Impact of SONA, Budget & Economic Recovery Plan as they relate to DTIC’s mandate: with Minister & Deputy Minister

Meeting report

Opening remarks
The Chairperson welcomed everyone on the platform and requested the Secretary to confirm attendance.

The Chairperson welcomed the Members, the Minister of Trade, Industry and Competition, DG Lionel October and the team from the Department of Trade, Industry and Competition (dtic). He noted the apology of the Deputy Minister of Trade, Industry and Competition, Nomalungelo Gina.

He presented the agenda which dealt solely with a briefing by the Minister of Trade, Industry and Competition on the State of the Nation Address (SONA), the debate on SONA and on the Economic Recovery Plan and how they related to the dtic.

Briefing by the Minister of Trade, Industry and Competition
Minister Patel greeted the Committee Members, the officials from dtic and members of the public who were on the platform.

As it was his first attendance at the Committee since the sad passing of Ms Mantashe, he wished to associate himself with the messages of condolence and the tributes paid to her in the National Assembly. She had been a very active Member of the Committee.

He noted the request for him to put forward his thoughts on SONA, the 2021 Budget and the implications for the dtic.

At the start of the Sixth Administration, government had set out the broad strategic framework to be followed by it during the term. A broad Medium-Term Framework was set out. In the current year there were seven steps to be taken to achieve the goals of the framework. He wanted to use the opportunity to highlight where the dtic was at the time and how it would take the strategic framework and the resources determined in the budget to drive the programmes of the dtic and its entities.

Seven steps to prepare the 2021/22 Annual Performance Plan and Budget
The Minister appreciated the opportunity to present how dtic would respond to the SONA programmes and resources made available in the budget to develop the Annual Performance Plan (APP) and the 2021/22 budget.
-The first step was an unusual one which was not normally done, and that was the tabling by the President of the Economic Reconstruction and Recovery Plan (ERRP) which was a direct result of the very significant challenges faced by the country as a result of the Covid-19 pandemic. The ERP provided the framework for SONA, at which the President did not put forward a new plan.
- The second step was the Cabinet lekgotla held in January 2021 with departments, provinces and municipalities to highlight key challenges with implementation and that provided input to the President for SONA.
- Step 3 was SONA on 23 February 2021 and the debate on the Address in the House.
 -Step 4 was the Budget tabled by the Minister of Finance which indicated the final allocation of resources to departments, following which the departments could begin to develop their annual budgets as they were given the final figures for the year in the Budget.
-The fifth step was the Minister’s engagement with the Portfolio Committee to have a brief reflection on SONA and the Budget.
-Step 6 was important because it was when the Departments converted the SONA and Budget into Annual Performance Plans (APPs) to be tabled in Parliament by mid-April. It provided a better indication of the goals of the Department and the particular performance indicators.
- The seventh step was the Departmental Budget Vote which provided an opportunity for the ministry and the Department to indicate how the resources would find expression in specific programmes and commitments.

The current meeting was an opportunity for feedback on the process to that point and to incorporate any such feedback in the APP and the budget. The budget indicated key elements as ordinarily one could not shift resources from, for example, “Staffing’, to ‘Incentives”. SONA presented government’s thinking and that year the President had done well. The President had highlighted four priorities that were critical: health and saving lives, economic recovery; economic reforms; building state capacity by fighting corruption.

1.  Master Plans
The debate on SONA highlighted areas of progress. Some real gains had been made, for example the debate referenced gains in dtic, such as the progress with Master Plans, which had been lifted out of the ERRP. In addition, the President also referred to the need to build a more dynamic economy. To do that, the dtic had developed the Master Plans. Four were in the implementation stage and two were being finalised. The technical work for one to two further Master Plans would begin in the course of the year. The Committee had recently received a presentation on the Master Plans and Members’ inputs at that meeting would be considered in the APP.

2. African Continental Free Trade Area (AfCFTA)
SONA had highlighted the importance of trade, particularly with the African continent. The dtic APP would also highlight three aspects of the AfCFTA. Regarding the trade aspect, SA would be negotiating with the rest of the Free Trade Area to increase the number of products for which there would be agreed rules of origin and as more rules of origin were accepted, the country would be able to lift its export target. The trade dimension was only one element and the government hoped to do more trade in services.

The ministry had been working on sector export plans. From March 2021, the Deputy Ministers would be leading the district municipalities in developing district-level export plans via AfCFTA. Government would also be looking for opportunities for innovation to drive SA exports.

Infrastructure was also critical in the efforts to drive SA exports and while the dtic was not the lead department, dtic would be working with other departments and neighbouring countries to drive physical infrastructure projects such as rail, ports, etc.  as well as technical infrastructure, including banking infrastructure, to pay for goods.

3. Investment
The work of the dtic would be monitoring the flow of both domestic and foreign investments into the real economy and seeing where the obstacles or challenges lay, such as a water use licence or weak infrastructure, etc. The dtic would also work towards new investments. Some of the economic reforms outlined by the President that would be done by the other departments, such as Energy and Communication, would provide a fresh opportunity for the dtic to attract foreign investments. The dtic would be working on the Investment Conference and as the vaccine roll-out took place, he hoped for an even more successful Investment Conference.

4. Special Economic Zones
The budget allocations for special economic zones (SEZs) would be provided by the dtic CFO, Mr Shabeer Khan. To date the dtic had been principally an enabler for SEZs. The dtic would consider proposals for municipalities to put up SEZs, and would provide support and a budget for the top structure. The impact had been very uneven. The Coega SEZ and the Dube Trade Port had done very well and the East London SEZ had had some successes. However, starting in 2019 and continuing in 2020, the dtic began to revamp the SEZ programme. The pilot SEZ was the Tshwane SEZ. It was a new model that pioneered collaboration at national, provincial and local level and had produced some early fruit. A strong partnership had been formed with a core investor, in that case the Ford Motor Company, and through that dtic had attracted 12 investors who had indicated their keenness to start manufacturing in the Tshwane SEZ.

