Companies Amendment Bills: motions of desirability; Status & plans for OR Tambo and Tshwane Automotive SEZs; South Korea Study Tour Report

Meeting report

Opening Remarks
The Chairperson opened the meeting and informed Members of the Committee that the purpose of the meeting was to receive a briefing from the Gauteng Department of Economic Development and the Gauteng Growth and Development Agency (GGDA) on the following, amongst others: the current state of development of the OR Tambo and Tshwane Automotive SEZ (TASEZ) and current investors and recording in progress; jobs created and sustained as well as the feeder areas for employment opportunities; the management models and coordination between national, provincial and local government to ensure the development and sustainability of the challenges and opportunities in developing the SEZs; plans or initiatives to expand and attract investors and finally, any special concessions offered to investments to investors. She handed over to the Gauteng Department of Economic Development.

Introduction by the Gauteng Department of Economic Development (GDED)
Mr Blake Mosley-Lefatola, Head, GDED, stated that he would be leading the delegation as the MEC was overseas. In his delegation, were representatives from the Tshwane Automotive Special Economic Zone and then also representatives from the GGDA in the form of the acting Group CEO and other departmental officials. As per the request of the Committee, the presentations addressed the issues raised in the letter from the Committee dealing with the O R Tambo SEZ issues and also TASEZ. Both SEZs were fully operational, delivering value for money and assisting in growing the Gauteng economy. As per normal, there were operational challenges, but most of those operational challenges were being dealt with. The first presentation would be made by Ms Thandiwe Ngqobe, the CEO of the OR Tambo SEZ, followed by the presentation done by Dr Bheka Zulu who is the CEO of TASEZ.

Presentation by the OR Tambo SEZs
Ms Thandiwe Ngqobe, CEO, OR Tambo SEZ, briefed the Committee.

The SEZ was facing several challenges, including:
-Infrastructure financing
-Recognition by the National Treasury in terms of Section 51 of the Public Finance Management Act (General responsibilities of accounting authorities) had still not been granted.
-Non-approval for the Corporate Income Tax (CIT) incentive which had a negative impact on investments secured that were engaged 100% in exporting and were technically, eligible for the incentive.

However, the CEO was convinced that various conditions were very favourable and provided opportunities for the SEZ, in particular:
-Market interest was high as the OR Tambo SEZ was competitively located next to OR Tambo International Airport.
-It was also competitively located in proximity to the R21 Economic Development Node.
-It was suitable for the expansion of emerging technologies and innovation, such as fuel cells and electrolysers central to the Hydrogen Economy.


Presentation by the Tshwane Automotive SEZ (TASEZ)
Dr Bheka Zulu, CEO, TASEZ, briefed the Committee.

The CEO had identified a number of challenges and opportunities for TASEZ:
-TASEZ Land Availability for Future Phases
-TASEZ was implementing phase 2 development as a mixed-use as dictated by the approved Business Case for the designation of TASEZ as an SEZ.
-Available land use for industrial development in that phase was only 40.81 ha and judging from the investment pipeline that meant that the allocated land parcel was not sufficient to cater for all the investors that had shown interest.
-Phase 3 was only 31.5 ha and was privately owned. The City of Tshwane had not yet budgeted for the acquisition of that land parcel for use by TASEZ.
-More land parcels would need to be identified and transferred to TASEZ for Industrial use.
-Beyond 2025/26: TASEZ had no more land to develop
-Phase 4 Land identified: The Portion of land marked The Willows 340-JR on the south side of Bronkhorstspruit Road, measuring roughly 194 ha, had been identified as a possible extension of the TASEZ
-Currently, there was a 2013 agreement with Standard Bank and the Province for a housing development 
- The City indicated that it wanted to proceed with a low-cost housing development.
-The land parcel was ideal to attract a New Energy Vehicle (NEV) Original Equipment Manufacturer (OEM) and Ford had already engaged TASEZ for a 100 ha land parcel for that purpose.

DTIC Comments
Mr Maoto Molefane, Chief Director and Head of the SEZ programme at the Department of Trade, Industry and Competition (DTIC) and also a board member of TASEZ, said that he was intimately involved with the SEZs, mainly, but not only, because the DTIC provided them with policy and had a keen interest in making sure that they thrived. The SEZs were like a moving train.

Mr Molefane reminded Members that the DTIC had presented the new approach a year ago, when, given the challenges that DTIC was confronted with concerning the SEZ programme and learning from all the struggles, the Department had requested an opportunity to test a new model. That was why, through the presentation by the CEO of TASEZ, the DTIC was directly involved, both in terms of coordination, but also in terms of ownership and board representation. DTIC also made sure that the issue of coordination across fields of government was taken care of, hence it involved the three spheres of government – DTIC, Gauteng Province and the City of Tshwane through the ownership model; each owned 33.3%. The private sector was directly involved in the SEZ. A challenge confronted in many other cases was the issue of land and bulk infrastructure. So in TASEZ the DTIC engaged with the city of Tshwane that owned the land they were developing. For the first time, the municipality contributed towards the bulk infrastructure for the SEZ. He recommended that the Portfolio Committee visit the SEZ because, in less than 24 months, they had built roads and infrastructure, including top structures and had created over 3 000 jobs in the 24 months.

