Economic Reconstruction and Recovery Plan Implementation: Minister’s input; Committee Report on PP’s report

Meeting report

Opening Remarks
The Chairperson welcomed Members to a briefing by the Department of Trade, Industry and Competition (dtic) on the Economic Reconstruction and Recovery Plan (ERRP) to be led by the Minister of Trade and Industry.

Presentation by the Minister of Trade, Industry and Competition
Mr Ebrahim Patel, Minister of Trade, Industry and Competition, indicated that he had a supportive team on the platform. This included the Acting Director-General, Ms Malebo Mabitje-Thompson and several DDGs. The new Chairperson of the National Empowerment Fund (NEF), Nthabiseng Moleko, was also on the platform, as was the CEO of the NEF and IDC officials.

Minister Patel stated that he had kept the presentation as concise as possible to avoid a very lengthy briefing.

The Minister framed the challenge and contextualised the situation. He began with the new administration in 2019 and the Re-Imagined Industrial Strategy which was about integrating the African market through the African Continental Free Trade Area (AfCFTA) and growing domestic production through a localisation strategy but in March 2020, COVID-19 had struck with devastating health and economic impact and the focus had been adapted to manage the situation.

The ERRP had eight key elements to get the economy moving again, including strategic localisation, industrialisation and export promotion; a rollout of infrastructure; a new paradigm for energy; gender equality, the economic inclusion of women and youth and a focus on employment and growing SA businesses; and addressing competition and inclusivity in the economy. There would also be a focus on agriculture and food security.

The Minister referred to the Automotive Master Plan that had successfully supported Mercedes Benz to make a R10bn investment in order to produce the C-Class model. The East London plant is one of only three plants globally, with Bremen and Beijing, to produce the C-class model. An additional R3bn investment was announced to broaden the variations of the model in a technologically advanced plant with a focus on skills development. Toyota SA’s R2.6bn investment in producing Corolla Cross, SA’s first locally-produced, commercial-scale hybrid vehicle, was another success story. Ford’s commitment of a R16 billion expansion of its SA production facility had led to a rethink of the way in which Special Economic Zones were set up, developed and managed.

The Minister highlighted that it was not only big business that was severely damaged by the July unrest, but that individuals had also suffered severe losses, such as an 87-year-old sugar farmer whose entire crop had been razed to the ground. Small businesses were also very badly impacted.

Minister Patel presented the key messages from the 2022 State of the Nation Address and the successes that had arisen from the new approaches, including the Re-imagined Industrial Strategy and structural reforms; a multipronged approach to industrial development, and building partnerships with the private sector in order to unleash job-creating investment. The economy would be driven by Master Plans in priority sectors and by localisation efforts, including leveraging state and private sector procurement. The dtic’s revised approach addressed high unemployment, poverty and inequality; and the urgent need for a speedy economic recovery.

The Minister concluded by providing some detail of how government’s economic policy would be implemented. He referred to scaled up structural reform of network industries, expanding and modernizing infrastructure, private-sector investment, localisation, and exports especially through the AfCFTA and support for the local development and manufacture of pharmaceuticals, PPEs and vaccines to avoid SA being vulnerable to global supply chains in such strategic areas. Localisation would provide the economies of scale to be able to leverage off production for the domestic market in order to enter new export markets. The July unrest had strengthened the resolve to build resilient, sustainable value-chains that created the potential for inclusive growth.

(See Presentation)

Discussion
Mr F Mulder (FF+) welcomed the acknowledgement of the necessity for a capable state, but he did not see reference to the negative impact of the lack of regular electricity from Eskom in the presentation. The Minister should elaborate on that point. He expressed concern about the assumption that local government would support economic growth by providing electricity and water when everyone knew it was not capable of doing so. Was it possible for the dtic to promote the use of solar power and for it to make up a more substantial sector of the electricity supply? He noted that the smelting of manganese and iron ore was being outsourced to China for that very reason. Did the dtic have plans to address challenges likely to arise as a result of the Russian-Ukrainian war?