 2021/2022 would see an upscaling of the model. There was more money on the SEZ budget and dtic was working on an implementation plan where the dtic would work much more closely with local municipalities. In the past, dtic provided a push resource; now it was shifting to a push-pull approach, i.e. putting in investment but attracting investors. In the budget vote in May 2021, much more evidence would be shown to the Committee. Currently the Department was working on the plan and the implementation plan and in the future, SEZs would feature much more prominently in the economic landscape. Spatial development would be more important. The dtic would be setting up a new unit in the Industrial Development Corporation (IDC) in order to drive the SEZs.

5. The Capable State
The fifth element raised by the President in the SONA was the performance of the capable state. The dtic would be involved in strengthening the performance of the state. There were a number of things that the dtic was working on and those would be announced in the dtic Budget Vote. Those things included the ease of doing business. The dtic was principally responsible for company registration and so worked closely with the Companies & Intellectual Property Commission (CIPC) where the system of registering a company was now a cutting-edge system. It was possible to see the fruits resulting from measures taken. The reforms were not yet complete as it was believed that still further progress could be made in modernising systems. So, further reforms would be implemented, but already an impact had been made.

On Friday the previous week, the CIPC had scooped a number of awards from the Centre for Public Service Innovation. The CIPC won the Most Innovative Public Service Entity of the Year award for 2020, as well as the Effective Use of Digitised Services award for its Bizportal online registration system. Since the soft launch in 2019, more than 145 000 companies had registered online. That was a very significant gain for SA to have that facility available. He highlighted that because it was an area that pointed to where the dtic could play a role in the ‘Ease of Doing Business’.  There were still other challenges for business and dtic would work in partnership with municipalities and other departments to address those.

The dtic would look at institutional areas for reform and would address allegations of corruption. That was important in enabling SA to access the public entities. The dtic had commenced the development of a common back office that allowed for support to be given to different entities and created a stronger connection between Department and its core entities, such as the IDC. The Minister was looking forward to launching further initiatives in the new financial year to increase the impact.

Economic Inclusion
The President noted the need for economic inclusion. Work that the dtic had done in the area was to look at competition and enquire into data prices which had provided the impetus for very significant cuts in data prices on 1 April 2020. The most popular bundles of data used by South Africans had decreased by 20%.

In addition, the dtic had done work on the ending of exclusive leases in shopping malls. Major retailers had made undertakings to phase out and end their exclusive grocery tenancies which had meant that no competitors were permitted and that had discriminated against small business. That would be strengthened in the new financial year when an announcement would be made. That would be part of the work of the Competition Commission. In the merger of Simba Chips and Pioneer foods, 13% of the shares were set aside for workers, while the Coca Cola Bottling merger resulted in 15% of the shares being set aside for workers.

The Minister explained that he had given the Committee an early indication of areas being worked on in preparation for the Annual Performance Plan. He had focussed on the areas that the President had highlighted. The discussion was not about the Plan itself - that would be tabled in Parliament and then discussed by Committee. He hoped that his briefing had given the Committee an indication of the areas that the Department would be looking at in the new financial year.

Economic Reconstruction and Recovery Plan (ERRP)
A key area applicable to dtic in that plan was the localisation of industry and jobs. While he had spoken of localisation in the past, the ERRP had lifted it to significant focus. 42 new products to be incorporated into the programme for the new year. By the time of the budget vote, dtic would have done significant work to lay out where it was heading with localisation and the designation of new products to be purchased locally by government. The ERRP would also look at manufacturing and so he had spoken about the Master Plans which would also look at the designated goods. The dtic was working with SARS on incorrect labelling, false labelling and under-invoicing of goods coming into the country. That would assist with revitalising manufacturing.

He appreciated the support from Mr Thring for beneficiation and there would be a focus on beneficiation in the Trade, Industry and Competition Budget Vote. Clearly there would be a focus on the Steel Master Plan as that stood at the very heart of beneficiation, but it was not only about steel. The dtic would be simplifying and aligning B-BBEE for more effective empowerment.

The dtic would provide support to other departments for development that fell outside its mandate, such as growing the digital economy, greening the economy, supporting agriculture and agri-processing, utilising opportunities from the hemp and cannabis industries. The dtic would be supporting the work of the Minister of Small Business Development.

How did SONA impact on the dtic? He had highlighted that areas and clustered them into 6 categories to show the work that the dtic was now doing in preparation for the APP. What did dtic expect to finalise in the year, what would it start on and what was the broad allocation of resources? All of that would be found in the APP. The APP would address the budget constraints. Members would have noted a 5% increase in the budget allocation since earlier expectations but he had to point out that it was 5% off a very low baseline.
The original budget for 2020/21 was R11 billion but after 2020 Covid-19 crisis, that amount had been reduced. The DG and his team were working to see where adjustments could be made. For example, in the next couple of months, the dtic could not send export promoters abroad so it had to utilise new ways of doing its work and driving the export market.

Looking at the SEZs, he had highlighted the lack of infrastructure and the new focus on the IDC special unit to drive growth of SEZs. In addition to the increase in the budget in the SEZs, there had been a growth in the budget of the Competition Commission that would allow it to use the new powers given it through the Amendment to the Competition Act. Regulations had been published in 2020 to provide certainty to the market and the budget had now been made available in the form of an increase of about R140 million.

There were challenges. The incentives budget was under enormous pressure with the cutting and trimming that had taken place and the dtic was looking at how to maintain the same level of achievement with fewer resources. Some factors could not be controlled, such as exports that were dependent on the global economy. The dtic had to look at how growth could be achieved because sectors like clothing and textiles had reported a sharp reduction in sales during the pandemic. He wanted to maintain a focus on the Business Services Processes and had managed to be provided with a little extra funding that, he hoped, would allow the Department to strengthen that work. Film production had been affected across the world, but as things normalised, he hoped filming would get back on its feet.

