Legislation for 1998, EU and Provinces, Budget for Department of Trade and Industry, SMMES, Investment in South Africa & Industr

Meeting report

ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE
24 April 1998
LEGISLATION FOR 1998, EU AND PROVINCES, BUDGET FOR DEPARTMENT OF TRADE AND INDUSTRY, SMMEs, INVESTMENT IN SOUTH AFRICA & INDUSTRIAL PARTICIPATION

Documents handed out:
April 1998 SDI and IDZ Presentation
Department of Trade and Industry: Republic of South Africa
Department of Trade and Industry: 1998 Legislative Programme
Department of Trade and Industry: MTEF programme/ activity
Economic Integration in Southern Africa: A South African Perspective (see Appendix 1)
Industrial Participation
Liquor Bill, 1998: Objectives and Summary (see Appendix 2)
Legislative Brief: Draft IDZ Law
Investment South Africa: slide presentation (see Appendix 3)

The Chairperson (Mr. H.J. Lebona - ANC) welcomed the Director-General of the Department of Trade and Industry, Dr. Rustomjee, and the other members of the department: Dr. Allister Ruyters, Mr. Johan Strydom. He stated the aim of the meeting as a briefing by the DTI (Department of Trade and Industry) in order to inform the committee on the programs of the DTI for the budget year and to help the committee in their work through the year and to attend to the budget debate in the NCOP scheduled for 12 May.

BUDGET PROGRAMME
Dr. Rustomjee, referring to the document, DTI Republic of South Africa, stated that the DTI has restructured their budget by trying to cut their programs according to the key priorities of the next budget year.

The budget is cut into three types of support. At the cutting edge of the programs are those schemes that support investment and trade. Both the DTI and the institutions around the department such as the Industrial Development Corporation are geared towards providing funds directly to industrialists for specific investments. It is the intention of the DTI to shift their budget towards those programs that you can actually measure the output of jobs and see in which sectors those are taking place.

On the trade side, the DTI is sharply focussed on the export marketing scheme where the DTI disperses funds directly to exporters for activities such as market research on overseas markets and export products. It supports initiatives for industries to organise themselves as industry associations. Behind this is also some softer support measures that relate to policy issues and strategic thinking.

The third area of the budget relates to the support that is given to small business. Here the DTI has decided to adopt a very different model. A unit of twelve people in the department looks at small business from a policy perspective. The Small Business Act has laid out an institutional structure outside the DTI operating on an agency basis where the DTI provide wholesale financing for small businesses through Khula and financing to Ntsika to carry out non-financial support programs such as training.

This is the kind of model that the DTI would like to see applied to the other programs of the department. For example, Investment South Africa, is a specialised agency created outside the department to focus on providing information on investment to prospective investors.

A further important set of activities of the DTI is related to business regulation and consumer services. Many of these functions have been transferred to the provincial counterparts. The DTI administers 47 Acts of parliament.
The Department is reviewing this legislation to try to rationalise it as well as to look at the effects on competition. The specifics of the budget programs are set out in the document labelled: DTI, MTEF programme / activity. The cost of running overseas offices is extremely expensive as a whole. It cost government roughly R1 million to put a person into a foreign city.

Programme 1: Administration
1997/98: R38 805m 1998/99: R48 296m
Programme 2: Industrial Sector strategy
1997/98: R58 465m 1998/99: R79 349m
Programme 3: Investment support programmes - NBI Manufacturing development programme, at the moment one of the largest budget items.
1997/98: R896 613m 1998/99: R771 147m
Programme 4: Small business promotion
1997/98: R89 058m 1998/99: R77 045m
Programme 5 : Trade facilitation (Relates to overseas offices and programmes as well as the Export marketing Investment Scheme.)
1997/98: R1 406 454m 1998/99: R785 045m
Programme 6: Trade policy and global and global repositioning.
(Attempt at opening markets and economies that were previously closed to and ignored by South Africa business people.)
1997/98: R24 167m 1998/99: R25 664m
Programme 7:Business regulation and consumer services
1997/98: R45 440 1998/99: R60 268
Programme 8: Standards and Environment (Environment issues are increasingly becoming important. It is becoming a barrier to entry into developed economies for products from developing countries.)
1997/98: R90 340m 1998/99: R92 901m
Programme 9: Technology Enhancement in Industry. - CSIR, SPII, THRIP
1997/98: R389 929m 1998/99: R408 415m
Programme 10: Policy Analysis and Research.
(Internal Analysis unit: policy foresight)
1997/98: R9 252m 1998/99: R14 024m

