Trade and Investment South Africa: Briefing

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE; ECONOMIC SELECT COMMITTEE: JOINT MEETING
27 March 2001
TRADE AND INVESTMENT SOUTH AFRICA: BRIEFING; COMMITTEE REPORT ON BUDGET
 

Trade and Investment South Africa: TISA Work Plans 2001/2002

SUMMARY
The role of Trade and Investment South Africa (TISA) is to promote investments into South Africa and promote exports of South African products into the global markets. TISA is divided into three units dealing with trade, investment and support services. It has a Facilitation Unit which assists clients in export and import procedures, assists investors who want to invest in South Africa, and expedites work permits through the Department of Home Affairs. Its Logistics unit role to find ways of reducing transport and other costs by liaising with Transnet, the Department of Public Enterprises, Telkom, South African Airways air-cargo and so on to make sure that the price offered to investors and exporters is competitive.

TISA noted that South Africa has been experiencing low flows of foreign direct investments (FDI) and is working to reverse that tide. Disturbances in neighbouring Zimbabwe are a cause for concern, as this causes South Africa to lose out on potential investors. TISA appealed to parliamentarians to help normalise the situation.

It was also targeting sectors of the economy for investors to invest in by focusing on Industrial Development Zones (IDZs).

MINUTES
Mr L Magwentshu, Chief Director: Operations, assisted by Ms N Maliza, Acting Chief Director: Facilitation and After Care, gave the presentation. He told members that TISA was one of the delivery vehicles of the Department of Trade and Industry and its function is to promote investment into South Africa, and promote South African products in the international markets.

TISA is divided into three divisions: Investment Promotion, Export Promotion, and Support Services. While the functions of the first two divisions were obvious, Support Services was further divided into seven sub-divisions:
International Marketing which has 46 Foreign Offices overseas and markets South Africa abroad,
Facilitation Unit which assist clients in export and import procedures, assists investors who want to invest in South Africa, and expedites work permits through the Department of Home Affairs.
Logistics Unit supports investors and exporters in making business here cost-effective
Export Marketing and Investment Assistance (EMIA) assist investors and exporters financially,
Corporate Communications promotes image building designed to turn around the tide of negative perceptions and attract people to South Africa.
Strategic Management - linked with other divisions within the Department
Information Technology - to enable investors and exporters to access information speedily.

TISA’s primary business is investment promotion and export promotion. Its secondary business is Logistics Development – such as transport and communication, SME Development through backward linkages, and promoting South African products abroad and attracting investments to the country.

The Unit was attuned to the President’s State of the Nation speech and were involved in Transport, Communication and infrastructure development - sectors identified by the President as areas of growth.

In Transport they were working with the Department of Public Enterprise in removing bottlenecks for exporters; in Communications they are developing a system that is used in Singapore known as Trade Net whose task would be to reduce time goods stay in a port "say from two weeks to two days", and in infrastructure their focus is on the Industrial Development Zones (IDZs), specifically designed to attract foreign investors."

Mr Magwentshu said the country has experienced low flows of foreign direct investment (FDI) especially after the "honeymoon of 1994" when South Africa first opened its markets to the global community. TISA was trying to rectify that. He attributed the downswing to commodity fluctuations caused by the Asian crisis.

He showed a graph with ‘Possible’, ‘Probable’ and ‘Committed’ timeframes in which he said under ‘Possible’ the interpretation was that "companies are looking for areas of investment", ‘Probable’ they prefer to invest in South Africa, and ‘Committed’, have committed their money to the country. Currently there are foreign investors that have committed themselves to investing in Agro-processing, Clothing and Textiles, Automotives, Chemicals, and Metals. Tourism was another area with great potential

The few projects they were dealing with in 2000 fell through because of the crisis in Zimbabwe. He appealed to members to assist his organisation to avert such situations in the future.

He explained how South Africa almost lost a project to Australia because of one variable that was not favourable to the company concerned. This involved electricity tariffs and TISA intervened to persuade Eskom to lower its tariff. In the end the company concerned opted for South Africa because the tariff was two cents lower than Australia.