Covid-19 had brought home to everyone the vulnerability of globalisation through the spread of the Covid-19 virus. A virus that, previously, would have been contained in one part of the world, had spread rapidly across the world and had caused havoc and devastation across nations. Similarly, climate changes might have an enormous impact across the world. Government, including the dtic was looking at the greening of the economy. Looking at the Auto Master Plan, the President had referred to the fact that SA’s first hybrid vehicle would be rolled out towards the end of the year. That was one important example of SA embracing a cleaner strategy. Other examples included the work done by Defy in KwaZulu-Natal that had developed a fridge/freezer using solar panels. That greening concept would be a big part of the work of dtic.

The Minister added that manufacturing resources had been reduced, but, firstly, the Department had to find resources to save those companies that were in distress. In the course of the year, a number of entities would have to do similar adjustments that the Department was doing and trim some of the less effective spending to improve the efficiency of the money available.

The purpose of meeting had been to reflect on the work of the dtic, using SONA and the Budget Vote as the framework. He had highlighted key areas that dtic would be focusing on and what would be covered in the APP and the Budget that he would be announcing. The tabling period for APPs and Budget Votes opened on 11 March 2020 and might go on until mid-April so that budget votes could begin in mid-May.

The CFO could elaborate on budget issues. The DG was also available to provide programmatic details but the full version would be in APP.

The Minister stated that he would welcome feedback. It was the prerogative and responsibility of the Executive to table the APP and the budget but he welcomed feedback from the Legislature because that could only strengthen the APP. Any comments would be carefully managed. When he referred to “The Department” that included the entities. The President had spoken of the capable state and so there would be a much stronger focus on integrating efforts to ensure that the public entities worked with the directorates of the Department.

The Minister thanked the Committee for the opportunity to address Members on the matter and he hoped he would be able to show how the points he had made would be incorporated in the APP when he tabled it in the House.

The Chairperson stated that discussion that day had focussed on the issues related to SONA, the recovery plan, the dtic mandate and the budget. On the following day, the Committee would consider entities that reported to the dtic. Members could pick up on the comments made by the Minister or ask for clarity on points raised.

The Minister asked whether DG or CFO would like to add anything. However, the DG’s connectivity was bad, which he humorously suggested was the result of the budget cuts.

Budget Comments by the DTIC CFO
Mr Shabeer Khan, CFO, DTIC, stated that the Minister had set out the framework which the Department would use to determine the APP and the budget. While the Budget Vote had been tabled by the Minister of Finance on 24 February 2021, the Department was still allowed to make internal adjustments to its budget. The final allocation showed a 5% improvement on the original estimate, but the original budget had been prepared under extremely constrained conditions and there was no funding to bring on new programmes, although the Department had tried to put money towards building the economy. The dtic had successfully managed to negotiate a well-balanced budget from National Treasury. There would be a slight increase year-on-year from R9.7 bn in 2021/22 to R9.9 bn in 2022/23 and R10.1 bn in 2023/24. That gave an opportunity for the dtic to engage with National Treasury and re-prioritise the budget.

Funds for incentives had been cut, but funds had been allocated to key incentives. A budget of R1.7 bn had been set aside to support infrastructure and R43 million for membership of the World Trade Organisation and other international organisations. Funds for partnerships in NEDLAC, etc. stood at R66 million. There was also funding for programmes at the Industrial Development Corporation for the Clothing and Textile industry and also at the Council for Scientific and Industrial Research (CSIR). To support the business centres programme, the dtic had been given a budget of around R2 bn. The dtic had R2.9 bn for incentives and programmes that it ran, including the export programmes. Originally, the entities had taken a major cut as National Treasury had sought money to address the health crisis, but with R2bn, he was satisfied that there was now adequate funding for the entities.

The CFO explained that he had presented a very high level overview of the budget and that the details would be contained in the budget that the Minister would be tabling in Parliament.

The Chairperson invited discussion.

Discussion
Mr F Mulder (FF+) recognised all that had been done, but the fact was that there were huge challenges in the country as a result of the Covid-19 pandemic. His question emanated from the four priorities raised by the President: overcoming COVID-19; accelerating economic recovery and economic growth; implementing economic reforms to drive inclusive growth; fighting corruption and strengthening the capable state.
From a business perspective, only the last matter was an economic principle. The others were measures that came with a premium. Covid-19 actually was a measure that came with a premium; economic reform was not always based on economic and business principles and so came with a premium; fighting of corruption was a premium. It was an obstacle that needed to be addressed. Only the acceleration of the economic recovery and economic growth was based on business principles. Considering the real reduction in budget over the next three years, and taking inflation into account, should dtic not have a rethink? Should it not have a rethink and be planning a refocus? If the Department continued doing same things, it would get same results.

Mr D Macpherson (DA) noted that the Department and the President hung his entire legacy and the future of the country on the Economic Reconstruction and Recovery Plan and yet since the Plan was launched, the needle on development and reforms seemed not to be moving. The Minister would cite the Master Plans but that was not reform in itself. What the country desperately needed was for the government and the dtic to stop trying the same old things in different ways. There should be an entire new approach in the way that it viewed things. As long as one viewed things through the dogma of continual consensus and trying to placate interest groups - be they interest groups within the party that governed the country or other interest groups - the economy continued to stagnate. Words like headwinds and now the Corona-19 virus were blamed for nothing happening.

Mr Macpherson stated that he wanted to use the generation of green power as an example of what he meant. The interest was tremendous and investment in the pipeline was incredible but there was a hold-up which was shifting to dtic because of its insistence on localisation - which any South African supported but not to the extent that it was driving prices up by at least 20%, according to the European Union, by insisting on the making of solar panels in SA when there was no competency to manufacture solar panels and so that process could not begin immediately. Government wrongly believed that if one looked to create demand, production would follow. Any person who understood Manufacturing 101, would know that that producing goods contained a timeline that did not take place overnight. The country was falling way behind with Window 5 of the greening plan because of the intention to drive localisation even when the capacity simply did not exist. The intentions were noble but implementation was lacking.

