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ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE
6 April 2005
DEPARTMENT OF TRADE AND INDUSTRY BUDGET AND STRATEGIC PLAN: BRIEFING
Chairperson: Ms N Ntwanambi (ANC, Western Cape)
Documents handed out
Department Strategic Plan 2005 – 2008
Committee Annual Report
Committee Report on Induction Workshop at DTI New Campus
The Department presented their achievements from the past financial year, and explained their vision and plans for the next three years. Emphasis was placed on the contribution of small enterprises to the economy, with significant progress in broad-based black economic empowerment. South Africa’s contribution to African development was stressed, as this was essential in order for the economy to grow. The Department was also involved in bridging the divide between the ‘first and second economies’, and it was envisaged that the launch of the second phase of the Apex Fund and the National Empowerment Fund would assist in this regard. A key output of the previous year was the establishment of the Small Enterprise Development Agency (SEDA) and the finalisation of the cooperatives legislation and development strategy. Continued involvement in the World Trade Organisation Doha talks and increased international exposure, with closer ties to India and Brazil, was seen as important in the exposure of South African goods and services.
The Committee expressed concern about the Department’s capacity, both in terms of finances and human resources, to meet these aims. There was also concern about the flooding of the South African market with cheaper labour intensive imports, such as those from China. It was agreed that some form of protection strategy was required, particularly for the clothing industry. The issue of monopolies was also raised, and the Department had plans to address a number of monopolistic practices over the medium-term period.
Mr L October (Deputy Director-General) introduced the three key objectives of the Department, namely to increase the rate of investment in the economy, the promotion of small enterprises and the making of significant progress in respect of broad-based black economic empowerment. In the last financial year, the contribution of small enterprises to the economy was increased through the Annual Review of Small Business, the regulatory impact study was completed, and the Small Enterprise Development Agency (SEDA) was established. In addition, phase 1 of the Apex Fund was established, Khula disbursed R337 million in loans, and 44 community public-private partnership projects were facilitated, mainly in rural areas. In terms of broad-based black economic empowerment (BEE), the BEE strategy was revised and released with a new scorecard and the codes of good practice, the Department participated in seven sector charter processes and was investigating financing mechanisms. The National Empowerment Fund was re-launched in May 2004 with new products and capitalised by R500 million. R25,5 million of transactions had been completed and R138 million transactions were currently being processed, while progress had been made in building the organisation’s capacity to meet demand. The Black Business Supplier Development Programme had also supported 528 small black-owned enterprises, which was important for entrepreneurship.
Investment had been promoted and facilitated through 15 investment missions, with 20 investment seminars and 77 site visits with potential investors. Negotiations were on track with Alcan, Tata and other foreign investors. Major investments had been facilitated in the metals, auto and agro-processing sectors, and all seven major international automobile suppliers were now represented in South Africa. The Department foreign offices had also facilitated R1.2 billion investment. More than twelve thousand enterprises had received grants from the Small and Medium Enterprise Development Programme, while more than R3 billion was disbursed by the IDC. 14 projects had qualified for the Strategic Industrial Programme, and a further six applications, worth R6 billion in investment, were under consideration.
R3,5 billion exports had been generated through Department foreign offices, and more than 1 000 enterprises supported through the Export Marketing and Investment Assistance (EMIA) incentive programme. Almost 6 500 enterprises had received export-related advice or information, and 3 export seminars had been held, 13 National Pavilions hosted, and 27 trade missions conducted. Export Credit Insurance Corporation had supported loans to the value of R924 million. The Department was involved in ongoing participation in the World Trade Organisation (WTO) Doha talks, and there were ongoing negotiations to conclude the US-SACU trade agreement. Trade agreements had been concluded with Croatia and Turkey, and the Mercusor-SACU trade agreement had also been concluded.
