DTIC 2021/22 Quarter 2 and 3 Performance

Meeting report

The Acting Chairperson noted that the Committee had a quorum and invited the Department of Trade, Industry and Competition (dtic) to present the report on the Department’s 2nd and 3rd Quarter financial and non-financial performance for the 2021/22 financial year.
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Presentation by the DTIC on its 2nd and 3rd quarter financial and non-financial performance for the 2021/22 financial year
Mr Shabeer Khan, Acting DG, dtic, made the presentation on the 2nd and 3rd Quarter performance, going straight into the current forecasts for the economy. The global economy had contracted by 3.1% in 2020, reflecting a stronger-than-expected recovery across regions in the second half of 2020 but the global economic growth rate for 2021 had been revised downward to 5.9%, from the April forecast of 6%, with the 2022 forecast remaining the same at 4.9%. The downward revision reflected supply disruptions in
advanced economies and worsening pandemic dynamics in low-income developing countries. Overall risk had increased as a result of more persistent supply-demand mismatches, and shocks leading to inflationary pressures, as well as the start of monetary policy tightening.

In SA, real GDP decreased by 1.5% in Q3, following four consecutive positive growth rates. The unrest that broke out in KZN and parts of Gauteng in July 2021 played a significant role in the decline. Following four quarters of strong export growth and import suppression, the third quarter of 2021 saw exports easing to R461 billion, from R479 billion in Q2; while SA imports from the rest of the world edged up to R358 billion. Despite a moderation in trade surplus, SA’s trade balance with the rest of the world remained positive. The value of imports in Q3, was largely driven by imports of machinery, mainly from China, followed by mineral products.

Mr  Khan presented detail on the performance of each Programme in the dtic for the two Quarters under review.

As of the end of Q3, 88% of the annual budget of the dtic of R9.7 billion had been spent. That was 97% of the projected budget spend. In support of businesses affected by the public unrest in KZN and Gauteng, R2 billion had been allocated to the Economic Recovery and Reconstruction programme.

(See Presentation)

The Acting Chairperson thanked the Acting DG and invited comments and questions.

Discussion
Ms R Moatshe (ANC) asked about the lack of financial and human resources for the B-BBEE Commission as noted in the report of the previous day which was blocking transformation. What remedial action was being taken to resolve the challenges? She noted that the African Continental Free Trade Area (AfCFTA) could be a game changer with a market of 1.6 billion people but without industrialisation and economic development on the continent, it would die if there was no intervention. Considering SA’s trade investments, what value had the Free Trade Area created for SA and how was it going to increase economic development and growth?

Mr Z Burns-Ncamashe (ANC) noted the expenditure trends because government departments were sometimes notorious for underspending, which undermined service delivery and transformation, but the trends in the dtic were impressive. The Special Economic Zone (SEZ) under Programme 3 showed a couple of investments that he would have expected to create jobs. In SA where joblessness and/or unemployment was becoming “hugely high”, the state was responsible for creating a conducive environment for more sustainable jobs, while not abandoning its own responsibility for strengthening institutions within the state machinery to create job opportunities. The presentation referred to jobs that “expected to be created”. It could not just be about “expecting” job creation. He asked for the actual number of jobs created, jobs that could be seen, because creating jobs would resolve other issues, such as poverty and inequality which was also at astronomic levels.

He noted that the SEZs in rural provinces found issues of water, infrastructure and energy a real challenge and those challenges would discourage investors if they continued to be persistent. He reminded Members again that SA was not just urban; it was also cosmopolitan because a number of provinces were rural provinces. What was the Department doing to address the challenges of dilapidated infrastructure, lack of energy and water, etc. He asked for a progress report, once again, on Nkomazi SEZ, which was struggling. Investors could make a huge difference in terms of unemployment.

He added that under Programme 1, the review of the governance framework had not been finalised due to a shortage of resources in the third quarter. What did the dtic mean by “shortage of resources” and what plans did it have to mitigate that to ensure that going forward interventions were sustainable and matched the target.

Finally, he added that the Portfolio Committee had to note that  B-BBEE was a policy of the ANC which was the government in SA and it was there to stay. He agreed that there might be challenges, but those challenges were being addressed. The B-BBEE was a transformation policy that was there to stay.

Ms N Motaung (ANC) asked how trade and negotiations with various countries had helped to increase trade and economic growth and development. Of the 47 black industrialists who had been supported, how many were women and youth, what impact would they have on township development and what had been done to ensure financial sustainability? How had underspending on subsidies impacted businesses and what impact would it have on creating jobs and sustaining the broader economy?

Mr S Mbuyane (ANC) noted that there had been a sharp decline in small commercial farming leading to a concentration in the market. There had been a 73% decline in producers in the primary dairy sector, from 3 899 dairy farmers in January 2007 to 1 053 farmers in January 2021, which would increase prices and threaten food security. What measures had the Department taken to avoid continued concentration of the market when the SA economy was already struggling with the problems of the economy being concentrated in the hands of a few people? What had been put in place to support small-scale localised farming in order to intensify competition in the sector? Considering that mergers were sitting at 93% when country was already struggling with a concentration of the economy, was that not a concern?