He said that the Minister and others spoke of the Master Plans - some of which were more focussed than others, but others seemed to be channelled into just a few people’s hand which was the antithesis of opening up markets, opening up competition and demand, e.g. steel. ArcelorMittal continued to be the biggest winner as it was protected by a tariff, had no desire to work with efficiency and had government as an economic body guard. The biggest losers were businesses downstream.

He added that poultry was another good example, where government went in to bat for multi-million Rand businesses listed on the Johannesburg Stock Exchange (JSE) that had no intention or desire to see any efficiency within their business. That would lead to higher prices for chicken for low- income South Africans.
Did SA want localisation? Absolutely! But, did SA want cheaper products? Of course! He was not totally convinced that SA was going about things in the right way. There was talk of investment but South Africans continued to lose jobs and it was hard to find the investments.

Mr Macpherson said that the ERR Plan and dtic had a credibility problem. The dtic had a credibility problem because it said one thing and then went and did the complete opposite. It was time to stop making the already wealthy politically connected elite richer and richer as long as they held a certain political party membership card. That was a fact of life and what happened every single day in the country and no one, not even the Minister, could not convince him, or the 42% unemployed South Africans, that B-BBEE had any credibility. The only thing increasing was poverty and unemployability. He asked the Minister to take him through what the Department was actually doing because the future of the country hinged on it working. No one wanted it to fail, but it was going nowhere and the only thing that was increasing was poverty, unemployment and inequality.

Ms J Hermans (ANC) thanked the Minister for a very informative briefing. She congratulated the CIPC on their awards and proudly celebrated with the CIPC its innovation and excellence and how they were showing the way for other entities.

She asked about the cooperative work being done with other departments, such as the Department of Sports, Arts and Culture. He had mentioned it but she asked him to share with the Committee because it was a symbiotic relationship, even the green economy mentioned by Mr Macpherson, and beneficiation needed other departments to succeed. The President had called the Master Plans called a pillar of recovery for manufacturing. She wanted to see how that would work in the APP that the dtic would be developing.

Ms Hermans asked the Minister to show where dtic plans spoke directly to economic recovery.

Ms Y Yako (EFF) agreed with Mr Macpherson on the Master Plans: The Department said one thing and seemed to do another. Where were the successes in the Master Plans expected to come from in the Sixth Administration? She noted the efforts to enhance the work of SEZs. How would the SEZs be enhanced to do more of the work, especially with regard to exports? The SEZs were already there so that work should be built on. She did not want to see dtic taking on more work as the Department started one thing and then moved elsewhere.

Ms Yako noted that the Minister had spoken of new investments but what about all the money channelled into the National Empowerment Fund (NEF), the Industrial Development Corporation (IDC) and the Small, Micro and Medium Enterprises (SMME). How were those funds going to be recovered? What was the Minister going to do to assist in the recovery of that money? The dtic needed to focus on the country first and then look at the bigger picture and bring in international investment.

She thought, as had Ms Hermans, the dtic was working as if it were a cell with many departments working around dtic but it needed to work with them and interact with them and assist other departments. How was the Minister working with the Department of Sports, Arts and Culture, and others?

Mr W Thring (ACDP) appreciated the information, especially in rolling out the broad frameworks given by the President and how it impacted on the dtic. What was level of cooperation with other departments? The Department of Public Works and Infrastructure (DPWI) had received many presentations on the President’s large infrastructure plans that were about to be rolled out. What was the dtic’s role in that regard? What was the SMART plan with regards to SEZs, localisation and the remaining Master Plans? Was the plan: Specific Measurable, Attainable, Realistic and with Timeframes?

Mr Thring recalled he had asked the previous year for a list of minerals that SA was exporting largely, and not engaging in beneficiation. He appreciated how far the country had gone with beneficiation, but that was not enough. SA had the largest unemployment rate in decades at 42%. Localisation and beneficiation would make the difference. It was said that there were 20 to 30 different products that could be localised. He requested more information.

He asked how relevant the World Economic Forum was to the country’s economic growth. What was SA’s involvement there and who or which departments were involved in those meetings? The President had previously mentioned that South Africa traded heavily with countries from the North, and by getting a fraction of the trade in Africa, could increase the country’s GDP by 3% to 4%. What were the practical plans currently in place to make that happen via the AfCFTA?

SA had relied on coal, gold and platinum for 10% of its GDP, but they were depreciating and declining because they were finite but there was still some $3 to $5 trillion of minerals in the ground and that was a huge amount with which to leverage the economy. So, what plans were in place with the Department of Minerals Resources (DMR) to drive up exploration and junior development to spark entrepreneurship which simultaneously could help drive beneficiation?

Mr S Mbuyane (ANC) had found the presentation an eye opener. What opportunities were there for the transformation agenda via AfCFTA? Which were the 42 districts identified for the strategic localisation plan?
He requested a progress report and the implementation plans for Nkomazi and Musina/Makhado SEZs. The briefing was about SEZs in Pretoria and Durban but two rural SEZs were not working. With reference to the Township and Rural Economic Development plan that would work with the District Development Model, was there any intention of producing goods for export?
 
Mr Mbuyane had alluded to the online registration with CIPC and the ease of doing business. Did the dtic have a programme for targeting achievements of the programme in each province? Some provinces had departments but they were not linked to Pretoria.  Did one have to go to Pretoria to do business or were they connected to the provinces online?

Mr Z Burns-Ncamashe (ANC) noted that the District Development Model had been placed at the centre of the coordination in terms of coherence of interventions by government. Was there a plan that sought to zoom into that space to ensure that as government, all districts moved in one direction and was in alignment?

The presentation had looked at the role the Department would play in ensuring that other sectors that had a direct impact as result of its core mandate, such as the Clothing, Textile, Leather and Footwear sector. As part of the broader value chain, he was interested in how one sourced cotton at the primary level as the impact of revitalising industry would be dependent on where the commodities, which were of high value, were sourced. Opportunities had to be created at every level of the value chain, not only the primary level.
SA was endowed with plenty of land that was lying fallow, especially in rural areas, and investment was discouraged by the lack of security of land tenure. Government aimed at creating industrialists but how would local production of cotton be stimulated? The dtic had to work with sister departments. To what extent had the dtic, as the catalyst of the macro-industrial strategy, managed to exert influence, at a level of policy and of implementation, on the Department of Agriculture, Land Reform and Rural Development (DALRRD) to ensure an active rural tenure programme?