Evaluation of DTI Achievements
The DTI sees its role as particularly focussing on the manufacturing sector but also to increase employment and investment as well as competitiveness in the manufacturing sector. One of the measurements of competitiveness is the rise or fall of exports as well as the patterns of exports. The DTI also measures it against fixed investments. The percentage of GDP that goes into manufacturing sector fixed investment has grown from 6.1% in 1995 to 6.6% in 1997. There has been new investment in this sector and not just in Capital intensive investments as in the past. Also for the first time in almost twenty years fixed investment in the manufacturing sector is lead by the private sector.

Also there has been deep structural change in the manufacturing sector. Many new investments have taken place. E.g. in textile industry where the average age of machinery was 18 years old about four years ago is now down to about 12 years. The projection is to have this down to 8 years in a year's time. The DTI through aggressive tariff reductions have therefore achieved the acceleration of restructuring of these industries.

It is not going to be possible for the South African economy to continue producing everything. It is not possible to realise economies of scale in all sectors, there is a lack of expertise and infrastructure. With the lowering of tariffs, industries now have to focus.

Real growth of exports have increased by 21% in 1997. However the export pattern is still shaped to the fact that we are dependent on primary commodities, such as agriculture and minerals. The strength of the South Africa economy however is that we can produce primary product process commodities very efficiently e.g. steel, alloy, pulp and paper. The challenge is to take this advantage and produce bulk commodities at competitive world prices and process those domestically to add value to our exports and in the process targeting more labour intensive subsectors. The DTI is of the impression that it is succeeding but that it is not moving fast enough. The DTI is strongly reliable on the private sector to gear up and take advantage of the programmes that the department is offering.

One of the key instruments of the DTI in the restructuring of the manufacturing sector is the reduction of tariffs. Reductions are carefully crafted, differing from sector to sector and enjoyed the support from business and labour when formulated in 1993 as South Africa's offer to GATT. Tariffs have fallen from 28% in 1994 to 11% in 1997. This will be down to 8% by the end of 1999.

During this period employment in the manufacturing sector has remained more or less static at 1.4 million. What the economy has been able to achieve is that we have managed to reduce protective measures, accelerating restructuring in the manufacturing sector but not de-industrialising the economy. During the same period productivity has grown, the activities in the more labour-intensive subsectors of the manufacturing industry has increased. From the DTI's perspective the industrial base of the economy is much stronger now than it was four years ago and can now move from this and expand. This has indeed happened in some of the industrial subsectors. In terms of the DTI's programmes it was measured that the DTI contributed in 1997 to the creation or sustaining of 77 000 jobs in the manufacturing sector. (Also involved in the creation of these 77 000 jobs were the SPII programme, the THRIP programme and the Industrial Participation Programme, which is the programme where every government contract worth more than $ 10 million is subjected to an industrial participation obligation. The DTI see this as a very important programme for the future.

According to the CSS there were approximately 18 000 net jobs created in the manufacturing sector in the 1997 budget year. Since March 1997, there has been some job losses in the manufacturing industry. These contrasting figures can be accounted for by the fact that firms are both rationalising internally as there are new firms opening up. The DTI programmes are underpinning new investments and support the acceleration of the creation of new efficient corporations. The restructuring gives rise to some job losses. The task of the DTI is to increase employment investment in net terms.

Questions by committee members:
Rev. Zondi (IFP - Kwazulu-Natal) wanted to know why the budget has been decreasing since 1995.