He noted under Programme 6 that investment was far less than planned. R9.7 billion had been leveraged against a target of R13 billion. What factors had contributed to that?

Mr D Macpherson (DA) stated that the presentations by the dtic over the years had always been the same: the Department had blamed the 2008 financial crisis for ten years, then global headwinds and now the Covid-19 pandemic. The dtic blamed those factors and made itself out to be a victim of failed economic policies, but it was those economic policies that were the reasons for the terrible rates of unemployment and economic growth in SA. No one in the dtic would face economic policy head-on and the penny had never dropped as to why things were the way they were. He informed Mr Mbuyane that the decline in small farmers and agricultural output was a result of bad economic policies. Bad economic policy created bad economic results. The dtic hung on to things such as black industrialists and how many people of a certain gender had been employed as markers of success. That might be important but there were 13 million unemployed South African and that was what the real performance indicators of the dtic should address. How many factories were opening, how much had unemployment decreased, how had the cost of manufacturing been lowered, how had the ease of business improved? There had been no positive results there for the past four years.  The high unemployment rate had to be the focus of the Department.
 
He said that the Committee allowed the Department to get away with a box-ticking exercise. Despite a R10 billion budget, the Department was underperforming. The key metric should be lowering unemployment, increasing investment and bettering cost competitiveness. What was the Department doing regarding the ports – Durban Port currently moved 50% fewer containers per hour than it had done two years previously. That was a shocking statistic. SA’s ports were now on a level with backwater third world countries, yet the government kept thinking that the country was an economic powerhouse. SA was not. The glossy presentations simply covered failed economic policies and would not move the needle on the economy. The Committee should look at how it measured the Department because it was not going to relieve unemployment.

The Acting Chairperson asked the Acting DG to address the two or three targets not met. She did not want the Department presented as a failure because a couple of targets had not been met. However, his response should take into account Mr Macpherson’s comments as the Department did have a responsibility to improve the economic environment in SA.

The Acting Chairperson recalled an oversight visit to a film studio in Cape Town in 2020 and yet she observed that there had been no uptake in response to calls by the dtic for film makers to make a film on the South African story. During the oversight visit, there had been calls for funding from film makers, so the Department needed to check why there had been no responses to its call.

Regarding the Competition policy and the concentration in the retail pharmacy market between Dischem and Clicks which led to a lack of competition and an increase in prices, what mitigating factors were put into place to compensate for the negative pricing implications that such concentration created in the sector?

Mr Khan noted the importance of the B-BBEE Commission. It was relatively new; its operational mandate was created around 2016. National Treasury had at that time been against the idea of the B-BBEE Commission becoming a separate listed entity. The dtic had taken the Commission under its wing and provided all back office support to the B-BBEE Commission. In terms of HR capacity, the dtic was working closely to ensure that key positions were filled and providing support in other areas. Comprehensive research was supported by a panel of researchers that assisted the Commission. Additional investigative capacity had been provided. Corporate governance training was provided for members of the Commission and a communication and stakeholder unit had been provided. A lot of work had been done and support provided, and the Department would continue work on supporting the Commission as required. The point was noted.

On the AfCFTA, the Acting DG stated that a lot of work had been done on that front. 87.7% of the Rules of Origin had been agreed to but the fundamental point was that the AfCFTA was anchored on a developmental integrated approach that provided support across the board. It allowed trade to happen amongst 56 million people in SA and 1.6 billion people across Africa. The biggest benefit would be derived from the reduced tariff, a reduction in tariff barriers, improved work on trade borders and improved trade facilitation. In the area of the trade agreement, a lot of work was being done and once the head of state had approved the Agreement, it would improve trade in SA and also across the continent.

He informed Ms Moatshe and Ms Motaung that trade with the rest of world improved trade opportunities and provided access to a much bigger market for SA companies. SA’s domestic market was far too small to allow for economies of scale that would make industries more competitive. For SA to grow, it needed to seek trade opportunities outside the country. Hence the need to export.

Mr Burns-Ncamashe and Mr Macpherson had raised the question of how dtic could lower unemployment as a metric. Many of the measurements devised by the Department were predominantly aimed at job creation, promoting inclusion in the economy and increasing competition. Macpherson’s point about how to achieve greater impact and a better rate of return on investment had been taken on by the Department which was considering exactly how to do that.

When the SEZs submitted applications for support, they indicated anticipated jobs to be created but the division of the Acting DDG for SEZ, Mr Molefane, monitored very closely the actual jobs created at SEZs and those figures were included in the performance plans of SEZs. The scarcity of water and electricity resources and the impact that had on the development of industrial activity was an important point and dtic was cognisant of that. The dtic team, together with the SEZs, was working closely to unblock those issues. The team was working with the national Department of Water and Sanitation and the local municipality in Limpopo, including undertaking a feasibility study for a dam in the Musina area. Where there were electricity shortages, the dtic was working closely with Eskom as well as using the critical infrastructure funds to resolve some of those challenges. Regarding the struggling SEZs, he said that the Nkomazi SEZ entity had been established, the board and CEO had been appointed, and some governance and policy issues were being implemented. Infrastructure would be implemented within the next few months. Regarding the application for the Bojanala SEZ, the Acting DG stated that the application had been referred back to the provincial authorities for some improvements and the province had since appointed a service provider. The IDC was also working on the application. The dtic was using the critical infrastructure fund to improve the park so that it was ready to allow industries to move in while the SEZ application was being improved.

