DTIC 2020/21 Quarter 4 performance; Report on Oversight visit to KZN & Gauteng

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Trade, Industry and Competition

18 August 2021
Chairperson: Mr D Nkosi (ANC) and Acting Chairperson: Mr S Mbuyane (ANC)
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Meeting Summary

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The Portfolio Committee on Trade and Industry met on a virtual platform to receive a briefing from the Department of Trade, Industry and Competition on its Fourth Quarter Financial and Non-Financial Performance for the 2020/21 financial year.

The Department reported on global economic trends following the 3.2% contraction in 2020. The projection for growth globally was for 6% in 2021 with a forecast for 4.9% in 2022. The South African economy was expected to rebound following the recession in 2020 with a strong growth of 4.2% forecast for 2021 and 2.3% in 2022. Unemployment increased by 0.1%, reaching 7.24 million in Quarter 1 2021. As a result, South Africa’s unemployment rate increased by 0.1 percentage point to 32.6% and was the highest unemployment rate in the country since 2008.The presentation provided a detailed analysis of the performance of each Programme within the Department, concluding with the financial report. 97.55% of the adjusted budget of R9 273 272 for 2020/21 was expended with a  lag in projections of 2.5% in some of the programmes and economic classification items, namely, compensation of employees, goods and services, transfer payments and payments for capital assets.

Members made a number of comments on their perception of the economy. They asked if the challenges relating to local government had been taken into account when the report was compiled and why there was no mention of the influence of state capture and corruption on economic growth in the fourth quarter. Had a programme been set aside for procurement and localisation, and specifically for young people? What was the status quo of Nkomazi Special Economic Zone and that of the Industrial Parks around Mpumalanga? What was the uptake of incentive programmes by local industrialists in the rural provinces? Was the Department fully capacitated to support rural provinces? Was the departmental awareness programme aligned to the Master Plans?

Although the Department was promoting vaccination against Covid-19, one Member reminded the Department that vaccination could not be made mandatory.

The Secretariat presented a draft report on the Committee oversight visit to KwaZulu-Natal and Gauteng immediately after the wave of unrest and vandalism in the two provinces in July 2021 to gain an understanding of the impact of the vandalism on stakeholders and companies. Over 200 malls were affected, over 1000 stores were looted and over 100 malls completely burnt. 150 000 jobs were at risk; damages were estimated at R200 billion. The report indicated the specific experiences, loss of infrastructure, machinery and stock by a number of large and medium businesses as well as the impact on employment offered by the businesses. The Committee also visited small and informal businesses where the impact on individual lives was found to be particularly moving. The report would be finalised at the end of the week.

 

Meeting report

Opening remarks
The Chairperson indicated that there were two items on the agenda: the Fourth Quarter Report by the Department of Trade, Industry and Competition (dtic) and the oversight report on the Portfolio Committee visit to Gauteng and KwaZulu-Natal to assess the vandalism in the provinces. The vandalism had affected many sites of trade and industry in those provinces which were key economic hubs in the country.

The Chairperson indicated that he would be leaving at 10:30 to catch a flight. Mr S Mbuyane (ANC) was elected to take over when the Chairperson left the meeting.

Presentation by Department of Trade, Industry and Competition (dtic)
Ms Malebo Mabitje-Thompson, Acting Director-General, dtic, presented the report on the Department’s Fourth Quarter Financial and Non-Financial Performance for the 2020/21. Relevant senior staff were in attendance online.

The global economy contracted by 3.2% in 2020, reflecting a stronger-than-expected recovery across regions in the second half of 2020 and was projected to grow by 6% in 2021 with an improved forecast of 4.9% for 2022. The South African economy was expected to rebound following a recession in 2020, primarily due to the Covid-19 pandemic. The SA Reserve Bank, in its statement of the Monetary Policy Committee of July 2021, had kept its forecast growth to a strong 4.2% in 2021 and 2.3% in 2022, followed by 2.4% in 2023. The International Monetary Fund (IMF) also upgraded its forecast for South Africa from 3.1% to 4.0% for 2021. Real GDP increased by 4.6% in Quarter 2021, following another positive growth of 5.8% in Quarter 4 of 2020. However, year-on-year, GDP contracted by 3.2%.

Eight sectors recorded positive growth. The largest positive contributors to growth in GDP were the finance & business services, mining and trade sectors. Unemployment increased by 0.1% reaching 7.24 million in Quarter 1 2021. As a result, South Africa’s unemployment rate increased by 0.1 percentage points to 32.6% in 2021Q1 and was the highest unemployment rate since 2008.The presentation provided a detailed analysis of the performance of each Programme within the Department, concluding with the financial report.

The dtic had an adjusted budget of R9.2 billion for 2020/21, of which R9.03 billion had been spent, i.e. 97.5% of budget. R1.7 billion or 19% was disbursed to the external programmes; spending on operational costs was R1.6 billion or 17%.