The Director-General stated that he would like to convince the members of the fact that they are indeed doing more with less. The government had had a programme called GEISS, which absorbed at least two-thirds of the budget allocated to the DTI. The DTI was not convinced that the programme was functioning in accordance with its objectives. Its main objectives were to increase on a sustainable basis the level of exports. There was much abuse of the scheme and it favoured mainly large corporations in the industry. A thorough analysis was done and attempts were made to streamline the programme. The firms were not making reinvestments into the sector from the profits it achieved under the scheme. The programme was terminated in 1997. The decline in the budget is partly related to the closure of the GEISS programme. It also reflects the national fiscal constraints and the commitments illustrated by many departments to contribute to the decrease in the budget deficit. During this period the DTI believes that it did not provide fewer services to or less support to industry in any programmes. Many programmes has been increasing as the expenditure of GEISS decreased. This fits with the broader policy approach of DTI to shift their support to the supply side (support for human resource development, training, technology enhancement, product market research, point of production rather than giving cash handouts on the demand side for exports.)

The largest cut, roughly a 30%, was in the current budget year. The DTI has decided to start off from a small base allocation to its programmes rather than to allocate large amounts of money to a specific programme such as GEIS. A number of new programmes around the supply side has been started in the last year. Some programmes are being expanded such as the THRIP programmes, inviting some of the parastatals such as TELKOM to participate in these programmes. Carefully the private sector is being allowed also to enter into these programmes with reservation.

Mrs. Fubbs (Gauteng) wanted clarification on the employment figures. Some of the figures that the Director-General used are not present in the documents and do not cover the service areas. When the Director-General talks about the fall in employment, in what sector is he referring to or is this a general reference. Further, what exactly is the nature of the support services the Director-General refers to. Is the DTI providing support services to the SMMEs that need to restructure their production in order to be more competitive. DTI has developed Investment South Africa, IDC has been around and provincial agencies are establishing themselves. What is your interaction with the provincial agencies at the moment. Is there a sharing of technology and information or is there a certain necessity of duplication at this stage.

Mr. Mongwaketse:
There is an outcry that Ntsika is not delivering. Has DTI audited it correctly? In the Northern Cape, in 1997 out of the 17 applicants, only one applicant was from a disadvantaged group and the intention of Ntsika was to assist the disadvantaged people. The flow of information to the provinces has not filtered down to the people on the ground stating what the purpose of the DTI is. Does the department give out funds directly to business people or do they refer them to agencies.

The Chairperson asked if the Director-General talks about the global repositioning of South Africa, which is an element of domestic repositioning. Does this repositioning take into account formerly disadvantaged provinces such as the Northern Cape, Freestate and others and whether the DTI links with other departments in the development of these provinces. Regarding the filtering down of information how does DTI confer with provinces and local government, because that is where all the industries have to be regulated as such. Will there be something in the current budget year similar to the 1997 Conference held by DTI with Local government?

Director-General's response to these questions: The DTI's primary focus has been on the manufacturing sector, that is not to say that they do not look at the services sector. The DTI has tried very hard to build and improve relations with other government departments over the last couple of years. This has been done to ensure that the policy approaches in the different departments are more or less in line with each other. There is an integrative approach that binds all these departments, that is the RDP. Also there have been attempts at improving relationships with established agencies such as the IDC. This includes the provincial development corporations. This as well as the relationship with local government has been difficult as the constitutional basis for these relationships has not always been clear. The DTI is satisfied with the relationship the department has developed with the provincial governments.

The relationship between the different levels of government depends of course on the type of programmes that are at stake. The DTI is conscious of the fact that South Africa has a 30% unemployment rate. There is great pressure on the DTI to address this issue. The DTI has tried therefore to establish a benchmark for every programme that has been developed, to establish the number of jobs created by a programme, where and in which sector it has been created and establish what the tangible outcomes of these programmes are. These of course have to be sustainable jobs. The target for jobs established through GEAR and the RDP, was set at 400 000 per annum after the year 2000. The aim is for the DTI to establish between 70 000 and 90 000 jobs annually on a sustainable level in the manufacturing sector. The DTI believes this is achievable. South Africa has managed to reach a sustainable level of employment for instance in the textile industry compared to other countries despite the job losses that took place due to the rationalisation process. The manufacturing sector however is not the main provider of jobs under the GEAR programme. The tourism industry will be one of the biggest employment creation industries as well as the public works sector and infrastructure development sector. In the Spatial Development initiatives of the DTI the aim is to link infrastructure development, the work of local governments, the work of provincial governments, national governments into one spatial development programme. The results have been staggering as such. Even though the number of jobs created by the DTI was not as much as might have been anticipated, the department has been successful in a major restructuring of the productive base to achieve a higher level of competitiveness. The DTI believes that the major job losses in the manufacturing sector are over. The biggest job losses in this industry took place between 1990 and 1993.