In terms of the challenges, Mr Molefane said that the challenges were beautiful challenges because they had a massive interest in the SEZ and an appetite from investors, so land challenges meant opportunities. There were land challenges in other cities but they did not even invest in the SEZs. In Tshwane, things were different. Of course, they were also confronted with the challenge of electricity as the CEO had indicated, and the SEZ was working directly with the City of Tshwane and Eskom. The previous day he had been at a site meeting with Eskom. The SEZ had appointed a service provider to develop a substation, Wildebeest substation, so it was dealing with the challenges. Community protests formed another challenge but they had been able to resolve those challenges. The two SEZs were not yet benefiting from the tax incentives; that was a debate and engagement that was ongoing between the DTIC and the National Treasury. So at the moment, out of the 10 or 11 operative SEZs, only six were benefiting from the tax incentive. The DTIC had had several discussions with Treasury on policy matters, so it was an ongoing discussion that the DTIC would resolve with National Treasury.

He added that DTIC was currently testing the new approach with other new SEZs that were coming on the stream, one being in Namaqua, which was recently approved by Cabinet. The DTIC would be replicating what it had done at TASEZ in Namaqua. One thing that had helped to drive TASEZ was a tripartite agreement. So there was an agreement signed between the three spheres of government: DTIC, Gauteng Province and the City of Tshwane, which helped the governing of the SEZ. That would be replicated in other provinces. The difference would be that there were both districts and the local municipalities in some contexts.

Mr Molefane concluded that the DTIC had managed to resolve some of the challenges, including the investments that it had been struggling with for a long time. He was happy with the new approach and the progress made by Gauteng Province.

Discussion
Mr F Mulder (FF+) thanked the presenters for the comprehensive presentation on a very important subject. He did not see in either of the reports the challenges as far as electricity supply was concerned and it was a well-known fact that the motor industry was suffering because of a lack of a constant energy supply or electricity from Eskom. Why were the challenges of a constant electricity supply not mentioned in the report? Did that mean that it did not pose a challenge? The second question was about service delivery and the support of local government. Local government had great challenges. Why was it not mentioned in the report or was it not seen as a possible threat or a challenge? Was the service delivery of local governments not in such a state that they would not be able to provide sufficient service or support to a Special Economic Zone?

Mr S Mbuyane (ANC) stated that the presentation showed forward movement with TASEZ and the Gauteng Development and Growth Agency (GGDA). He proposed that the same approach be taken forward in other provinces. He noted the SEZ had sufficient power in terms of 16 MVA but required 20 MVA power. Could any of the other 23 potential investors augment the current power available, possibly offering solar power? Currently, there were challenges in terms of power generation. He acknowledged the Skills Development Academy programme but asked whether there was any collaboration with local universities or higher educational institutions so that the SEZ could collaborate by identifying students who could be involved in the SEZ, especially after graduating. He saw the land issue as a challenge. He suggested the sister department (Department of Agriculture, Land Reform and Rural Development (DALRRD)) should assist. Even if they were engaging with the municipalities, there were some serious challenges, and he did not know whether the municipalities had a sister department at a national level that they were willing to engage with in terms of the land issue. Concerning the social compact in terms of the beneficiaries, he asked how the people who lived near the two sites would be able to benefit. How were they benefiting at present in terms of the economic value chain supplies? Were they getting direct employment? Mr Mbuyane acknowledged the integrated transport system. The CEO of TASEZ talked about air flights and also transport that would be able to ferry goods. How far was that project? Was it possible to link all the transport for goods into one space at TASEZ?

He raised the issue of infrastructure financing at the OR Tambo SEZ as well as the lack of recognition by the National Treasury vis a vis the CIT incentive. What role would the Department play around the engagement with the National Treasurer and also the CIT incentive because it was important? The national energy fund was available to deal with the energy crisis. Could some other entities within the DTIC assist in terms of the Development Finance Institutions (DFIs)? He worried about vacant funded positions and demographic challenges. Which of the 3(c) or 3(d) options was viable for the SEZ?

Mr M Monakedi (ANC) (extensive background noise on his line) asked about the governance arrangements. The City of Tshwane was to become a shareholder but what role would be offered to private investors? Would they also be part of the governance structure or shareholders? Why had the National Treasury not acceded to the section 51 application and what were the reasons advanced by the Treasury? Was there a chance for the reconsideration of that decision and what was the impact of the decision on operations?

Mr C Malematja (ANC) appreciated the good story told by the Department, led by the Minister. What was TASEZ's relationship with Tshwane, apart from giving land? How did they co-ordinate with Tshwane which was under the unworkable situation of a coalition and where R9 billion vanished overnight and the following day, the mayor resigned? People were expected to thrive on nothing there but the Department was navigating to achieve success although there was a huge water crisis and people were violated by whoever was in charge. How was the Department managing the challenges in Tshwane? Could that be shared with other SEZs? The other issue was the stakeholders. Could the presenters share the importance of working with stakeholders, including the local people?