On IDZs Mr Magwentshu said they were working with The Enterprise Organisation (TEO), a subsidiary of the Industrial Development Corporation (IDC) to develop a viable IDZ strategy around Johannesburg airport, the City Deep and to market of IDZs globally.

The Department wants to establish a ‘one-stop facilitation shop’ for investors. He said in some countries this facility already exists but in South Africa the issuing of permits is all over the place. This concern was also voiced at a recent Presidential International Investment Council meeting that processing of visas and work permits was too slow.

The flow of exports followed the same pattern as that of investments. TISA plans to substantially increase South Africa’s export base by 31 March 2002. Sectors to be prioritised are Automotive vehicles and components, Agro-processing and under that grape wine, fruit juices, and fruits; Clothing and Textiles, Chemicals and Metals.

TISA’s strategy for promoting exports would be through the South African Foreign Offices, as one outlet. Other channels would be to invite buyers across the world to exhibitions where South African products would be displayed.

Africa is one area where South Africa needs to promote its trade activities which "constitutes a mere 10 percent" of the country’s total trade. However Mr Magwentshu expressed fear that trade with the continent was in South Africa’s favour and that something should be done to improve the imbalance.

One way of doing that is to encourage South African companies to invest in the continent and export to South Africa. That way the existing huge trade deficit would be reduced and economic development in the continent would be promoted.

He said another area of export that needs reorganizing are Export Councils. These Councils need to be structured per sector so that "they can speak with one voice" in solving their problems. Women and the Black Economic Empowerment component need to be part of these Councils.

Mr Magwentshu repeated the fact that the purpose of Trade Net is to "improve the turn around time" of containers staying at port from two weeks to two days.

On Facilitation he said it was not easy to invest in South Africa and the aim of creating this Unit is "to link and work with institutions that are critical to foreign investments" such as Eskom, Telkom and the Department of Home Affairs. Through this unit TISA hopes to promote investment efficiency by reducing bottlenecks that arise.

Its role would also be to interact with Investment Councils and negotiate with ports on the issue of port charges which exporters deem high. The Facilitation Unit would also work at reducing the time work permits take to be approved.

The role of Logistics would be to make "our charges more efficient at ports and airports". The other role would be to promote skills within Export Councils. Thirdly, the role of Logistics would be to find ways of reducing costs on roads. He said reports reaching the Department were that costs on the roads were more expensive in South Africa especially between Johannesburg and Durban than between Durban and Japan.

In conclusion Mr Magwentshu said there was strong need for skills development to be promoted in this country especially in the area of Export Councils. He said South Africa needs a better international image to "turn around this information deficit" and put South Africa in a better light. The other critical area is how we put our incentive package to attract investors and promote exports. Lastly, the regulatory environment should be predictable.

Discussion
Ms Ntuli (ANC) asked how many jobs would be created through committed projects?

Mr Magwentshu replied that it was extremely difficult to judge how many jobs will be created by one investment. One can only tell after that investment has occurred.

Mr Bekker (IFP) queried the idea of opening one IDZ at a time and asked why cannot they be opened simultaneously to give investors a wider choice as to where to invest. He inquired if the Foreign Offices are run by the Department of Foreign Affairs or DTI and how do these both departments coordinate running these offices. Lastly, he asked what beneficiated metals are being exported by South Africa?

Mr Magwentshu’s response was that the Coega project started way back in 1996/97 and that the idea was to link it to the motor industry development area because of the steel mill to be erected there. He said the Richards Bay area is targeted for shipbuilding and repairs while the City Deep IDZ is intended to supply the domestic industry located in the Gauteng area. He said there are plans for IDZs in all the provinces and that the Northwest Province, for example, planned to build its IDZ around the Mmabatho Airport.

On Foreign Offices, Ms Maliza said they are located within the Department of Foreign Affairs and each department has its different point of focus and in certain areas work is coordinated.