The support services are divided into longer term support and export lead services. Many of the programmes have been experimental in nature. With regard to the provinces, the provincial development corporations have been rationalised and restructured. This process is still underway. Also new investment agencies have been developed in the provinces. One of the main aims of the current budget year is to disseminate the information more widely to allow for greater access to the services the DTI provides. Sixty agencies are targeted to be created to assist in the Ntsika and other programmes by the end of this budget year. These do not cover the whole country but are strategically positioned and the DTI is trying to work at enlarging their scope. The Director-General believes that this is bearing fruit. By the end of 1997, some 20 000 small businesses had access to Ntsika's services. This is not insignificant for a six month framework and Ntsika is not the only institution created, there is also the National Small Business Council etc. There have been problems in the setting up of these institutions and the DTI is working on this.

The DTI does provide funds directly to businesses but the DTI looks at the production programmes and profitability of these businesses, this is then evaluated and some funding is provided. In terms of the credit guarantee system the government guarantees the credit and the banks then step in to provide the funding.

As regards to global repositioning, the history of South Africa's economic and trade relations shows an unbalanced trade relationship with mainly Europe. Some 50% of total trade is with Europe. The other major trade partners have been the US and Japan. The attempt is to establish greater trade relations with those parts of the world that are growing faster. If the current relations are to be maintained with economies that are not likely to grow by more than 5% over the next decade or so, South Africa's trade will also not grow significantly. The aim is also to increase our trade with the Southern African countries. The region absorbs almost 30% of South Africa's manufacturing exports is supporting almost 500 000 to 600 000 jobs in our economy in terms of imports. The DTI then would like to see a greater integration of South Africa's economy within the region as well as with those economies such as China that will probably experience double digit growth in the next decade and more. However there are certain political considerations. South Africa is a developing economy and faces several problems in their relationship with the developed world. The WTO currently sets rules for everybody to abide by, developed and developing countries. South Africa supports this because it wants the playing field to be levelled. However many developing countries are not part of the WTO, because they are fearful of the obligations the WTO imposes. South Africa's approach is that the WTO imposes obligations on the developed countries as well, and the argument is that it is better to establish a body where everyone plays according to the rules.

Committee members were asked to bring further questions to the next meeting.

1998 LEGISLATIVE PROGRAMME
Mr. Strydom referred to the document: DTI 1998 Legislative Programme (and a separate document: IDZ legislation) which sets out the DTI legislative programme for the 1998 session of parliament. The cut-off date for legislation that needs to be enacted in the current year is 30 June 1998 (i.e. it has to be certified and introduced into parliament by 30 June).

The Estate Agents Amendment Bill will probably be certified by April 28. The Companies Amendment Bill, tagged as a section 75 bill, has been referred to the Joint Tagging Mechanism. Many attempts had been made in the previous year to put the dispute over this bill to rest. The DTI was asked to review its opinion on the tagging of this bill and asked to seek legal opinion on the matter. The matter was discussed with Advocate Daniels, the chief state law adviser, and we have made available all previous opinions to him. We hope to get an opinion from him soon that will put this matter to rest.

Bill no.6 to be discussed by the National Assembly committee on 18 May 1998.
Bills no 3, 7-11 are likely to be served before the committees of parliament in the final trimester of parliament. This document only gives detail on the bills not yet introduced to parliament with the exception of the Competition Bill which is not yet available.

The Chairperson requested that the members look into the relevance of the bills for the provinces, realising in the process that the Joint Tagging Committee has the final say. However this does not mean that the committee may not deliver its opinion on the matter.

LIQUOR BILL (see document - Liquor Bill 1998: Objectives and summary)
Dr Ruyters addressed the committee. He said the DTI wanted to simplify the administration and registration of companies. Currently the DTI is aiming at establishing an inspectorate to enforce business regulation. The DTI wants to decriminalise many of the provisions in current legislation and move to where there can be a focussed unit in South Africa that can begin to enforce company registration, intellectual property rights and other legislation. The attempt is to increase South Africa's competitiveness. Part of this process is the new Competition Bill. Guidelines on this have been distributed for comment by the different sectors.