The Chairperson handed over to the team.

Ms Ncgobe noted that the first question was about the electricity supply by Mr Mulder. Because the SEZ was on a smaller area, she had found that running about three generators in the SEZ itself was sufficient at the moment. In2Food, an agri-processing anchor tenant, ran their own huge generator as backup power for their operations. However, what the SEZ was exploring with the assistance of Siemens, which was into energy-saving methods, was exploring putting solar panels on the new buildings. It was a conversation, which was still quite fresh and she was having conversations with tenants. She was hoping that the plan would come into operation towards the end of the current financial year. So in terms of back-up power, the SEZ ran generators, which used diesel fuel, but it had been working quite well.

Concerning the relationship with the City of Ekurhuleni, she said the SEZ had a direct line to the Head of Services, including electricity provision. What used to happen when the buildings were still under construction was that whenever there was load shedding, the SEZ would not be switched back on. The SEZ had had conversations with the city, and now assistance was given, quite quickly initially, although it was a delayed response sometimes. But she had managed to get to a point where they were able to call each other, have conversations and issues were resolved quite easily in terms of the service delivery on the part of the city, bearing in mind that the bulk infrastructure was the competency of the municipality. Because of the issues that most municipalities were facing in the country, the province had had to step in and find money to fund public infrastructure development, particularly for the fuel. Currently, she was having conversations with the city about the bulk fees that they wanted to levy. For example, the quotes for the development of precinct two, which measured 29 hectares, were over R58 million whereas the development itself was just under R300 million. They were in conversation as to the role that the city needed to play considering its future shareholding and its relationship with the SEZ itself. Things were moving a little slowly, but because they were going to market soon, but she hoped that by the time they started the development, the issue would have been resolved. The plea of the SEZ was that the fees be set off against the city holding a share of the SEZ at a later stage.

Concerning the question around collaboration on skills development, Ms Ncgobe explained that the SEZ had an internship programme collaborating with the City of Ekurhuleni which has a database of students studying various courses, but the SEZ focused on students who were studying anything to do with construction, given the fact that it was still at a point of infrastructure development on parts of the land. Through that database, it identified students studying or having studied anything within the context of construction: quantity surveyors, civil engineers, etc. The SEZ put them on the project through the building contractor, for a period of 12 months. In the past two years, the SEZ put 36 students through the infrastructure development project. She was proud to share with the Committee that, of the 36, three had obtained employment from the contractor and the subcontractors. The SEZ was continuing with the project. Three students, in conjunction with the construction Seta, had worked on the last building constructed. The intention was to have about 10 or so students on the park infrastructure development programme for a period of 12 months, simply for them to get some form of accreditation or recognition towards their profession.

On the land issues, as the SEZ wanted to expand, the conversation with the city would continue so that local people and businesses would benefit from the work that was happening in the SEZ. From a construction perspective, the SEZ had set targets in percentages in relation to the work going to local SMEs within Ekurhuleni. That was monitored quite closely and things were working out as intended, at least concerning the contractor. As far as the students themselves were concerned, the SEZ gave preference to the youth, those of excellence specifically. So far the project has been going well. One or two students were from other areas when constructors could not find someone suitable locally. The project benefited Ekurhuleni in different ways.

On the issue of demographics and when the SEZ was going to fill vacant positions, Ms Ncgobe explained that positions were funded by the income made, so it was a matter of waiting and exploring the cash flow projections. The organogram was the 2022/23 one and she had indicated the positions that the SEZ filled in the 22/23 financial year. It was planned that the SEZ would fill some of the new positions towards the end of the 23/24 financial year. It was just about funding and she had to be very cautious about how positions were funded. The SEZ was doing the best it could with the capacity that it currently had. She added that the entire leadership of the President, the CEO, and the entire executive team, were female, by design. It was a personal issue for her. She wanted to dispel the myth and the narrative that women cannot work together and do good things. So the work that Members saw was spearheaded by a team of women, and they intended to keep it that way as they filled other vacant positions, particularly at a leadership level.

The intention was to engage the private sector. She had quite a good relationship with the De Beers Group. She hoped that at a later stage, it would be one of the stakeholders that the SEZ would engage to be part of the shareholding of the SEZ. Those were just her thoughts to be discussed at a later stage once the business case was concluded. On the issue of the National Treasury's non-recognition of the SEZ in terms of section 51(1)(g) of the PFMA (proposals to the National Treasury for consideration and approval of the establishment of new entities), Ms Ncgobe supposed the National Treasury's argument was reasonable. Treasury said that in terms of the SEZ Act, the entity was supposed to be an SEZ that was not an entity of another company, which was a subsidiary of another entity. So because the SEZ was still part of an entity, it would not recognize the SEZ. It had to have a bank account for itself and become a standalone company. Once that happens, they should go back to the National Treasury for consideration of the application. She was working quite closely with the DTIC in that regard. Lastly, the issue of stakeholder relations could not be over-emphasized. For example, during construction, the construction worked well, even though there were challenges here and there because the SEZ had signed a service-level agreement with the construction companies. Whenever there were issues, there would be engagement.