Mr F Jacobs (ANC) (Small Business Portfolio Committee) said that the dtic had held growth summits in the past. Would that be considered again? The challenge at the moment was that businesses were not feeling the impact of the Minister’s plans in the local districts. Was there an intention for dtic to do planning at district or metro level?

Minister Patel thanked all Members for the questions that had been posed. He responded to Mr Mulder who had raised the issue of the four priorities being business-related, i.e. that meant providing for growth of the economy. He stated that all four of the areas, although dealing with different aspects of the SA challenge, could either have a positive impact on the business environment or, conversely, a negative impact on the business environment. For example, Covid-19 was fundamentally a health challenge but it had had enormous impact on the economy. The vaccine was primarily a health response but the vaccine was also fundamental to the economic recovery and confidence in business. As more citizens are vaccinated, the economy would be able to open up, people would travel and tourism would benefit and so. So, it did benefit the economy. The government was aligned with government thinking across the world that health issues, such as the pandemic, could have quite severe economic consequences.

The economic recovery plans did not focus on dtic only but they did all link up. He pointed to the energy reforms. If government could successfully implement a stronger energy system with a renewable programme, with a greater number players in the market, providing decentralised energy generation, that would expand the supply of energy in the country, and that would have a very direct impact on the economy. As the country got closer to the spectrum release by ICASA that would certainly stimulate the ICT investment. That would probably be as strong, if not stronger, than the manufacturing economic recovery measures. Fighting corruption would result in growth in the economy and have a significant impact
increasing the strength of the state. Under the heading of “fighting corruption”, the President had also referred to strengthening the capacity of the estate. Lessons from highly successful states that industrialised very quickly is the importance of a strong state. State capability was a critical partner in creating the conditions for nurturing and supporting economic growth.

Minister Patel concluded that all four of the priority areas were critical for the economic recovery.

The question of how one had to deal with fiscal constraints, but at the same time, one was required to do many things had been raised by Mr Mulder. Fresh thinking was required, as Mr Mulder had said. As it so happened, there had been a great deal of fresh thinking over the past two years. Minister Patel connected that point to a comment by Ms Yako who had cautioned the dtic not to jump from one point to another. That was sound advice. One did need fresh thinking, but one ought not to jump every time, one had a headwind or a difficult set of circumstances. It meant buckling down and doing the hard, often quite boring, work of implementation.  A public commentator writing in a newspaper obviously sought a fresh headline but government was not in the business of creating headlines. Government had to stay focussed and overcome the obstacles in the way to implementation.

How did he square that with the positive comment made by Mr Mulder that one needed fresh thinking? The Minister believed that the fresh thinking came from the partnership opportunities identified.

One significant change in the past five years was that in the traditional approach, government had brought in experts and government officials to develop business plans. They would develop very thick documents which the staff would go through and make notes for the Minister and the Minister would make the decision.  Now government brought in the public sector but also the private sector players to assist in developing plans. The experts and researchers were brought in as back-up to advise but not to play the central role. Bringing the labour movement and others into the policy making created the fresh approach. With the lack of public resources, government had to rely heavily on those partnerships with the private sector.

The Minister presented the example of the case of a big beverage player, a huge user of sugar that had wanted a merger and had to put a set of public interest conditions in place for the merger. So, instead of government doing something in the sugar industry, government had sat down with the beverage company which had agreed that it would localise 80% of its sugar, increasing incrementally over the years. The second issue in the sugar industry was the small-scale black farmer. The beverage maker then agreed with the Competition Commission that it would ensure that 30% of the sugar milled by the big sugar mills came from small-scale black farmers. That meant that, at the point of constraint, the small-scale farmers had a big player with a contractual commitment to open up that pipeline for them. In the old days, government would have relied on public sector instruments. Now it was making changes via negotiation with the private sector. In a crisis, one had to think about fresh ways of achieving what one needed to achieve.

The Minister noted that Mr Macpherson had raised the fact that the needle had to be moved. He agreed but at the same time, the Department had to ensure that it was doing the right things. In the face of challenges, the Department should not look for sound bites but it had to knuckle down and work on the solution. The underlying problems that constrained progress had to be solved.

Regarding the dogma of consensus, the Minister stated that one way would be to ignore all the interest groups and go into battle, but he had a different approach and his approach had the support of the majority of South Africans because it was a vision that was embedded in the manifesto of the ruling party and was put to the electorate in 2019. That vision had fared a great deal better than the competing approach that Mr Macpherson represented. The vision was of building social pacts to bring government, industry and labour together on a growth agenda and a transformation agenda. He pointed to the different Master Plans as ways in which the ministry was getting it right. He would not solve the entire range of problems in Agri-Processing by addressing the poultry sector; that success would have to be replicated in many, many more sectors. Minister Didiza was taking the learning from the Sugar Master Plan and was working with the agriculture sector on an Agri-Processing Master Plan. Sometimes one had to get it right at the micro level and then scale it up.

Consensus sometimes involved tough choices. In the Clothing Master Plan, government had raised quite sharply the need for localisation and more investment while raising with the labour movement, the need for collective bargaining agreements that were more calibrated to the production cycles in the industry. Industry had raised with government the need to deal with cheap imports and under-invoicing. Each party had raised the difficult issues. In the process of implementation, it was about checking that each of the partners was holding up its end of the bargain. Mr Macpherson was entitled to his opinion but his position had not won a great deal of support in the election and the ANC, as the governing party, was using the principle of the social pacts.