The response on beneficiations for metals was there are bars, pipes and steel.

Ms Ntuli asked what incentives are given to foreign investors?

Mr Magwentshu said after the Incentive Act was promulgated in 1996 investors were either given a tax holiday for investments more than R3 million or grants for investments less than R3 million. This lapsed in September 1999. Between then and November 2000 no incentives were offered. Towards the end of last year the DTI began a process of dialogue and negotiations with the Treasury for the reintroduction of incentives. Since then two schemes have emerged. One for grants of up to R100 million, and the other for investments of more than R100 million. Details are being worked out. He said he would submit the second scheme in written form to the Committees.

Mr Magwentshu added that to complement investments, government was embarking on skills development training through SETAs.

Ms Shope (ANC) asked Mr Magwentshu to elaborate on Logistics. Secondly, she asked him to explain the Possible, Probable and Committed timeframes. Thirdly, she asked how are women benefiting from TISA.

Mr Magwentshu said investors and exporters always compare costs in South Africa with the rest of the world. He said if costs are high, chances of doing business here are slim. These costs are in the area of rail - the time it takes for products to move from one port to another and the safety of products and so on. TISA’s role is to provide proper logistics in this regard. Hence they are in contact with institutions such as Transnet, the Department of Public Enterprise (DPE), Telkom, South African Airways air-cargo and so on to make sure that the price offered to investors and exporters is competitive.

The Possible, Probable and Committed timeframe helps officials to plan. Possible is when an investor thinks of investing in one of the key countries, Probable when an investor has identified a number of countries, and Committed when an investor commits money to a particular country.

On assistance to women, Black Economic Empowerment and Small Micro Medium Enterprises, a number of things are being done in that area such as technical services, access to finance, and training in export readiness

Dr R Davies (ANC) asked Mr Magwentshu what was the meeting about between TISA and BusinessMap?

Mr Magwentshu replied that it was about the way BusinessMap interpreted investment flows into the country, which relied mostly on newspaper articles as a source of information. Although they positioned themselves as authorities on FDI they were not interested in investment that was below R10 million thereby distorting the complete picture of foreign investment into the country.

He said according to the Reserve Bank figures, they show FDI increasing in South Africa and beginning to add to new productive capacity in the economy. However there was no centralized point for reporting these figures on a frequent basis to give a proper picture.

Mr Rasmeni (ANC) asked what are the problems faced by investors and how is TISA dealing with them? Secondly, what are TISA’s own problems. Lastly, how viable would the IDZ near Mmabatho airport be?

Mr Magwentshu said problems faced by investors were skills shortage, the costs of inputs, transport, telecommunication and health issues especially those related to AIDS. Some investors wonder what will happen ten years from now if the AIDS pandemic is not contained.

On TISA’s problems, his response was that there are no shortages of problems for a lot of organisation and what TISA is grabbling with is to merge the function of DTI, which was charged with export promotion, and Investment South Africa whose responsibility was solely investments. Presently TISA was on top of things as shown by its annual report.

On Mmabatho’s IDZ he said its viability will depend on whether there was a compelling reason for investors to go to Mambatho.

Mr Moosa (ANC) inquired about the joint session TISA had with the World Bank and asked what was on the agenda? He also asked what initiatives was TISA taking to reach out to black business?

Mr Magwentshu replied that the World Bank and the United Nations had an annual budget of $40 billion for procurement and TISA had invited both organisations to find ways for South African business to tap into this tender procedure and opportunity. Several business organisations and individuals had been invited to this session including previously disadvantaged business organisations and individuals.

Mr Bruce (DP) wondered whether there were any benefits in going into beneficiation? He asked why does the country not stick to what it knows best and that is to export raw material since it was a commodity based country.

Mr Magwentshu replied that the country was not abandoning the export of raw material. It was only adding value to what it already has and pointed out that the price of commodities has been falling while that of jewellery, for example, has been rising.

The meeting was adjourned.