Mr W Thring (ACDP) asked about the effect that the drag of the State-owned Enterprises (SoEs) not performing optimally had on the economy, especially by not contributing to the employment generation. What was the plan to stabilise SoEs or to bring about a complete transformation within the SoEs so that they could contribute to the programme of industrialisation? Regarding beneficiation, he noticed that a lot of raw materials were being exported, creating employment outside of the country. He asked for targets for the beneficiation of minerals and the target dates and percentages for working towards a large portion of minerals being beneficiated.

Mr Thring stated that in March 2022, Benedict Xolani Dube had written of the extensive economic problems and de-industrialisation taking place in KwaZulu-Natal which would soon become an economic desert. He had written about the non-performance of the agricultural sector, the closing down of refineries and decommissioning of ports, as well as tourism suffering, Rainbow Chicken closing down, the disinvestment by Tongaat-Hulett. What were the Minister’s comments on that particular paper?

Mr S Mbuyane (ANC) noted the joint KPIs for the dtic and its entities and the plans for implementation. How did IDC align its priority sector for funding the Master Plans? The issue of strategy in respect of SEZs concerned him. He asked about the transformational agenda and the ownership structures and how that would be changed. The Competition Commission presentation had shown there was not a concentrated approach to the KPIs. The Industrial Parks had been established but they were not functioning. Was there a joint funding strategy for the IDC, NEF and Land Bank in the rural provinces? The pandemic had shown the need to be able to feed the people. Were the entities able to support industrialisation of the rural areas? Food production was key to the country. What was to be done to support rural developments that were already in existence?

Mr Z Burns-Ncamashe (ANC) noted the three strategic objectives - industrialisation, transformation and building a capable state - which showed the Department had hit the nail on the head in driving the reconstruction and recovery plan. The capable state had to yield a more sustainable, resilient and inclusive economy so he had to emphasise the need for a capable state in the context of the district development model which gave expression to section 40 of the Constitution. It was about spheres of government working together in a more integrated manner. At the end of the day, things had to be implemented by local government where the most economic enablers came into play – access roads and a reliable supply of energy and water. What kind of accelerated plan had been put in place to ensure that all strategic partners, such as the Departments of Water, Public Enterprise and the Department of Energy, were on board? What was the strategy around renewable energy and infrastructure, especially roads? Were roads considered an economic imperative and not a social imperative?

He asked about the plans for transformation which could create opportunities for the people to be empowered to enter the mainstream of the economy. He emphasised the importance of B-BBEE. South Africans had to always be reminded that the SA of 1994 had inherited centuries of colonialism and apartheid that had deprived people of the opportunity to develop or enter into wealth creation and so redress was important. Only in 1994 had the country begun to create an inclusive system. The ANC-led government had made a very deliberate decision in respect of redress and transformation through B-BBEE, which would always be a policy imperative.

Mr C Malematja (ANC) complimented the Minister on his excellent work and progress regardless of Covid-19 and the July unrest. He recognised the success of the Tshwane SEZ and what it had done for the people of Tshwane. He encouraged the Minister to start work on the other SEZs immediately so that it would be the economy salvation of everybody, especially in the rural provinces. He also appreciated the Minister’s commitment to rural economic development. It would assist the poor people whose businesses had been practically destroyed. The simple, comprehensive plan assured the Committee that there was hope at the end of the tunnel. He thanked the Minister and said he should fast track the SEZs so that the economy of SA became the economy of everyone and not the economy of others.

The Chairperson stated that she was looking forward to seeing the upscaling of the economy.
 
The Minister appreciated the positive comments. Several Members had raised the issue of a capable state. He recognised the concern about a capable state, without which, it would be impossible to achieve any economic development as even the best policies would not succeed if one could not get the basic mechanics right. He agreed that local government was the single biggest threat to economic development, but he acknowledged that a lot of work still had to be done at national level. After self-reflection, he believed that the dtic could do better. The 18 meetings that he had attended with the NEF and IDC between July and December 2021 had shown that even the active agencies were not fit for purpose and not fully responsive. The dtic could do better.