On the issue of power generation, Mr Macpherson raised the issue of localisation. He agreed that it was necessary to move with speed, but there had to be a balanced approach as government was going to put enormous resources into the green economy and SA could not be just an importer of green technologies and as conventional jobs were lost. Fewer jobs were needed in green technologies because nature, the wind and the sun, did the hard work and furnaces were not necessary. However, labour was necessary in the manufacture of the mirrors and turbines, etc. needed to harness the energy and he believed that SA had the technology to be able to do that. It was about finding the balance. As published in a government gazette in February, the Department of Minerals and Energy had been given more flexibility around the mitigation programme of B-BBEE in order to see how they could make progress in respect of localising the components required for the green economy.

Minister Patel stated that Mr Macpherson had mischaracterised the Economic Recovery Plan. Mr Macpherson believed that it was based on the mantra that if you created the demand, production would follow. He urged Mr Macpherson to re-read the plan and he would see that it had a set of supply-side interventions and a set of demand-side interventions. It was based on creating a pull in the market by restoring consumer confidence. On the supply-side, the Economic Recovery Plan dealt with investment by talking through the importance of investment and the economic reforms that were required to unlock investment, those reforms that he had earlier referred to, such as energy and telecommunications. It also talked about the Master Plans that dealt with the efficiency of industry. The Plan dealt with both sides of the equation.

He noted that Mr Macpherson had two concerns with the Master Plans. In the steel industry, the critique was that government was concentrating the supply in a few hands and it was the supporter of ArcelorMittal which was the single biggest beneficiary. He hoped to be afforded an opportunity to present to the Portfolio Committee as soon as the Steel Master Plan was ready. The constituents had confirmed their support and the dtic was putting together the last details of the Master Plan. It was a careful balance between three things: 1. A need to have a primary steel industry - Africa had 17% of the world’s population but only 1% of the steel production. It had been evident during Covid-19, the enormous difficulties experienced in getting steel industries to continue manufacturing and so SA had to break its dependency on getting critical raw materials. Steel was critical throughout the whole economy. One had to make a choice of whether to have a steel industry or simply be a purchaser of steel from others and be subject to the vagaries of getting steel from other primary steel producers. When Saldanha Steel, which, incidentally, had been owned by ArcelorMittal, had closed, there had been a strong appeal by the Western Cape government for assistance in avoiding the closure. One should not hunt with the lions and run with the deer at the same time.  The Minister admitted that he was concerned about some ArcelorMittal practices: he had said that publicly. The company had been probed by the Competition Commission and it had paid the highest penalty ever of R1.5 bn for certain practices.

He believed that, secondly, the Steel Master Plan would be a careful balance between maintaining a primary steel-making industry and supporting the downstream industries which was where innovation, customisation and differentiation took place and created opportunities for SA businesses. He did believe that there was a place for more competition for ArcelorMittal upstream. The third leg was to build new supply and value to other sectors to encourage them to use SA-made steel to a greater extent, which would create new businesses.

Some people said to abandon the sugar production because the industry was dominated by the large sugar mills but the Department knew that many small rural communities were dependent on the sugar production. Mr Macpherson had called on the dtic to support the sugar industry. The same argument that Mr Macpherson made about steel, he had heard from people who use sugar and who had suggested that the country should just import sugar. However, government knew the impact that would have on large areas of KwaZulu-Natal and Mpumalanga and so had looked for a more careful balance. What Mr Macpherson preached in one sector; government practised in all sectors. The balance between upstream and downstream was essential. It was true that an upstream industry could capture a sector, but that was why the Competition Commission had to be vigilant and deal with any such practice.

The Minister noted Mr Macpherson’s concern about big businesses in the poultry industry that were listed on the Johannesburg Stock Exchange. He did not think that a large business was a bad thing for SA as one needed global players that could export in huge quantities. Economies of scale could keep prices low and big companies could invest in research and development as they did in China, Germany, etc. All countries had both large and small businesses. That was not the problem. The challenge came when large businesses were dominant and decided to sew up the market and limit entry to the market. That was where government had to be extremely vigilant.

Taking the poultry industry, he could say that those large businesses had very sharp commitments that they had to comply with, such as building a supply chain for black businesses in large numbers. He referred to a touching letter to the editor from a black SA woman in the poultry industry. She had 6 500 hens and had wanted to expand into the broiler business. The Master plan and the large businesses were helping to scale up the capacities of that lady, and many others. There was an increase of more than a million chickens in SA and that gave work to many South Africans. He wanted Members to celebrate when they ate a SA chicken.

The Minister stressed that it was not the attitude of the government to break down large businesses, but it did want to support more medium-sized businesses and youth-owned businesses because those were the missing parts.

He noted that Mr Macpherson had raised concerns about B-BBEE not supporting broader empowerment. He repeated the fact that 8 000 workers at Coca Cola now owned 15% of the company and workers at Simba chips owned 13% of the company. He had cited hundreds of women and other black people who had been empowered in a previous presentation to the Committee. There were examples of people exploiting the system, but they were breaking the law and should be dealt with. Government would act against big business where needed, but it was not beneficial to brush all big business with the same brush of corruption. Transformation was a national imperative and all of transformation should not be tainted by a few who were abusing the system. There were many, many black South Africans who were working very hard to build the economy and to create jobs. There were also white South Africans who were working hard to build the economy.

He told Ms Hermans that she had picked up the same issue as several of the other Members and that was a concern about how the dtic worked with other departments. He had hundreds of examples, as had the DG, and he would ask the DG to share some examples. Every department had a mandate. The dtic was not a
super-department that instructed others. It worked with others such the Department of Mineral Resources and Energy (DMRE) on a number of projects, including beneficiation, etc. Another project was where the dtic had made it easier for Minister Mantashe to go through with the public call for proposals for green energy. The dtic also worked in partnership on localisation and on the mineral side, the dtic sought ways to support beneficiation. Mr Thring would be pleased to know that dtic had worked with DMRE at the Competition Commission and had won a case where a particular mineral now had to be made available to the local industry and could no longer be shipped straight from the mine to the port for export to China.

The dtic had worked with DALRRD on the Sugar and Poultry Master Plans and the SPS, which was the Phytosanitary Standards that would allow more SA companies to export citrus and other products. The dtic had raised the challenges in exporting SA agricultural products with Ministers around the world and that had resulted in the expanded citrus production.