Ms Ncgobe stated that she would submit a report on the demographics later but had to say that the SEZ was passionate about bringing youth on board and the team leading infrastructure development was made up of young people who had studied civil engineering, quantity surveying, etc.

Dr Zulu started with the question on electricity. Slide four highlighted that TASEZ currently had a maximum of 16 MVA available and was almost at full capacity - almost 14 plus MVA. So in phase two, TASEZ had no electricity available for township establishment or to power phase two. However, there was a solution that Mr Molefane had alluded to for the substation, which was a collaboration between the City of Tshwane, Eskom and DTIC. He was hoping that it would come on stream by the end of the following month, September. That would assist with the required 32 MVA required to power phase two. However, the challenges of electricity would not be over because the substation was a temporary loan for three years. After three years, the SEZ would need another solution that would power the future phases of the SEZ as well as the current phase. Two solutions were, firstly, the gas solution that would give 20 MVA. Designs and development were at various stages and should be ready towards the third quarter of 2024. Secondly, solar power would produce 10 MBAs and would come on stream by the last quarter of 2023. Power problems also related to compliance with the legislation on the zero carbon footprint that was required by the EU. So power solutions would always be a challenge until the SEZ went clean and off the grid. That was the reason for looking at a number of mixed energy solutions that would come from waste biomass, and so forth. The SEZ had temporary disruptions because nine pylons had collapsed in the city but were restored with the help of the City. Again, that was a temporary solution until the City fixed the pylons.

Dr Zulu spoke on the issue of service delivery. It was an issue linked to relationships, which linked to a question from Mr Malematja. The SEZ had some challenges with the City which had not availed land for Phase Three as promised, saying that they were engaging the private owner of the land. The second challenge was that there was no funding for external bulk infrastructure. TASEZ had presented its case to the City in terms of funding needs the previous year, just prior to the new financial year. However, when TASEZ returned, just prior to the new financial year, to make a presentation to a team including the City Manager, there was no funding for the SEZ. The City officials suggested the representatives should come back in mid-December when they did their reviews. Also, Dr Zulu found there was a disconnect within the City between the Economic Development section and the Technical division and others where some of the city officials or the structures were not aware of the relationship between TASEZ and the City or the shareholding that the City had in the SEZ, despite there being several meetings. It was not helpful that every time he and his colleagues attended a meeting, the officials did not understand why the City should help the SEZ to do things speedily. In Phase One, the City was able to assist with a lot of approvals that helped to deliver the project within the two-year timeframe. TASEZ management was trying to revive some of those relationships with the City but every time he went, he found himself, presenting to a different audience. Nevertheless, he was trying to cement the relationship. Phase one was okay; everything had gone well. Now, in phase two, he was experiencing a lot of resistance as well as challenges from the City.

Dr Zulu moved on to Mr Mbuyane’s questions about skills development. The SEZ was engaging in a number of skills development initiatives. It had trained several individuals in the previous part of the project. Currently, TASEZ is embarking on a new skills development phase, having partnered with a lot of institutions, including the German Institute, that had availed some assistance in terms of funding of some of the TVET college students from the local townships of Mamelodi, Eersterus and surroundings. There were bigger plans for skills development going forward in partnership with various stakeholders such as the SETAs (Sector Education and Training Authorities), UIF (Unemployment Insurance Fund), and NSF (National Skills Fund). TASEZ had made applications for capacity building to the province at large. He could say that the SEZ was doing quite a lot regarding skills development.

About partnerships, Dr Zulu stated that the SEZ had several partnerships with the Tshwane University of Technology and the University of Pretoria on some of the research aspects. There was interest from the business schools, especially Gibbs Business School as the Toyota Academy wanted an MBA programme with a module focusing on the automotive industry as an MBA specialisation. TASEZ was trying to help Toyota with that and was in discussion in terms of the curriculum. TASEZ could assist by quality assuring up to level eight. For lower levels of training, TASEZ was partnering with the SETAs and was looking at NQF level two up to level six skills development. So there were various partnerships and engagements with TVET colleges and Universities to try and harness some of the skills. A part of the plan was to do a benchmarking exercise to compare some of the best practices in Germany and the USA, where some of the OEMs (Original Equipment Manufacturers) come from. It was important to see the best practices in terms of high-level technical training and TASEZ would like to piggyback on some of the initiatives and probably foster agreements with them, to conduct courses between the two countries, either online or using any other distance learning format to capacitate South Africans by using some of the best, world-class interventions. And again, futuristically, he was looking at introducing simulator training. TASEZ was in discussion with some of the simulator initiatives across the provinces to see if simulator training was possible so that when learners go into these factories, they have had simulated training on some of the machinery, learning best practices, some of the work, the timing, the sequencing, and understanding all the parts needed in the components manufacturing sector. By the time they went to work, those people would be work-ready. So it was almost like a work readiness programme that would fast-track a lot of development. He had seen how simulators fast-tracked development in the aviation space and TASEZ wanted to try and infuse a similar model in the automotive sector to fast-track learning.