Regarding the Liquor Bill, the policy paper and draft bill was published in June 1997. There had been an extensive consultation period allowing people to make comments on the bill. There were two national workshops and several provincial workshops. Community based groups were allowed to comment on the effect felt on these communities by the presence of shebeens and other liquor outlets in their communities. There had also been discussions with all members of the industry, government departments that had a interest in liquor affairs, religious denominations, and potential foreign investors.

In the next few months the DTI will finalise the bill, submit it to cabinet for approval as well as to the state law advisors to enter the parliamentary process by 30 June 1998. The DTI would like to start looking at the setting up of the infrastructure to administer the bill. The DTI has put up a task team made-up of national and provincial officials to investigate this matter.

Questions by committee members:
Mrs. Fubbs expressed her concern that as late as October/November 1997 local authorities in Gauteng had not been consulted on this matter. Mr. Lubisi (ANC - Mpumalanga) wanted to know if Mpumalanga had been involved in this process of extensive consultation. Dr Ruyters stated that he could not comment on individual cases in each province but the process of consultation was as extensive as possible and meetings had been held in Mpumalanga. The Director-General stated that the vice-chair of the Liquor Council is also a member on the Johannesburg Metropolitan Council. He believed that the members had been consulted on the issues and that ample opportunities had been provided to members of local councils to familiarise themselves with the relevant issues, but he noted the members' concern and comments.

The Chairperson stated that there were no copies of the discussion documents on the bill nor draft bill before the members. Dr. Ruyters responded that it should be the responsibility of every official to have a copy of the bill. The DTI has provided for consultation and has established a framework for this. However they would take note of the comments, and will attempt to correct omissions committed in this process, in the future.

An ANC committee member wanted to know how shebeens are going to be encouraged to register. In the case of special events e.g. soccer matches, how is this bill going to provide for that and if the police are to be taken out of the process who would pursue illegal traders.

Mrs Fubbs( Gauteng) asked about the issue of standards when it is being left to local communities to decide who is going to be able to trade or not. If local government makes the decisions, would this not nullify the aims of the bill where local governments are still largely enclaves of racial separation. Further had there been consultation with agriculture?

Mr. Mongwaketse argued that there should be a certificate of qualification rather than leaving the issue up to local authorities which he likened to the current situation with tribal authorities where a lot of manipulation is taking place. He wanted to know who was going to oversee the distribution of licences. He raised the issue that during the national elections shebeens and other outlets should be closed.

Mr. Marais (Western Cape) wanted to know what vertical integration is as referred to in the document and how would this be applied as well as how offences would be monitored.

Mrs. Lubidla (ANC Northern Cape) asked if the ground rules set out in the document were going to apply to provinces or would they apply their own provisions.

Dr. Ruyters response:
He would not like to give the members the impression that the DTI through the bill will be able to deal with all the problems especially those regarding the large number of shebeens in operation. The government will try to ensure through this bill that those who distribute alcohol do so in a responsible manner. People will be given a timeframe to register (2- 3 years). For registration they will no longer need legal assistance. The registration process will be made as simple as possible. If a rule or law is broken, the person or company will not get a licence again. There will be inspectors to inspect and enforce the provisions of the bill. All three tiers of government are going to need to work together. On the issue of special events it would be upto the event organisers to decide on the distribution of liquor at special events. Regarding the police, it has been the experience of the past that police had been involved in the regulation of shebeens. Instead they aim to establish a special investigative unit that move around the country, (thus not getting to know those needing to be regulated too well).

The Department Of Agriculture has been consulted. Currently there is concern over the issue of the so called "Bush industries" (Mampoer etc.) and the amount of contaminated alcohol. The problem is that bush liquor is being sold in regular bottles which makes it difficult to identify by the consumer.

The spirit of this legislation is to set up a framework aligning local communities and trying to democratise the whole industry. The onus will rest mainly on the business person to be responsible in his/her business. The main inspector is also going to be the parenting community, this is a public responsibility. The distribution of licences will be the provincial government responsibility.