The dtic had worked with the Department of Sport, Arts and Culture (DSAC) to foster the film industry. One leg of that work was producing fully indigenous films, such as Tsotsi, and there were many others. Some dealt with history, e.g. there was one on ‘The Life and Times of Mahlangu’, which was available on Netflix, and he urged Members to watch that documentary. There were many other films. Some films were in Afrikaans and others used African languages. The second leg was for SA to be a global location for film-making and some very significant Hollywood films had been filmed in the country which had significant value-add. Sets were built, costumes were made, food was procured, actors were accommodated and the SA landscape was transmitted to the rest of the world. Another example was the Copyright legislation that was currently serving before the Committee. That had been developed in collaboration with DSAC.

The dtic worked with the Department of Tourism by funding and financing hotels and Bed and Breakfast accommodation through the IDC. Another example was the work of the dtic with the Department of Communications and Digital Technologies to bring down the costs of data. Currently, the high energy pricing was a challenge. It was a very difficult one and so the dtic had engaged with both the Department of Public Enterprises and DMRE to try and address those pricing challenges. The mandate for the greening of the economy sat in many different departments and he would announce some of the strategies at the Trade, Industry and Competition Budget Vote.

Minister Patel agreed fully with Ms Hermans about the symbiotic relationship. Ministries could not go in their own direction and hope for a proper outcome. She had raised the issue of manufacturing and he wanted to state that it had to be at heart of the work of the Department. One of the challenges of manufacturing was one of innovation as the world wanted new products all the time. The C-pack ventilators used during the second wave of Covid-19 was an example of innovation where the dtic had worked with the Department of Science and Innovation.

He noted that Ms Yako had said more successes were needed and she wanted to see where those successes would be found over the next 12 months. That was a fair expectation and it would be indicated in Budget Vote where such matters were traditionally addressed. Ms Yako asked how the Department could develop more SEZs. Previously, the national department had a very limited role in SEZs. The SEZ concept was based on district-initiated processes and the role of dtic was simply to check applications, to designate the SEZ and to provide funding. The provinces had motivated for SEZs and would manage them. The model had some outcomes but it was relatively slow. It took some time to move Coega from a small investment to where it was currently. The concept of SEZs had changed. It was not about a factory specialising in churning out SEZs. Instead of wanting more SEZs, there was now an approach that required collaboration at national, provincial and local government levels and all three had to put something on the table. It was not about ribbon-cutting opportunities. Cabinet had approved that national government be a strong and active partner with at least a third of the seats on the board of each SEZ so that it could attract national and international investors. SEZs were now being run by strong professional managers. What was missing was the capacity in national government to do this in more than one SEZ as had been done with Tshwane. The capability would be built via a unit in the IDC. Experienced personnel from dtic with knowledge of policy and implementation would be sought to staff the unit to be housed in the IDC. Instead of many new SEZs, government was going back to support and building up the current zones. That would up the returns on investment.

Referring to Ms Yako’s question about the return of funds loaned by the NEF and IDC in 2020, he stated that some grants had been made to tide businesses over the difficult period. In other instances, loans were made but he hoped that IDC would note the pace of recovery in their mechanism for getting money back.

The IDC had not received a capital injection from government since the 1950s or 1960s. The IDC had had to use money from its balance sheet to perform its functions but, from the current financial year, there would be a greater infusion of fresh money into IDC through dtic. It would initially be in pilot form and then scaled up.

Minister Patel told Mr Thring that the dtic engaged with the Infrastructure Programme on two levels: firstly, through the President’s Office and, secondly, through DPWI. He had met with the Minister of Public Works and Infrastructure to talk about how localisation could result in more local work, e.g. the use of local cement would help to unlock industrial development. Another example arose from the Tshwane SEZ. Ford Motors had put in a great deal of money and by 2022, Ford would have made significant progress towards greater vehicle production, but more vehicles would be made in Gauteng and Ford was currently exporting large numbers of those vehicles, the Ranger bakkies. Therefore, there had to be adequate infrastructure to export vehicles. That had resulted in a project with Transnet agreeing to develop a major rail line from Gauteng to Nelson Mandela Bay and Coega harbour. It would cost billions of Rand to upgrade that railway line, so money was being raised for the project. He also hoped that local steel would be used in the production of Ford Rangers which would mean greater use of SA iron ore. That would begin to integrate the beneficiation programme with the Master Plan and the Infrastructure Programme.

Minister Patel would provide a list of minerals that were not being beneficiated. He stated that the DG had pointed to Dube Trade Port where SA minerals were being used in products there. Scrap metal was critical in being able to export finished goods rather than raw material. The project that the DG had previously spoken about was about the production of SA fuel cells which would strengthen the greening of the economy, and that spoke to the integration of multiple objectives. Localisation of goods would reduce transport that would cut down on carbon emission.

He told Mr Thring that hard work was being done on the Furniture Master Plan and the Steel Master Plan and soon he would announce the next Master Plan.

The World Economic Forum (WEF) was not a decision-making body but a platform for the exchange of ideas. It was started in the early 1970s with a Swiss academic who had wanted to create a forum where business and government could get together and exchange ideas. It had become an annual event held in Davos, a tiny village in Switzerland. There was also a summer Davos in China. It allowed for discussions on a country’s economy and so on in front of a physical audience of about 1 000 people and inter-active panels allowed for dialogue but one could also meet one-on-one. SA’s delegation to the WEF was led by the President. The Minister of Finance and the Minister of Trade, Industry and Competition participated and other Ministers, as relevant. The outcomes were ideas and sometimes bi-lateral agreements.

The Minister explained that there were three facets to AfCFTA. The first was trade where a commitment had been secured in terms of the Rules of Origin for 80% of the commodities, which was an agreement on the amount of work to be done on goods before they could be accepted as local products. There would also be an engagement on services, investment policy, intellectual property and competition. The second leg was industrialisation and SA had started with the auto sector to create a market in Africa.