Work had been done to scope the potential of new-growth sectors including value-added services, paper and pulp, and aerospace. The Competitiveness Fund had supported 126 enterprises, while the Sector Partnership Fund had supported 59 projects, with detailed research undertaken in priority sectors. A consumer protection policy was approved and published, and Phase 2 of the national Consumer Helpline completed. The Consumer Credit Bill had been approved by the Cabinet, and a debt counselling project implemented. The National Liquor Authority was established, and the National Gambling Act regulations published. 392 consumer cases were finalised with an improvement in the average turnaround time from 168 to 61 days. The Competition Commissioner received 263 merger notifications and 86 complaints. Six investigations were initiated, including those into car prices and estate agents fees and commissions. 75 cases were heard by the Competition Tribunal. The Micro Finance Regulatory Council conducted over 400 investigations into unregistered micro lenders, and this led to 220 successful prosecutions. More than 250 consumer education workshops were held, and over R2,5 million recovered in refunds and adjustments to the balances of lenders.
The Department’s capabilities had been strengthened through a comprehensive training and development programme for staff and the establishment of an Agency Management Unit. The move to the campus had also brought most of the agencies together. The initial investigation into a retail option for the Department was completed, and 33 million economic citizens were reached through various advertising campaigns.
Medium-term aims included increasing the contribution of small enterprises to the economy through the flagship project on access to finance, including the implementation of the Integrated Small Enterprise Strategy and the co-operatives development strategy. SEDA would roll out provincial offices, and Phase two of the Apex Fund was anticipated. A flagship project to implement a women’s economic empowerment strategy included the completion of a national audit on the economic status of women and the continued implementation and monitoring of the broad-based BEE strategy. R400 million had been allocated for the capitalisation of the National Empowerment Fund. The level of investment in the economy as a whole and in priority sectors would be raised through the implementation of a targeted investment promotion strategy and the review and impact assessment of competition policy. An Investment Climate Survey had been conducted with the World Bank, and these results would be presented to Cabinet. Market access opportunities for SA enterprises and exports of SA goods and services, would be increased by the implementation of a national export strategy and the completion of a tariff simplification exercise. Bilateral trade negotiations would continue with the United States and EFTA, with technical missions to India and China. The Department would also participate in the preparations for the WTO Ministerial in Singapore. Advocacy and policy co-ordination would continue with other Government departments. R80 980 million had been allocated for the Support Programme for Industrial Innovation, and R143 100 million for the Technology and Human Resources for Industry Programme. R181 077 million had been set aside for critical infrastructure projects, particularly transport infrastructure.
The Department sought to reposition the economy in higher value added activities through its flagship project on import parity pricing, addressing the question of monopoly pricing, and it project to implement customised sector programmes in priority sectors. The Motor Industry Development Programme, one of the most successful support programmes would be reviewed and some modifications made. There would also be a reformulation of the Duty Credit Certificate Scheme. A flagship project on consumer protection legislation sought to establish a new consumer credit regulator and continue the corporate law reform process. An intellectual property law process would be started and impact assessments carried out on gambling, consumer credit and liquor. The African economic development strategy was a flagship project, seeking to finalise intra-African trade strategy, with a mid-term review of the SADC trade protocol. Trade negotiations would be pursued with Kenya, Egypt and Nigeria, and five bilateral investment protection and economic co-operation agreements were anticipated. The Department would continue to participate in Nepad processes, including the processes in respect of the African Peer Review Mechanism.
The Department remained committed to integrating the second economy into the first, and had allocated R10 million for the Community Public Private Partnership Programme. The Co-operatives Development strategy and the Women’s Economic Empowerment strategy would be implemented, and financing mechanisms developed for broad-based BEE. R100 million had already been allocated for the first phase of the Apex Fund. The drive to continued improvement of the efficiency, capacity and accessibility of the Department included an e-commerce system for all Department transactions, including incentives, and the strategic alignment of the Department group (Cotii). The monitoring and evaluation system would be extended to all of the Cotii agencies, and a Department retail outlet would be piloted. Work would continue with the Department of Foreign Affairs to improve the functioning of the foreign economic offices, and an extensive people development strategy for staff would be continued.