The need to integrate was important and interaction between different levels of government was essential.
During the previous year, the dtic had integrated itself and but in the current year dtic would attempt to coordinate the work across entities across the economy.

The Minister did not believe that the problem was limited to local government, but it was most glaring at that level. National government had worked with an international investor who wished to introduce a soybean crushing plant to Standerton (Lekwa) and ultimately SA had become a net exporter of soybean products instead of a net importer. A local company wanted to do something similar but over the years, the inability of the municipality to provide water and electricity had threatened to destroy the company. The company running the local soybean crushing plant had gone to court to persuade the Lekwa (Standerton) municipality to provide the services, such as water and electricity, that it was obliged by law to do. An administrator had been put in charge of the Lekwa municipality and he had made a significant difference in the past year and the company was seeing a difference, but not every local government could be put under administration. In the new financial year, the dtic would develop an industrial plan for each municipality. Working with every local government in SA, the dtic would sign a compact so that dtic would provide assistance, but the local and provincial government would be obliged to come to the party and to make the relevant contributions. Lekwa could have been the centre of a huge industrial hub for the chicken feed industry, but the municipality had not played its part.

The Minister explained to Mr Burns-Ncamashe that the process of setting up SEZs had changed with the development of the Tshwane SEZ. Instead of playing a passive role approving the SEZ and providing money if it were available, the dtic became actively involved in the Tshwane SEZ, hands-on and had worked closely with the Tshwane local government and the Gauteng provincial government. The ex-DG of dtic had provided concerted guidance and leadership in developing that SEZ. Each role player was obliged to bring something to the process and not just attend a ribbon-cutting ceremony. The change from a passive role to an active role had resulted in the dtic having to set-up a dedicated structure to do the work and to ensure collaboration.

The roll-out in different provinces, different districts and different local governments could not follow precisely the same model. Some provinces were well-endowed with mineral resources. The Highveld Industrial Park now had a business that was focused on fixing mining equipment locally, very quickly and efficiently. Some provinces had a significant agriculture sector, and a different department would manage such an SEZ. Other provinces had logistics available, so the dtic was looking for the advantages and strengths of each province and area and to link that to the District Development Model.

He acknowledged Mr Mulder’s point that energy was critical to industrialisation. Load shedding was disastrous for large industrial plants as the cost structure was based on a 24/7 operation and costs soared for every interruption. In other cases, the technology itself could not be interrupted without having an adverse effect on the product. SA had moved from one of the countries with the lowest cost energy to very expensive energy and, consequently, the price competitiveness of SA as an industrial country had been affected. A consistent energy supply was essential to any long-term business plan, but Eskom was unable to make those commitments.

The new Annual Performance Plan for 2022/23 would place more weight on collaboration between dtic and other departments. Solar power was an important element – both for the climate and because it was necessary to diversify, so solar was not the only renewable energy. Wind power was also important. More energy contracts were to be allocated by the end of April 2022. The question to be answered concerned the balance between base energy and those forms of energy that were dependent on external conditions. Solar energy was for sunlit hours only with a little being stored. Wind energy was for when the wind blew only. There was little expertise in the area of renewable energy in dtic, so the Department relied on experts. Green hydrogen was the future, but the price did not, as yet, compete favourably. Investment in that technology was essential in order to bring down prices.

Beneficiation was a focus area of Mr Thring, for which the Minister was grateful. Minerals were available but to beneficiate minerals, one needed energy at a competitive price and, secondly, the underlying technologies to enable beneficiation. The lack of energy undermined the beneficiation process which was dependent on two things, energy and human labour: that was what transformed a mineral into capital or consumer goods. Iron ore was critical. Ferral chromium producers in SA could not stay in the market because other countries, such as China, could export, beneficiate and send products back at a much lower price. The Department was working with the Department of Mineral Resources and Energy in considering an export tax on the raw materials. The only thing that would induce producers to beneficiate in SA was to bring the costs down. Cost and efficiencies drove beneficiation. Beneficiation was not legally within the scope of dtic so it had to be a joint project. Sintering of manganese took place in the United States of America and so the IDC had looked at projects to undertake the sintering process in SA. Industrialists needed support as the cost structure was problematic. There was not enough cost advantage to local beneficiation.