Dr Zulu turned to the land issue. The land issue was about land parcels for phases three and four that were not secured. Some of the challenges were that, despite all the investors waiting, the SEZ currently did not have enough land to accommodate those investors. It was frustrating to him but at a later stage, it would frustrate some of the investors who might lose hope and decide to go somewhere else to invest.

He added that the social compact was a very important aspect. TASEZ had signed a social compact with the community of Mamelodi. There was a community project committee, which sat every Tuesday and consisted of all the ward councillors. TASEZ was able to engage the communities on several issues but, over and above that, there were also the community liaison officers deployed to various communities that dealt with unemployment and other issues of CSI community development. TASEZ was also soliciting partnerships with radio stations and other interested organisations like the Mamelodi Chamber of Commerce, which was a strategic partner. On June 16th, TASEZ sponsored some of the youth sports teams with jerseys so that they become part of TASEZ’s commitment towards the community. The community needed to feel the appreciation of TASEZ for the work done and for being fully supportive of the project. Dr Zulu constantly stated that part of the social campaign was to focus on procurement from the township economy. The procurement spend in the township economy exceeded R1 billion. TASEZ was also committed to SME development and more than 300 SMEs had been created as a result of the social compacts.

Dr Zulu addressed the transport linkages. That was a very important discussion that should take place at the government level, especially the Portfolio Committee level. The SEZ was managing the production of 736 cars in one day and averaging more than 720 cars a day which were taken by truck as part of the transport logistics. That was roughly 89 trucks a day, depending on the size - a significant contribution to the transport value chain that was not usually acknowledged but which made a contribution to sales of tyres, petrol, and diesel. It also created employment. Those were the transport links that TASEZ contributed towards through the 70% export of vehicles manufactured via local transportation. Linked to that was rail where TASEZ was looking at about 28 trains a week, which would employ a large number of people in four provinces: from security, infrastructure, loading, signalling, and marshalling all the aspects of rail logistics. Those linkages would then feed into Africa, going north to ensure the realisation of the Africa Continental Free Trade Area agreement and see cross-border transportation of the vehicles into the neighbouring countries in SADC or going up north into Angola, and surrounding areas. Regarding the cars being exported overseas, if one looked at the transport value chain from Gauteng to the sea, what ended up at the port was the handling of these cars through a car park at the port terminal, and also the exporting of the vehicles via the ships. In terms of TASEZ’s contribution to the value chain, it had guaranteed some of the ports would have at least two car park areas every week with each car park carrying between 2 000 and 5 000 cars. So again, that was a contribution towards other sectors in the value chain, job contribution, economic contribution, etc. That was a discussion to take, probably at the Portfolio Committee level, to show the contribution of TASEZ. Collaboration was critical. When Ford had a shortage of semiconductors and some of the other components, components manufacturers used air freight, expensive as it was, but the on-time delivery needed to be, and was, maintained.

He could supply the Committee with the slide which talked about the demographics. Regarding the posts and the listing as 3(c) and 3(d), the province had had various engagements with National Treasury on the listing but it was not listed as yet.

Dr Zulu informed Mr Monakedi that governance and the issues of the three spheres of government were being addressed and TASEZ was also looking at the various shareholders having representatives on the TASEZ board from a governance perspective because they would have a vested interest in making sure that there was delivery and the programme became a success.

About the question from Mr Malematja, the issue with the City, as indicated earlier, had been the payments from the city and the work that needed to be done, especially power services. The SEZ had struggled to get the funding through several times and there had been a delay in delivery and the payment of service providers because of the delay. There was the issue of electricity, which he had spoken to, and then the delays in the various approvals from the city, where sometimes one was taken from pillar to post by an organisation that was, in effect, a stakeholder. So sometimes he found challenges frustrating some of the processes. Responding to the issue around the importance of stakeholders, he assured Mr Malematja that TASEZ valued its stakeholders and had very good stakeholder relationships and there were ongoing efforts to strengthen that aspect. Stakeholders ranged from internal stakeholders, investors and entities to stakeholders in the communities served by TASEZ. That was why TASEZ had been able to source employment from local communities, and also source a lot from SMMEs. Work had been done in the township economy in some of the important aspects of the transformation agenda. TASEZ was giving back to the communities.

The Chairperson requested Mr Molefane to respond to two of the questions.

Mr Molefane started by adding some generic answers to the questions. He responded to Mr Muller’s question on electricity and service delivery, noting that they had been mentioned in both presentations and all reports by the Department. Investigations engaging with what led to a drop in terms of jobs, in the main, were attributed to the electricity load-shedding and so forth. Many companies had to scale down their production, reducing the shifts; other companies, because it was winter, decided to go into a maintenance phase to reduce costs while others, unfortunately, had to lay off employees. So it continued to be a challenge. But in terms of a possible solution for all the SEZs was a programme spearheaded by the National Project Management Unit at the Industrial Development Corporation which looked at alternative energy sources. They had spoken of gas but the SEZs could produce solar energy and that was the alternative source of energy that could help to resolve the challenges.