A lag in the projections of 2.5% was being reported in some of the departmental programmes and economic classification items, namely, compensation of employees, goods and services, transfer payments as well as payments for capital assets. That was attributed to a variety of reasons, including:
-The global outbreak of COVID-19 which affected a number of the dtic activities.
-The National Macro Organisation of Government (NMOG) that had issued a directive not to fill posts on Deputy Director-General level, as well as the COVID-19 lockdown which resulted in delays and impacted on the filling of vacancies.
-Slow disbursement on the Tirisano Construction Fund as some of the construction companies that were not able to make the annual financial contributions.
-Slow disbursement on some incentive programmes due to fewer claims received than had been planned.
-Lower than planned disbursement to international organisations due to exchange rate fluctuations.

(See Presentation)

Discussion
Mr F Mulder (FF+) made two comments on the risks to the economic outlook. The dtic could not exist on its own. The Department’s localisation policy was based on the assumption that local government would provide the supporting services but, in practice, it was not possible and would not happen. Were the issues relating to local government taken into account when the report was compiled? Secondly, he saw no mention of the influence of state capture and corruption on economic growth in the fourth quarter.

Mr W Thring (ACDP) stated that the ACDP was concerned about the continued increase in unemployment. One of the goals of dtic was to look at creating employment and to ensure that the country had a sustainable economy which meant sustainable businesses across the country and to support those businesses in order to see an uptake in employment. Unemployment was at 32% but using the expanded definition of unemployment, it was probably over 40% and, of that, between 50% and 70% was youth unemployment, which was a great concern. The economy had a long way to go. However, the country was coming off the Covid-19 lockdown and some businesses were beginning to recover, others had been decimated and would probably never recover. The responsibility of dtic was to look at low hanging fruit to increase employment.

He added that SA had already been in financial crisis with rating agencies declaring the economy at junk status level. Businesses had had a double whammy and lots of corruption and mismanagement that had impacted negatively on the economy and brought it to where it was. There was still a long way to go.

Mr Thring said that declining domestic investment of 2.5% in the first quarter of 2021 was a concern because it was an indication of domestic sentiment in the market. If SA wanted to see direct foreign investment, there was a need to increase domestic sentiment. Declining domestic investment was a concern. The dtic had to look at the capacity of local businesses to grow the economy.

He pointed to the slide that indicated more vaccines meant more jobs. Vaccines were still in the trial phase as confirmed by Johnson and Johnson, Pfizer, etc. It was in trial three, the third phase of the trial, and the FDA had only approved the vaccine for emergency use. There were some concerns, even amongst parliamentarians. The position of the President of the country must be upheld. He had said that vaccines should not be made mandatory.  But many businesses and employers – and he had a list of ten – were moving to make vaccines mandatory and were putting a huge number of employees at risk. Some were even prepared to resign. There could not be mixed messages about vaccines, such as when the Minister of Labour had issued a brief giving employers the option to make vaccines mandatory within their field of business. It was divisive and might result in more jobs being lost.

Mr Mbuyane asked about procurement and localisation. Was there a programme set aside for procurement and localisation? Was there a procurement and localisation programme specifically for young people which set a specific percentage of youth involvement? What was the status quo of Nkomazi SEZ and that of the Industrial Parks around Mpumalanga?

He noted the intervention in industrial financing which was set to ensure the retention of 13 000 jobs but asked about the challenges being experienced by provinces in the rural provinces in terms of the various incentive programmes. The rural provinces had to be taken care of because the economy did not exist only of two or three provinces. What was the uptake of incentive programmes  by local industrialists in the rural provinces? Those provinces had to be taken care of. What was the status of the rural development programme and the capacity building of the investment programmes? Was the Department fully capacitated to support rural provinces? Regarding the awareness campaign of dtic was it aligned to Master Plans? He believed that realignment of the Master Plans programme would result in domestic growth.

Ms Malebo Mabitje-Thompson responded to Mr Mulder’s question about the capacity of local government to provide services.  That was an area that concerned dtic as it did run into capacity problems and had to rely on its Critical Infrastructure Programme to manage the situation. Procurement was still subject to the provisions of normal behaviour, competition and so on. It was the same issue in the rural municipalities where there was no uptake, as pointed out by Mr Mbuyane. The dtic was following the District Development Programme approach as advocated by the President. There were capacity issues throughout the country and provision of infrastructure became a big hindrance. The dtic was working with municipalities to create the right environment as it was a common objective to grow jobs and deal with unemployment. It was a worry that the dtic was frequently more au fait with the enterprises than the officials in the municipalities. Those were issues raised with the municipalities. The dtic believed that the President’s regional development would provide the solution.