The Acting DG agreed that the dtic had not achieved the Governance Framework indicator. Challenges, including resource constraints, had been considered by the Department, but officials were working with the Executive team to achieve that KPI by year-end. It was important to finalise the review as the dtic had 18 agencies reporting to it and so key areas of governance had to be adequately dealt with for the agencies to function properly. It was also necessary to ensure improved audit outcomes in a number of areas.

He confirmed that the dtic considered B-BBEE to be an important policy and the Department had a dedicated team focusing on B-BBEE policy to ensure the achievement of the policy objectives of the B-BBEE Act. Most instruments used by the dtic were checked for alignment with B-BBEE policy. Mr Molefane would provide a breakdown of black industrialists in terms of women and the impact on township economies.

The Acting DG agreed that some earlier potential investors had deferred or cancelled investments and the dtic was working with InvestSA on improving investments. In Q 2 and 3, the focus was on supporting companies affected by the July disruptions in KwaZulu-Natal and Gauteng so that those companies could continue to do business.

Ms van Meelis would respond to questions on mergers and concerns regarding concentration within the economy, but the DG reminded Members that the Competition Commission and the Competition Tribunal were mandated to ensure that there was no concentration and no price domination as a result of a merger.

The Acting DG stated that the Industrial Financing branch worked closely with InvestSA to ensure investments were realised to support economic growth. That target would be addressed in the last quarter of the 2021/22 financial year. Another target not met related to the film industry. The dtic had put out a call to the film industry to produce a local story. The dtic had a large number of applications for funding, but none to tell a local story. The dtic was partnering with the Western Cape Department of Economic Development to create awareness. The dtic wanted to ensure that the South African story was told.

On Mr Macpherson’s points around broader challenges that the country was facing such as unemployment, investment, competitiveness, performance, infrastructure and port capacity, he stated that the Department’s plans attempted to accommodate those things. The dtic had an investment target set by the President and the dtic and InvestSA were working closely with provincial officials and the SEZs to meet the target. The Department would be holding the fourth investment conference as the earlier conferences had successfully persuaded companies to commit to investment in the economy. He agreed that the Department had to do better on the return on investments. They were working closely with other agencies on energy and water challenges to unblock the challenges.

Ms Tanya van Meelis, Acting DDG: Competition Policy and Economic Planning, dtic, stated that the dtic was concerned about concentration in the economy and had made amendments to the Competition Act to make sure that where there were high levels of concentration, a more inclusive economy was created by looking at the impact that mergers had on SMMEs and firms owned by historically disadvantaged persons (HDI’s). The reasons for mergers were comprehensively assessed by the Competition Commission and the Competition Tribunal. What was also assessed was the impact on competition and public interest matters. In some cases, including in the pharmaceutical industry, absent the merger, there might already be a decline in independent pharmacies which meant that concentration would impact in any event. In such a case, the Commission put a number of remedies in place to ensure that the concentration would not have a detrimental effect on the economy as a whole. In the dairy industry, where there was a concern, the Tribunal had placed an order compelling the merging parties to buy from small suppliers for a period of three years under conditions no less favourable than currently enjoyed. That mitigated any negative impact on the industry. A range of remedies were always put in place to mitigate against any negative impact.

In relation to food price monitoring, she added that the food pricing report allowed for investigations by the Competition into excessive pricing and action against any excessive pricing. An example of excessive pricing was the increase in the price of ginger by Fruit Stop and when investigated by the Commission, Fruit Stop had agreed to lower prices and make certain reparations for the excessive prices it had been charging over a period of time.

Ms Nontombi Matomela, Acting CFO, dtic, stated that the 47 black industrialists had existing companies that had experienced challenges and had required support. 44 of the companies were black-owned. The dtic  would have to provide written details on the composition of women and youth-owned businesses.

Mr Khan stated that Mr Molefane was checking the number of women and youth-owned businesses.

The Acting Chairperson indicated that the breakdown of such figures was a standard question and so the team should be prepared to answer such questions on the platform.

Consideration of Minutes
The minutes of 8 February 2022 were read and adopted by the Committee without amendments or objections.         
                                                       
Closing Remarks
The Committee Secretary informed Members that the following meeting would be on Tuesday 22 February 2022: a briefing by the DTIC on Trade Policy and an update on trade negotiations as well as implementation of trade agreements.

The Acting Chairperson requested the Acting DG to provide the outstanding response from Mr Molefane on the breakdown of the Black Industrialist figures.

The meeting was adjourned.