The effect of the conflict in Europe would be on the supply chain in the passage of time. SA bought products from the affected territories, such as a lot of fertiliser from Russia, and ferrous products but SA also exported agricultural products to Russia and Ukraine. Global unrest impacted SA and SA was a big importer of oil and uncertainty impacted strongly on oil prices. Wheat was another concern because bread was a staple food in SA. Wheat prices were already going up because people were future pricing the product. The Department was watching the situation carefully so that it could respond more quickly than it had done to the Covid pandemic. The unknown factor was what was going to happen to global growth. Certain products would have a negative impact on SA but the conditions might favour long term growth prospects of other products.

Minister Patel agreed that the SoEs were a drag on the economy. The first focus had been to deal with corruption and to get the Guptas out of the SoEs but dealing with only corruption was not sufficient. Government now needs to look at the viability of state-owned companies. The President had initiated a commission to look at a broader governance approach within SoEs and was looking at the long-term viability of the SoEs. Minister Pravin Gordhan was driving that project and international experts had joined the commission. The third aspect to was to deal with historic debt that had put so much pressure on SoEs that they could not trade themselves into a more sustainable area. There had to be an improvement in projects that had been on the slow burner, in particular, renewable energy. New bid processes were in place and announcements would be made at the end of April 2022. Transport was another area of concern and Transnet was looking at eliminating the bottlenecks in the shipment of cars from Tshwane through the port in Durban. A new railway line to Buffalo City was under urgent consideration.

The setting of targets and timeframes for beneficiation might be a good idea, but that was not within the mandate of dtic. The imposition of export taxes lay with National Treasury and energy policy was the domain of the Department of Mineral Resources and Energy. Smaller gains had been made in beneficiation. Fuel cells were being produced in Dube port to keep the cell phone masts (the Minister thought it might be for Vodacom) going. Battery production was also using minerals.

The Minister had not yet read the Benedict Dube article but he was aware of de-industrialisation pressures occurring in KwaZulu-Natal, particularly following the July unrest. Investments were discouraged by people armed with guns and weapons who demanded 30% of all investments in KwaZulu-Natal. They spoke in the name of a community but it was criminal extortion and the SA Police Service had been asked to assist in dealing with the criminals and restoring law and order. KwaZulu-Natal had always been a significant industrial base in SA. Toyota was investing and Defy had consolidated operations in a mega-operation in KwaZulu-Natal. A paper mill project was planned for KwaZulu-Natal, but unless the crime issue could be resolved, investors would be cautious.

The Minister informed Mr Mbuyane that the joint KPIs were a new concept and would be taken forward in the Annual Performance Plan (APP) for the new financial year.

Regarding the issues associated with concentration, the Minister was aware of the difficulties and the dtic gave its full support to the Competition Commission. As an example of successful intervention, he cited the fact that, previously, large supermarkets had had the market sewn up and so the CC had looked at the exclusive leases signed by big retailers in shopping malls which excluded all competitive businesses. The CC had successfully obtained the agreement of large supermarkets to stop that approach. However, the CC could only do so much – new investors had to create competition. Competition and public interest also required balance as in the case in which Coca-Cola had agreed to use more small-scale sugar farmers in sourcing sugar for its beverages.

The Industrial Park model was not a good model; it resembled the original SEZ model with no real dtic involvement. There would be a new approach to Industrial Parks in the new APP with requirements for commitments from all as per the SEZ model. The Minister would present details to the Committee when he was given the opportunity to address the Committee.