He said that the other challenge was the service delivery challenges and the protests in response. The DTIC was trying to position the SEZs in the main as a form of development agency to provide services beyond just the fence boundaries. The Department was testing the concept again with the new SEZs being planned in Limpopo. The corridor had over 40 mines operating in the corridor but there was just primary production, nothing at the downstream level. The DTIC wanted to use the SEZs to look at anchor projects across the district, where it could even provide services working directly with the municipalities. How was to be strengthened was, again, through the agreements that he had mentioned to lock in the municipalities. The DTIC strategy had been to lock in the municipalities and part of the reason for doing that was because of the different ruling parties at different spheres of government, but also instabilities in Tshwane where mayors kept changing. But the DTIC never experienced challenges, even though the officials were working during the difficult times of 2020 when there was a hard lockdown. A political forum, which the DTIC was re-establishing, was led by the Premier, the MEC, the Mayor of the City of Tshwane and the Deputy Minister Majola and the DTIC met on a monthly basis to track progress and to unlock challenges. So it was through that committee that the DTIC was able to accelerate the development of that agreement, signed by all the parties committing to the agreement. It helped us in terms of avoiding the municipal challenges and by being able to make decisions there and then as the heads of government at the various levels and Heads of Department were present in the meeting. And it was through that committee, that DTIC also established the technical committee that met every Monday. Mr Molefane had chaired that committee and it was able to convince the City of Tshwane to establish special committees to accelerate the approval process of all the municipal approvals required, the building plans, site development plans, etc. because there was a 24-month timeline, without the privilege of going beyond the timeline. It was through that structure that the DTIC and the SEZ were able to work with the city of Tshwane. As mentioned, it had become necessary to re-establish those committees.

Mr Molefane agreed that electricity for phase two remained a challenge. The CEO had mentioned the issues related to the temporary solutions and the long-term solutions. Pretoria East had problems generally because the substations were overloaded to the extent that there could not be load-shedding as that caused the substation to trip. The SEZ was working with Eskom to establish a bigger substation, called Wildebeest, which would then provide a permanent solution for the challenges related to load shedding, but insofar as providing the volume required or MVAs required for a long-term solution, that would be over and above the renewable energy alternatives that the CEO had mentioned.

On the issue of the tax incentives that DTIC had been engaging in with the Treasury, only six SEZs had qualified for tax incentives, two in the Eastern Cape, two in KwaZulu-Natal, one in the Western Cape and the Maluti-a-Phofung SEZ. National Treasury indicated that they would handle the matter case by case. DTIC was working with the SEZs to develop a package for the business cases, the current one being the Atlantis SEZ. The team would soon begin to work with TASEZ and the OR Tambo SEZ would follow with the others.

Mr Molefane stated that the other issue related to infrastructure funding. It was becoming a thorny issue because all of the SEZs had been relying heavily on the DTIC funding until 2018/2019 when the DTIC went to Cabinet to present one of the SEZs and Cabinet determined that it was not sustainable because the DTIC was continuously designating SEZs but there would be a time when the DTIC just could not afford any SEZ. DTIC undertook a thorough review and came up with a new approach. One of the outcomes of the new approach, as being currently implemented, was the hybrid multi-player financial model, where all the spheres of government involved in an SEZ had to invest. Tshwane was the first SEZ where the province and the municipalities had to contribute towards infrastructure. DTIC had equally introduced the involvement of the private sector in the development. The private sector had shown an appetite, but DTIC was not keen to introduce that initially but was now inviting the private sector to come and develop infrastructure. That model had been tested elsewhere. If you look at the Dube TradePort, in essence when you land at Dube TradePort airport, you are already in the SEZ. The infrastructure that you see there was developed by the private sector. DTIC’s spending was less than even than the top structures in Richards Bay. In that model, the private sector could build, operate and transfer all infrastructure or the private sector could just rent space. The DTIC’s mandate was developmental; it was to ensure industrialisation and the creation of jobs. OR Tambo SEZ had one investor that had developed infrastructure and that investor would be transferring the assets over 20 or 25 years. It was a build, operate and transfer model. DTIC was also inviting the state financial institutions, such as the Development Bank of South Africa (DBSA) and the Critical Infrastructure Programme (CIP) to assist and support SEZs in building the infrastructure. He added that DTIC would be meeting with the BRICS Bank very soon to discuss SEZ-specific issues, which were triggered by Tubatse SEZ. Institutions such as the BRICS Bank would be invited to invest in the SEZ to develop infrastructure.