Better planning meant better budgeting, less under-spending and a balanced budget. This had been shown by the minimal underspending in the 2003/2004 financial year. From 2001/02 to 2004/05, the average annual increase in the budget was 13.7%, excluding the pebble bed modular reactor (PBMR) and National Economic Forum (NEF) capitalisation. From 2005/06 to 2007/08, the average annual increase was 1.1%. Except for the capitalisation of the NEF, the Department had not received any funding for new programmes and new activities had been funded from savings elsewhere on the budget, including the Apex Fund, the film incentive and the BPO incentive. Four strategic areas were receiving an above average share of the budget: investment (22.4%), market access and exports (14.5%), the building of a competitive economy (13.6%) and BEE (14.2%). Two strategic areas were receiving a very small share of the budget, namely access to redress (3.8%) and African economic development (0.6%). The larges share of the budget went to the Department’s agencies, including the SA Bureau of Standards and SEDA, and private sector enterprises received the second larges share of the budget in incentive programmes. Personnel costs amounted to 8.7% of the budget, with 12.1% used to procure goods and services.
The Chairperson asked for comment on a recent media report that stated that problems had been encountered with the Coega development, and that it would not be possible to continue with the project.
Mr October replied that the report referred to Brian Gilbertson’s offer to step in. The Department welcomed his interest, but negotiations with Alcan were on track, and there were no problems with those talks.
Mr D Mkono (ANC, Eastern Cape) said that he would have expected South African to have overcome negative perceptions about the country by now. How had South African turned growth to its advantage in terms of the global economy? Was enough being done in terms of export at present, and was the strength of the currency to South Africa’s advantage in terms of small enterprises?
Mr October replied that the strong currency had hit exports, and the imminent trade deficit were a challenge with regard to exports. The manufacturing sector as a whole was growing, however. Some sectors were losing, with a high loss of jobs in agriculture and mining. A more targeted strategy was needed.
Mr Mkono said that Apex was a noble idea, but that he did not recall when it had been launched. How was it shaping up, and was it actually assisting?
Mr K Sinclair (NNP, Northern Cape) said that it was a struggle for people in rural areas to access funding, and that they became disillusioned. The Apex Fund should be linked to local authorities in rural areas, and he asked if this would be the case.
Mr October replied that the real launch would happen by the end of April or early May 2005, but that the infrastructure had been established and a lot of progress made. It was being linked with local authorities and with the Post Bank, and had a strong partnership with institutions like Marang, so it would have a reach into the rural areas.
Mr Mkono said that he supported the idea of integrating the economies in Africa, but asked whether South Africa was not disadvantaging itself by doing this.
Mr October replied that there was a cost to South Africa’s involvement in Africa, but it was essential to integrate into regional economies in order to grow. Some of the biggest growth opportunities for South Africa were in Africa.
Mr Mkono asked for details on what the 22 trade missions were doing for the country.
Mr October replied that these were investment promotion tours, particularly to big trade shows, and were a very important part of opening South Africa up.
Mr Sinclair expressed concern at monopolies and suggested that the investigation be taken further to include, for example, the clothing and agricultural businesses where the playing fields were very uneven. Many Members had agricultural constituencies, and had to taken account of the interests of their people.
Mr October agreed that the focus should not only be on steel, and said that the Department was scheduled to give a presentation to the Portfolio Committee on the clothing industry and some issues in agriculture. It was a very long and complex issue, and the Department was engaged in talks with the industries.
The Chairperson suggested that the Committee meet jointly with the Portfolio Committee on the issue.
Mr Sinclair referred to the previous year’s visit to the Department call centre, and asked the expertise levels of the people manning the phones, as they were the face of the Department. He asked what the Department was doing to address this challenge.
Ms J Terblanche (DA, North West) referred to constant media coverage of problems in the clothing industry and asked what the Department was doing about these.
Mr October replied that the Department was working to find solutions to the closures in the industry, and was looking at a three-year protection policy. South Africa was bound by WTO regulations in terms of protection.