Regarding Mr Burns-Ncamashe’s concern about the capable state, the Minister stated that he had already spoken of the need for a capable state. The issue had already been highlighted but, firstly, there was a need to get the structure and logistics and policy work in place. Secondly, crime and corruption had to be addressed. The extortion of money from investors had to stop. Corruption by officials wanting a cut or the inclusion of a brother-in-law in a project was a tax on business and the community. The investors simply shifted the cost of corruption onto the people or did not set up business in SA. The third major area was to enable a trading environment by finding export markets for SA goods and other trade support for domestic players. The dtic worked with business and manufacturing to create the right conditions and to assist in planning and developing industry. Road infrastructure was important and the lack of roads, for example in the Eastern Cape, was the reason for many small-scale farmers not going beyond subsistence farming. They simply could not reach a market. Road infrastructure was an economic necessity.

Minister Patel agreed with the transformation agenda but stated that B-BBEE was not the only mechanism for transformation. Workers needed to share in the wealth that they generated. There had been good examples of workers across language, colour and culture lines sharing in the profits of industry and that had generated a new empowerment model, the worker-ownership schemes. Spatial empowerment was another issue, particularly in China and India, because landlocked areas did not have the advantage of coastal areas. That was an issue even in Europe. He added that high levels of concentration limited the opportunities of both black and white South Africans to participate in the economy. Both groupings were not finding space to develop their entrepreneurial skills because of the concentration in the market which locked out new players, and SA lost out on growth. Government was looking at new empowerment models to involve not only industrialists but also workers and communities, ownership by youth and women and to address the spatial inequities.

The Minister agreed with Mr Malematja that the learnings gained in developing the Tshwane SEZ should be utilised elsewhere, and that was being done. However, there were challenges, and one was the budget which was limited and had to stretch a long way. The dtic CFO, Mr Shabeer Khan, and the Deputy Ministers had held a meeting to look at the budget and they had looked at using money more smartly, while squeezing more money from provinces and getting the private sector to bring in money, not for infrastructure but for equipment, investment, etc.

The Department needed to expand its scope and look at all 52 districts in the country, and work on industrial plans for all the local municipalities. For example, at present, the Department was working with a big mining house in the Northern Cape that believed it could stimulate manufacturing if an industrial park were to be opened close to its operations. Progress was being made in many different initiatives.

The Chairperson thanked the Minister. She had heard the Minister state that he would be able to present additional aspects of his plans when he next addressed the Committee and she assured him that the secretariat would arrange suitable dates for his briefings.

The Minister was excused.

The Report of Portfolio Committee on the Minister of Trade, industry and Competition’s response to the Public Protector Report No 37 of  2018 on Quantum vans being illegally converted from goods-carrying panel vans into passenger-carrying taxis
The Secretary took Members through the draft report which stated that the Committee was satisfied with the actions taken by the Minister of Trade, Industry and Competition to respond to the remedial action that the Public Protector had instructed him to take.

The report was clear that its purpose was not to discuss the merits and demerits of the Public Protector’s Report and that it was fully accepted that remedial action was mandatory, but it did point out that the dtic, the SA Bureau of Standards (SABS) and the National Regulator for Component Specifications (NRCS) had expressed a view on the findings, and that no remedial actions were directed at them. However, in their view, the Public Protector’s report contained a number of factual and legal inaccuracies. The Report indicated that the Committee had been briefed on actions taken, especially the setting up of an MoU between SABS and NRCS, and increased collaboration between the two entities.

The Committee was satisfied with the steps that the Minister had taken and that he had complied with the remedial action as required by the Public Protector.

The Report was unanimously adopted was by the Portfolio Committee with no amendments.
                                                       
Closing Remarks
The Committee Secretary informed Members that the following meeting would be on Wednesday 23 March 2022: a briefing by the National Consumer Tribunal on its financial and non-financial performance for the 2021/22 financial year to date (Quarters 1-3). The Committee Programme and the Oversight Programme would also be addressed.
 

The meeting was adjourned.