Mr Molefane stated that the other question related to the scheduling and which one works best. There was a clear distinction between the two. 3(c) meant that an entity would rely heavily on the fiscus, so it was unable to borrow and functioned more like a department, getting its money from the state revenue and paying for services. The classical example would be the Gauteng Growth and Development Agency SEZs. 3(d) meant that the entity would get resources elsewhere other than state revenue. It had to be able to generate substantial revenue from other sources. The majority of the state-owned, provincial entities were 3(d) and those that own industrial parks, such as the Northwest Development Corporation, the Free State Development Corporation, the Limpopo Economic Development Agency and the Mpumalanga Economic Growth Agency (MEGA). Technically, they should be generating revenue elsewhere, other than state revenue, but that had unintended consequences because one had a situation where the government did not subsidise the entities and, as a result, they relied heavily on the industrial parks but they were unable to maintain those industrial parks because they used that revenue to pay salaries. But that was a story for another day.

In terms of the SEZ programme, Mr Molefane stated that the SEZ Act prescribed that the SEZ companies had to be business enterprises, which meant a 3(d). That was an unintended consequence because some SEZs were (3), thereby complying with the SEZ Act, but they are unable to comply with the PFMA (Public Finance Management Act) because they still rely heavily on the state and they have to rely on the state because they were not yet sustainable. A classic example would be Saldanha Bay which was a 3(d) but it was new and only had a few companies, so its revenue was unable to sustain the SEZ entity. OR Tambo SEZ complied with the PFMA, but it did not comply with the SEZ Act, because it was a 3(c). That was an intended consequence of the legislation. The DTIC had initiated a process to amend the legislation to remove that clause from the legislation. It was the prerogative of the entity or shareholders as well as the National Treasury to select 3(c) or 3(d), depending on which model worked best for the SEZ. The clause should not have been included in the Act.

He addressed the question from Mr Malematja about the relationship with municipalities. DTIC had been working closing with the City of Tshwane. The reason for the tripartite agreement was that where SEZs were dysfunctional, it was mainly because of the relationship with the municipalities. The only time a municipality was involved was when the SEZ sought approval for something related to the municipality. At times there seemed to be an issue of sabotage, at times it was the issue of priority and just not prioritising because they did not understand the SEZ programme. Richards Bay was an example, as was Saldanha Bay, where the DTIC had been struggling for some time with the issue of approval for building plans and the township establishment. When engaging with the stakeholders, the Department realised that there was just a communication breakdown. It had to involve the municipalities and make sure that they also had a sense of ownership and that they were given recognition and then they were able to contribute and even plan for the SEZs in terms of infrastructure funding, as had happened with Ekurhuleni. So, municipalities had to be seen as stakeholders and then they would be able to assist.

The Chairperson thanked the team for the very comprehensive responses. Members were also aware of the additional challenges that were still being worked on. She believed that the Committee should take up the invitation to visit the SEZs to see how the “new” approach (remembering the approach was adopted in 2019) had worked in the Tshwane Automotive SEZ.

Consideration of the first draft of the Report on the Study Visit to South Korea
The Chairperson noted that the report was tabled to the Committee on 13 June 2023. Members had requested that political parties be given time to submit inputs; to date, none had been received. She requested the Committee Secretary to go through the report.

The Committee Secretary, Mr Andre Hermans, read the section containing the key observations of the Republic of Korea’s industrialisation process, drawn from the visit:
-The industrialisation programme was implemented under President Park Chung-hee's totalitarian leadership. As a result, the way in which the industrialisation programme was implemented might not work for countries that operated on democratic principles, such as South Africa.
-Labour laws were flexible, namely there were no mandatory requirements for including people with disabilities nor were there regulations protecting temporary workers or unpaid public holidays. Workers’ rights were severely curtailed during that time and there were no trade unions or collective bargaining in the early years.
-South Korea had benefited from a trading environment that was more accommodating because its industrialisation occurred before the establishment of the World Trade Organization when industrial and trade policies could be implemented with minimal opposition regarding trade regulations. Specifically, localisation laws could be applied to both private and public sectors.
-The Treaty of the Basic Relations between Japan and the Republic of Korea led to the transfer of skills and the support of expatriates. In addition, the US granted unlimited access to its markets for South Korean goods during that period.
-The government focussed on all levels of education, namely primary, secondary and tertiary and in particular, the skills and abilities required by the economy. It established relationships between vocational training institutions, universities and government.

Mr D Macpherson (DA) was in full support of the report; it accurately captured what the Committee Members had found. The recommendations were tough. How could the Committee put in a recommendation to be more like South Korea because if SA wanted to achieve the successes of South Korea, the country would have to implement similar policies? Whether or not the governing party was prepared to do that, he did not know. He could not speak on behalf of that party. Essentially, it was a case of whether SA was prepared to make some of the tough choices, e.g. cut out the corruption, implement consequences for corrupt politicians and whether that would be acceptable to other political parties. Again, he could not speak for them, but that was the only way that SA was going to achieve what the Republic of Korea had achieved. Essentially, those would be the recommendations, as far as he was concerned.