Regarding the slogan on vaccines, she stated that dtic was relying on scientific advice that it was necessary to stabilise the economy and that when people interacted, they needed to interact in the safest possible manner and that the available response at the moment was the vaccine, together with wearing masks and social distancing. The dtic had observed that it was those mechanisms that had assisted economies around the world to emerge from the restrictions imposed by pandemic. If the advice were to change and new ideas were put forward, the dtic would be informed by such information. The dtic was not taking a view on vaccines being mandatory. SA was in the forefront of the response to the pandemic by manufacturing some of the vaccines.

She agreed with Mr Thring that the 70% youth unemployment was not sustainable. The Master Plans that had been implemented were focussed on the problem of unemployment but broader and bigger solutions were needed from government. The dtic had to help in stemming the tide of unemployment where people did not find a day’s work once they had completed their studies at school or university. The dtic was focusing on the mechanism of B-BBEE to help address unemployment and bring people into the workplace. Growing small businesses was important.

She explained to Mr Mbuyane that the message about procurement had been consistent with the Master Plan programme and the localisation policy was following its original trajectory. She was pleased to say that many more companies were understanding what the dtic was intending by promoting a reliance on products manufactured within the country. Localisation underpinned every Master Plan and there had been no objections to the policy of localisation. In fact, manufacturers were looking for ways to increase local procurement so that they did not export jobs and have to deal with the effects of unemployment. That was a good example of how the Master Plans were coming together with policy initiatives. 

Ms Mabitje-Thompson stated that the dtic monitored designation, e.g. the clothing and textile industry had been designated for government procurement for quite a long time. There were still instances where designations were not being observed. It was puzzling because if one was not supporting SA, one was not growing jobs in SA. The dtic was challenging every company and every South African to buy locally because designation was really only about where government had to buy its requirements locally. Everyone could be a lot more vigilant in buying locally, even in the private sector, as that was a way of supporting local jobs. There was a need for a culture change. Parliament was correct that every single entity and the public at large had to create the demand. The culture had to change because SA companies were closing as a result of a lack of demand. When demand was created, the products would be produced. SA products were not always more expensive, but SA products seemed to be locked out of value chains.

The dtic continued to raise awareness. Roadshows had been working well but there were limitations as a result of Covid and so community radios were being used to promote the dtic programmes and to hear the challenges of small entrepreneurs. At local level, she acknowledged, municipal authorities just did not have the knowledge. The dtic officials engaged in the export side were working with municipalities to raise awareness of which industries were exporting and what support they needed to engage in export of their goods.

Mr Maoto Molefane, Acting DDG responsible for special economic zones, dtic, noted that Members had regularly raised issues about the challenges in the Nkomazi Special Economic Zone (SEZ) in Mpumalanga. The dtic had been concerned about the snail’s pace at which the SEZ had been moving. The challenge there emanated from the instability in the province. There had been a serious turnover of officials at the Department of Economic Development and Tourism in the provincial government and in the Mpumalanga Economic Growth Agency (MEGA) as he had indicated at the previous meeting. He had lost count of how many Heads of Department and MECs for Economic Development and Tourism he had met. Some senior appointments still had not been made in MEGA but the board had been appointed the previous day.

Secondly, he stated that the dtic had experienced challenges with regards to coordination between municipalities and provinces and SEZs were delayed as a result of approval processes for licences. Since the introduction of the new approach to SEZs by the Minister which sought to strengthen the involvement of national departments, including the dtic, directly in the project, there had been some movement. When the dtic had arrived in Nkomazi, a company had not yet been appointed to run the SEZ. That matter had since been resolved and a number of people had been seconded to fill vacancies in the provincial department. The dtic had deployed the National Project Management Unit which was led by former DG, Lionel October, and it was providing technical support for the implementation of the SEZ. Systems were being built for the company. The dtic was also looking to the finalisation of town planning issues.

An application for the establishment of a township and an application for an Environmental Impact Assessment (EIA) had been sent to the South African National Roads Agency (SANRAL). The feedback was that an interchange on the N4 highway was necessary but because the dtic had explained that the traffic impact would not be that great in next two to three years as the SEZ would be developed gradually. As soon as that approval was obtained, work would begin on building the perimeter fence and the bulk infrastructure.  

Mr Molefane was pleased that he was beginning to see movement. A development model was being followed and the provincial government no longer made sole decisions on the roll out of the SEZ. Coordination was critical within the context of the coordinated approach and all three levels of government had to be involved at every stage of the development. The full-time board at MEGA was also good news. The dtic was working with the district and the province and roles and responsibilities had been clarified. The same approach would apply to the Industrial Parks. He expected to see steady progress.