Mr J Sibiya (ANC, Limpopo) mentioned the dialogue with Brazil and India, and asked what South Africa had achieved individually and as part of the team of three.
Mr October replied that considerable progress had been made. Before 1994, South Africa had had almost no relations with India, but a lot of opportunities were now available.
Mr Sibiya referred to South Africa’s technological advances towards China and said that the Chinese economy was very strong and that a number of countries were complaining. Would this adversely affect South Africa as a country?
Mr October replied that, with two billion people, China would have the largest economy in the world in twenty to thirty years. China was both an importer and exporter, and South Africa supplied it with steel and iron. Unfortunately, China exported labour intensive products, and this had to be managed very carefully. The Department was looking at concluding a trade agreement with China.
Mr Sibiya asked if South Africa had made any overtures to the Middle East.
Mr October replied that South Africa’s links with Africa were linked to links to the Middle East. Middle Eastern telecommunications companies in particular were interested in investing in South Africa.
Mr D Gamede (ANC, Kwazulu-Natal) asked how level the playing fields were for competition, especially in industry.
Mr Gamede asked how the critical infrastructure projects, such as the Richard’s Bay road, would assist, as these places served industries affecting the whole country.
Mr October replied that national government provided approximately 30% of the funding for any initiative.
Mr Gamede asked how the Department was dealing with companies found to be fronting.
Mr October replied that the Department was now assessing all public submissions, and would be able to deal with the issue more decisively when the codes had been finalised.
Mr Gamede asked what the key SMMEs were for sustainable development and job creation.
The Chairperson asked whether it was possible to measure economic growth by province and municipality.
Mr October replied that the Department had realised that it did not have provincial and local breakdowns, and was rearranging statistics in order to provide this information. This would be part of the new e-commerce system.
The Chairperson asked whether there were brochures for the Apex Fund, so that Members could promote it in their constituencies.
The Chairperson asked whether loans through the Apex Fund would be linked to a process where businesses, such as spaza shops, could begin to grow gradually, and how Wesgro was linked to the Department, and whether SALGA was involved.
Mr October replied that the Department dealt with a number of agencies at provincial level, such as Wesgro and EDC. Small enterprise development was the next phase of SEDA, and there would be partnership with all spheres of government.
The Chairperson noted that many Departments used consultants and asked how many were employed by the Department and whether they were permanent.
Mr October replied that consultants did not form a significant part of the budget, but were employed on specialised areas. Full-time staff did the real policy work.
Mr K Naidoo (Chief Financial Officer) said that consultants were very well managed in the Department. They were on fixed term contracts, and were only used in specialised areas.
The Chairperson referred to preparations for 2010 and asked whether there had been any communication between Department and the Department of Public Enterprises. Was the Department already looking at benefits on a provincial level, and would it be helpful to start now.
Mr October replied that three areas were being addressed, namely regulation, spreading of benefits and marketing. The Department was working with FIFA, particularly with regard to advertising legislation. An internal committee had been set up, but this was also part of a broader committee. The Department saw significant opportunities for small businesses, and one of the conditions for approval was a clear plan for this. Talks with FIFA were ongoing. No clear targets had been set for the cricket World Cup, but they would be set for 2010.
The Chairperson said that there were a lot of pirate goods and imitations in the country, and asked how these could be prevented from coming through Customs, and how corrupt practices by investors could be prevented.
Mr October replied that there was a flood of both legal and illegal products, particularly labour intensive products. In respect of legal imports, the Department was looking at putting safeguards in place, but illegal imports were the job of the Department of Home Affairs and the South African Revenue Service. A tender had just been issued to increase security at airports, and a special task team had been appointed to look at illegal clothing imports.
Mr Sibiya said that he had assumed that the SABS approved the quality of products for both marketability and human consumption. He had recently found tinned food stamped "substandard", but had assumed that the criteria were compulsory.