Mr Mbuyane also welcomed the report as it was an exact indication of what had transpired in South Korea. Some issues were key and the Committee should at least raise them with the government, although he had heard what Mr Macpherson had said about other issues in government. The Committee had to commend the way South Korea operated between government and business on issues of trade relations and so forth. Looking at the issue of trade prior to a General Agreement on Tariffs was a priority. Another issue was the skills transfer and a programme for development was something the Portfolio Committee could take forward. What was key was the National Industrial Development programme in terms of being interactive and investing in education and training so that the country was able to industrialise. Engagement between the government, universities and departments was important so that they could collaborate. Other issues such as unpaid public holidays could not be implemented in South Africa in light of the labour laws in South Africa. The issue of good governance was essential.

He added that it might be possible to implement some of the issues considering the discussions about the government owning ports as opposed to ports being operated by private entities, like a couple of  SEZs around South Africa.

The Chairperson noted that Members had raised issues around good governance and fighting corruption, investment in education and training skills transfer. She requested that the Secretary incorporate those in the recommendation.

The Secretary indicated that if he received written input from the two Members, he would incorporate their views and present the report to the Committee the following week for approval.

Mr W Thring (ACDP) supported the recommendation concerning the matching of education with industrial growth. The other committee that he served on, the Portfolio Committee of Public Works and Infrastructure, had just come back from Singapore where there was a similar incentive. The government planned five years or so ahead, looking at what the economy was going to need and then they began to implement within the education system the necessary skills which they saw the economy needing within five to 10 years. The Committee had seen something similar in South Korea where clearly the government mapped out a path of industrialisation. South Korea had a huge agricultural economy and huge illiteracy but because of the educational focus to match the needs of the economy, the country had been able to turn the corner financially and economically. It was a key point that had to be factored in.

The Chairperson requested the Secretary to obtain the inputs in writing from Members and to finalise the report for consideration the following week.

Motions of Desirability
The Chairperson introduced the two motions of desirability: one on the Companies Amendment Bill and the other on the Companies Second Amendment Bill. In terms of rule 286 6(a) and (b): in the process of inquiring into a Bill, the Committee should, where applicable, as far as possible apply the following separate formal stages: a) an informal discussion on the principles and subject of the Bill, including i) a briefing by the Department concerned and ii) the consideration of public comments that had been received; b) the adoption of a motion of desirability relating to whether the principles of the Bill and the need for the Bill are accepted. In light of the above rule, she submitted two motions for the Committee's consideration.


Motion of Desirability - Companies Amendment Bill
The Committee Secretary read the motion of desirability in terms of the Company's Amendment Bill. The motion looked at points raised in the briefing by the Minister of Trade, Industry and Competition to the Committee the previous day.

Mr Macpherson noted that it had been a long time since the Committee had considered a Bill from the Executive. When the rule said to consider comments from the public, was that not something that related to the public participation process and only once the Committee had gone through that, and had heard from everyone, then the motion of desirability was considered. It just seemed to him that a motion of desirability was very early on in the process. He requested clarity on the process.

The Secretary explained the Executive Bill process. The public comments that were being referred to would be any public comments that the Department had received during the process of consultation. During the briefing by the Minister (the previous day), he reflected on the public comments and submissions sent to the Department. What would happen at that stage was that the Committee was offered the motion based on what the Minister had said and the Committee had to decide whether it was desirable to go forward with legislation. If that were what the Committee and the House agreed to, the Bills would be published for public comment and the process would unfold. That was the process that the Committee last followed in 2016.

Mr Mbuyane stated the motion of desirability was supported, especially concerning the company remuneration policies and direct task management as directors are far away from those that were doing the job on the ground. It was also important for the provision of mediation and conciliation.
He added that the notification enabled the Portfolio Committee to change its programme to make the Bill a priority, as the Committee’s priority was to make laws.

Mr Mbuyane proposed the adoption of the motion. Mr Monakedi seconded the proposal.

The Committee adopted the Motion of Desirability in respect of the Companies Amendment Bill.

Motion of Desirability – Companies Second Amendment Bill
The Committee Secretary read a short motion on the desirability of the Companies Second Amendment Bill to amend the time bars in respect of proceedings to recover any loss, damages or costs which a person may be held liable for in terms of section 77 of the Companies Act; to amend the time bar to bring up an application to declare a person delinquent in terms of section 162(2) and (3) of the Companies Act.

Mr Mbuyane stated that the Amendment was important because it was part of the implementation of the Zonda Commission Report. He proposed that the Committee adopt the motion.
His proposal was seconded by Mr Malematja.

The Committee adopted the motion of desirability of the Companies Second Amendment Bill.

Concluding remarks
The Secretary stated that the next meeting would be on 5 September 2023 and would entail a briefing by the Northwest Development Agency on the development and plans for the Babelegi, Mogwase/ Bodirelo and Garankuwa Industrial Parks; consideration of the first draft of the report on the DTIC’s 4th Quarter financial and non-financial performance; formal consideration of the Report on the Study Visit to South Korea. The Agenda for 6 September 2023 has not yet been finalised.

The meeting was adjourned.