Mr Stephen Hanival, Chief Economist, dtic, informed Mr Mulder that the impact of corruption was hard to calculate, although it had been significant over the years, but he had observed that whenever corruption did occur, the product had been imported, as was the case with the trains from China. Corruption had taken place when PPEs were imported at the commencement of the pandemic in 2020 before the dtic had managed to convince local manufacturers to enter that space. The dtic was central to raising the level of local production. He added that he was not saying that there was corruption whenever something was imported but there was a correlation between corruption and importation of goods or services. That had resulted in a harder drive for localisation and companies had been asked to report in more detail on their localisation programme.

He agreed that some of the Master Plans sat outside dtic progress and the development of those Plans had been a little uneven, but he expected much movement in the next three months. The intention was to promote jobs, particularly for the youth and for women.

Ms Mabitje-Thompson stated that the Members’ input would be taken into account and worked into programmes going forward. The Minister was hoping to meet with the Committee fairly soon.

Draft of the report on the oversight visit to Gauteng and KwaZulu-Natal
The draft report was presented by the Committee Researcher, Ms Zokwanda Madalane.

The Researcher did not read through the report line-by-line, but highlighted some of the key information in the report. The focus was on what the Portfolio Committee had learned from its oversight visit to KwaZulu-Natal and Gauteng immediately after the wave of vandalism in the two provinces in July 2021 and the impact of the vandalism on stakeholders and companies. Over 200 malls were affected, over 1000 stores were looted and over 100 malls completely burnt down. 150 000 jobs were at risk; damages were estimated at R200 billion. The report was not structured according to province but according to the types of enterprises visited.

The first section dealt with medium and large enterprises, mainly in KwaZulu-Natal, and contained a concise but comprehensive account of the experiences, the damages and costs and the impact of the damage on the company and individuals. Each individual company had incurred enormous damage, costing huge amounts and leading to job losses or at least an interruption of many months before workers could resume work. It would cost one company R9.1 million to get half of the staff back at work. Other companies were looking at damage of R100 million and stock losses of over R50 million. A real concern was that companies would find their products substituted by imports during the time that the company was rebuilding machinery, etc. It would take up to ten years for a company to regain its market in SA.

Companies were facing challenges relating to documentation as all computers and paperwork had been lost or burnt and that delayed the process of accessing funding. The impact of the vandalism meant that the companies were procuring far less from the companies that supplied the factories and businesses, even down to things such as tea, coffee and toilet paper. That was resulting in job losses downstream. One badly burnt building would take up to eight months to demolish and another 18 months to re-build, costing R1.8 billion without salaries, and putting employees out of work for two years. Some businesses owned by foreign investors had not yet determined whether to go ahead with re-investing in SA. Pharmaceutical companies had experienced enormous losses and were looking to the SA Health Products Regulatory Authority to give approval for the importation of products. Covid-19 vaccines worth millions of Rand were lost when fridges were turned off during the vandalism.

Small Business and informal traders reported similar issues in both KwaZulu-Natal and Gauteng. Municipalities were also affected and would lose millions of Rand, especially from malls that were no longer operating or paying for municipal services.

The Committee Researcher noted that Members would provide conclusions and recommendations.

Discussion
Mr D Macpherson (DA) noted that the report had captured the issues very well and suggested that Members make their recommendations in writing as that would assist the Committee to come to a consolidated position.

Mr Thring agreed that the presentation captured the effect of the vandalism on businesses and reflected on the engagements accurately. Regarding the way forward, he asked if concluding remarks were to be suggested in the meeting that day or whether Members could send conclusions in writing.

Ms J Hermans (ANC) said that, in at least one company, she had obtained an impression that workers and the community had come forward to defend the company, which indicated good community relationships with the company. She supported Mr Macpherson’s proposal for written submissions.

The Researcher indicated to Ms Hermans the point about the relationship between companies and communities had been included.

The Acting Chairperson requested Members to submit conclusions and recommendations in writing by the end of the day.

Mr Cuthbert said he had had a conversation with the MD at Tongaat-Hulett who had said that the company had lost R100 million as a result of vandalism and destruction to the plant  and 4 000 tons of sugar cane had been looted. Mr Cuthbert regretted that that the Committee had not had the opportunity to engage with the MD.

Mr Macpherson asked when the final deliberations would take place.

The Secretary said the formal consideration had been scheduled for Friday morning that week at 08:30 and would be over before the House sitting. It was hoped that the Committee could finalise and adopt the report on Friday. The following day, Thursday, would be taken up with the election of the Speaker of the National Assembly. A meeting had not been scheduled because the programme for the day was not clear.

Mr Macpherson suggested that the submissions be pushed to midday on the following day.

Ms Hermans supported Mr Macpherson’s proposal.

The Acting Chairperson agreed that submissions containing conclusions and recommendations for the oversight report be re-scheduled to midday the following day, Thursday 19 August 2021.

The meeting was adjourned.

 

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