important work that it was doing in areas where it saw that there was no investment coming in -- for example, in global business services; it had prioritised areas such as East London and tier-2 cities (smaller economic hubs) to see how it could offer support. The Department was rolling out engagements with Limpopo and Mpumalanga, and it was also trying to get CEOs of companies from abroad and those already in South Africa to locate in those cities, so that it helped economic development. She agreed that the way the map was depicted “reinforced the requirement for migration.”
Ms Mabitje-Thompson requested the assistance of the Members, where possible, to push the economic development departments in the provinces, so that meetings between the SC and the Department tended to have more fruitful outcomes.
She said that any time the Department supported an SEZ, it supported it on the basis of an investment project that that SEZ had attracted. The funds referred to in the presentation were reflective of investments that were already in the pipeline, so no white elephants would be built. The fact that Members had seen those allocations there showed where the investment interest was. The Department was now responding to that by building the top structures and the infrastructure that was required.
Department’s closing remarks
Mr Khan thanked the Committee for its leadership. He said that the Department demonstrated that it had been able to successfully merge into the new DTIC, and looked forward to positive engagements with the comments that the Chairperson and Members had made. Those comments were welcome, and the Department would provide the details as part of the Committee’s oversight. The DTIC team wanted to wish the Chairperson a speedy recovery, and hoped to see him and the rest of the Members at the next meeting.
The Chairperson thanked Mr Khan and the DDGs, other senior officials, and the Parliamentary Liaison Officers (PLOs). He also thanked everybody who had attended the meeting, including the Parliamentary Monitoring Group (PMG) and the media.
The Department’s report had been comprehensive, which was appreciated by the SC. He wanted to commend and congratulate it for the clean audits it had achieved. The SC and Department would be meeting from time to time. The SC would invite the provinces, and would be expecting the Department to be present when it invited those provinces that were involved with economic development. The SC and the Department would be meeting again when the Department tabled its APP.
The meeting was adjourned.
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