Mr October replied that he would revert to the Committee on the issue, but that approval was voluntary on some goods.
Mr Sibiya asked for comment on the South African role in the SADC economic integration, taking into account the attitudes of other African countries, referring to a recent comment by Nigeria that South Africa was "too white".
Mr October replied that South Africa was at times accused of being the new imperialists when it entered new markets, and that this was partly rooted in history. The approach had been sensitive and careful management, and making use of local labour and products.
Mr Sinclair asked for more information on the WTO and negotiations. The Chairperson replied that the WTO would be addressed later in the Committee’s programme.
Mr Sinclair asked whether it was not possible to have a more structured approach to liquor legislation and licensing, suggesting stricter opening and closing times.
Mr October replied that new liquor legislation was in place and that the industry was now more regulated, but that even the United Kingdom was moving away from restrictive closing times. Provision had also been made for consumer awareness campaigns by for example, SA Breweries.
Mr Gamede asked whether the human and financial capacity of the Department was sufficient to implement its policies.
Mr October replied that there was an action plan to address vacancies, particularly in respect of specialised skills, such as the export market. It was hoped to reach full capacity this year.
Mr Naidoo said that the budget was managed on a weekly basis, as incentive schemes were oversubscribed. The Department had received no extra funds after its last medium-term economic forecast (MTEF) submission, and this was stretching finances going into the future.
Mr Gamede asked why nothing had been said about programmes for the youth.
Mr October replied that, in the rollout of co-operatives, the Department was finding the biggest interest from young people. Workshops had been held in some provinces, and the youth would be assisted.
Mr Z Kolweni (ANC, North West) asked the Committee to get information from the provinces about the mushrooming of co-operatives. As public representatives, Members needed to galvanise the process.
The Chairperson asked what funds remained unspent or had been ring fenced.
Mr Naidoo replied that the Department was within R5 million under expenditure. An amount had been ring fenced and was to be transferred to SEDA in agreement with the National Treasury.
Mr Gamede noted that no provision had been made in the budget for aerospace. Mr October replied that this fell under the competitiveness section and that the Defence budget would largely be used in this regard.
Mr Sibiya asked whether the Department was allowed to get information about the technologies of other countries.
Mr October replied that economic espionage raised a number of issues. There was some protection of intellectual property. South African had two particularly strong areas, defence and energy. When selling to other countries, South Africa tried to ensure that there was a package to protect intellectual property. A law was also being prepared to protect inventions sponsored by government funds.
Mr Gamede asked how agencies were monitored.
Mr October replied that an Agency Management Unit had been established, and that a CFO Forum was being set up to ensure oversight of spending.
Mr Naidoo said that meetings were held with agencies every quarter, in addition to the Agency Management meeting every month, and a meeting of the CFO forum every 2 months.
Mr Sinclair noted a R116 million increase in the 2006/07 budget and expressed surprise that this was insufficient.
Mr Naidoo replied that R200 million more was required for 2005/06. Money had been requested for Apex, the NEF and incentives. The budget had to be managed very carefully, and was not sustainable going forward.
Mr Sinclair remarked that the NCOP function was very strong on oversight, and that the perception was that Boards became too independent. What was the Department’s opinion?
Mr October replied that there was a complex relationship between the Boards, the Department and the Minister. Boards were independent entities and corporate governance rested with them. There had been greater co-ordination and monitoring over the past years.
Mr Sinclair asked whether an improvement had been noticed in respect of loan sharks.
Ms S Chen (DA, Gauteng) asked the different functions of the Department’s programmes.
Mr October replied that the TEO was a division of the Department managing incentive programmes and that the EID looked at policy work and the implementation of new programmes.
Mr Sinclair asked why there was no longer any reference to the Proudly South African Campaign, as he had thought that this fell under the Department.
Mr October replied that this had fallen under the Department, and had been a Nedlac initiative. It had always been envisaged that it would be self-funding.
Mr Naidoo confirmed that the Campaign was now essentially self-funding.
The meeting was adjourned.
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