He noted that Mr Mbuyane had asked about opportunities in the transformation space. AfCFTA provided opportunities for women and youth to expand their markets into the export market. For example, a young black industrialist was selling his cooler boxes to Mozambique. Another woman made internal doors and they were being exported to Botswana. A company in Gauteng made metal shoes for trains in its foundry and now exported those to Zimbabwe. A black woman winemaker exported her wines to Ghana. Those were just some of the examples of how AfCTA would allow transformation businesses to increase their market, bring down unit costs and put some funds aside for diversification and to build resilience.

Mr Mbuyane and Mr Jacobs had asked about districts. The Department had a bold idea about a new approach which had been tabled in Cabinet. He suggested that they would not get it perfectly right first time round but the proposal was that every district had to develop a district plan to accommodate the local environment, such as growing citrus fruits or the development of catalytic converters, men’s suits, etc.  Deputy Minister Gina and Deputy Minister Majola would lead the development of the district export plans. That was the first concrete evidence of local plans. Districts had to see what they could make or produce to replace imported products. The question was what each district did better than other districts. In the past, a consultant would develop a strategic plan but they had not adopted a practical approach, so now it was hoped that districts would draw up more practical plans.

The CIPC’s Bizportal meant that businesses did not have to trek up to Pretoria for company registration processes. The same services were accessible from Lusikisiki and other rural locations via the internet. That would give support to local players.  Provinces would publicise the services and businesses would be given access to a laptop and data to make the connection. That was using the new technologies to replace expensive infrastructure. He thanked Mr Mbuyane for raising the issue.

Mr Burns-Ncamashe had made a really important point about alignment. That was a work in progress. Deputy Minister Majola was responsible for working on MINMEC to promote alignment and integration between departments, provinces and municipalities. He added that creating value-added manufacturing chains was similar to beneficiation, as raised by Mr Thring. He recognised cotton as an important example. The cotton industry had been granted R233 million by dtic to support cotton in the gin, for spinning and weaving. That programme had created a significant number of jobs - around 7 000. Another area for a similar activity was in wool. SA was an exporter of wool, although there had been a reduction in sales. Products used in clothing manufacturing included bamboo, cotton, wool, linen and blends. SA wanted to stay in the production of textiles.

He agreed with Mr Burns-Ncamashe that security of tenure was an issue. His colleague Minister Didiza was working actively on the issue with the support of cabinet. The dtic was also supporting her to do more. The dtic was supporting local small-scale farmers which linked in to security of tenure.

He noted that the he and the Department did not always have time with the Committee because of the tyranny of the clock, so he had responded extensively. DM Majola could speak to alignment and the DG on SEZs

Response by Deputy Minister Majola
Deputy Minister Fikile Majola referred to the two SEZs in Nkomazi and Musina/Makhado. They had been seriously impacted by Covid19. In the spirit of the new approach, the dtic was intervening in the Nkomazi SEZ and had sent a Deputy-Director General to upscale the work there. There were challenges in Musina/Makhado SEZ, including environmental challenges. The dtic was working with the people there and with the Limpopo province.
 
On matters relating to the District Development Model, the previous week he had said that he would meet with the MECs of provinces to talk about building industries, focussing in particular on the metros because dtic was focussed on building regional economies. He and Deputy Minister Gina had been working on small businesses and tourism because those businesses had quite a strong presence in the plans of provinces. He added that DG October was responsible for convening an inter-departmental team that would focus on what the Minister had said. The issue would be to integrate the plan into the District Development Model.

DG October explained that the Deputy Minister had created the political space in Nkomazi and Mussina/ Makhado for dtic to work.  The dtic was taking three board members on each of the boards and was putting together a management team to fast-track the work and the building of top structures, as well as finding investments. As Mr Mbuyane had said, the unit at IDC was prioritising the SEZs at Nkomazi and Musina/ Makhado, plus Saldanha and the Wild Coast SEZ. The intervention would be based on the new model. At the Technical MINMEC, all the HoDs and provinces had accepted that national would play a lead role in the SEZs. The Coega Development Corporation and the Development Bank of South Africa would be leading the investment drive, as they had done with the Tshwane and Harrismith/Maluti-A-Phofung SEZ. The IDC would assist with resources. The previous week the Deputy Minister had visited Saldanha and the dtic had secured seven new investments.

80km north of eThekwini, in the former Stanger area, a manufacturer of harnesses employed 2 000 workers and dtic had helped the company to lease land from Transnet to extend factory and that company would now offer 3 000 new jobs. The municipality was driving the project and the province had requested dtic to unlock the bottleneck with Transnet.

Ms Hermans had mentioned the CIPC BizPortal. Within 20 minutes, one could register a company and simultaneously register for taxation and workmen’s compensation as a result of cooperation with the SA Revenue Service and the Department of Labour. InvestSA was working on improving investment ratings and was working with DALRRD. The registration of property was a bottleneck and so dtic assisting DALRRD with the Deeds Office to fast-track deeds registration. The dtic was working with provinces to drive the rail line between Gauteng and Gqeberha. The dtic was chairing the technical committee that was driving that project for a R10 billion rail infrastructure.

The Chairperson asked the Minister if he wished to follow up. It was an open discussion and there would be more formal discussions later.

The Minister Patel thanked the Members for their input and support. One of the new ways or fresh approaches was to be more open about how to get more done. He appreciated the feedback from the Members of the Committee as it helped to strengthen the processes and he appreciated the Committee’s comments that indicated where the ministry needed to scale up.

The Chairperson stated that the main issue would be found in the results and in a more efficient way of inter-departmental cooperation. Previously there had been white elephants where projects were set up, but the processes were not aligned. Someone put down a road and then another person came and dug up the road to put down waterpipes and later it was dug up again for technology cables. Achievement was all and that had to be the focus of the work that the dtic was doing.

Closing remarks
The Chairperson stated that the Committee would be briefed by two of the dtic entities the following day: The National Empowerment Fund (NEF) and the Industrial Development Corporation (IDC).

The meeting was adjourned.