The issue of vertical integration is a special concern of the DTI. This implies that the liquor manufacturer also owns the manufacturing of the ingredients of the end product. Also provided for is the limiting of tie-agreements where the manufacturer appoints a person or outlet to be the exclusive retailer of the product in a certain area. That person may then also only sell the specific product. This is a monopoly practise and is deemed unfair.

The issue of national elections will need to be addressed by government.

The Chairperson thanked Dr. Ruyter and asked the members to hold further questions on the bill until the next meeting.

INVESTMENT SOUTH AFRICA
Mr. Mohammed from Investment South Africa gave a slide demonstration on Investment South Africa which is structured on a regional basis and makes use of the DTI's regional offices.

One aspect of ISA is that it is not a static organisation. The database set up by ISA is linked to those of the provinces. The so-called "Tracking System" consisting of a software computer package called "Maximiser" is to be installed in all provincial offices. This will give an indication of where in the process of investment a certain project is at a given time.

ISA has also established a close working relationship with the Department of Home Affairs, looking into fast-tracking work permits and temporary residence permits for investors and their families.

The new focus of ISA is on capacity building and investment promotion. ISA invited a Singapore company to present workshops to board members on investment promotion and to develop a training programme, locally.

Questions by members:
Mrs. Fubbs (Gauteng) asked what the relationship is between ISA and the DTI and how the funding for ISA worked.

Mr. Mohammed responded that DTI foreign representatives are utilised in implementing strategy. All visits by ISA members are done in consultation with DTI representatives. ISA is part of the DTI family and the DTI budget. The ISA is Section 21 company that receives money in the form of a grant from the DTI and does not make a contribution to the DTI in maintaining representatives abroad.

INDUSTRIAL PARTICIPATION AND SPATIAL DEVELOPMENT INITIATIVES.
The Director-General stated that the government is the biggest purchaser of goods and services in any economy. There is usually a lot of wastage in this process. The current cabinet-motivated programme is that any tender in excess of $10 million should make a commitment in investing in the economy. The idea is to get more value out of the contract. One of the credit ratings concerns empowering the previous disadvantaged communities and the tender's investment in this. Many foreign investors do not like this programme bringing in extra obligations on the tender but it has been shown that this initiative is one of the best in the world. Supplementary investments emerging from this up until the end of 1997 was in the region of R100 million in associated investments.

An example of a Spatial Development Initiative (see document April 1998 SDI and IDZ presentation) is the Maputo/Johannesburg corridor. Some R26 billion worth of projects have been announced to be developed around the Maputo corridor. This allows for the government to invest in infrastructure at strategic places where the private sector can then come in and develop the project further.

SADC NEGOTIATIONS (see document : Economic integration in Southern Africa: A South African perspective).
The South Africa economy consists of a market of 39 million people. This does not allow for large economies of scale. Therefore it is important to increase the size of South Africa's market. The historical relationship between South Africa and the region has mainly been one where the region provides the labour and South Africa destabilised the region's economies. This has changed as democratisation has taken place and there is greater stability for investment and fast economic growth. South Africa exports some 35% of manufactured goods to the region. However the region is not supplying the same input to South Africa. The trade imbalance is increasing in South Africa's favour. South Africa want to accelerate the integration into the region so that pay-offs of South Africa's trade growth spills into the region. This is being done by the renegotiation of the South African Customs Union. South Africa is also committed to a free trade agreement with the SADC countries within six years. Simultaneously South Africa is negotiating a free trade agreement with the EU in twelve years' time. The problem arises with the different tariffs. The EU is much stronger than South Africa and should open up their economy much faster than South Africa should open its economy to EU goods. This is the principle of asymmetry. South Africa applies asymmetry with the SADC countries. The DTI anticipates being in a position by the middle of the year to give a proposal to SADC and to conclude negotiations with the EU later this year.

Annexure 1:
ECONOMIC INTEGRATION IN SOUTHERN AFRICA: A SOUTH ARICAN PERSPECTIVE

Introduction
This discussion document is intended to share the policy perspective of the South African government on regional economic co-operation and integration in Southern Africa. Thus, it is primarily intended as a contribution to the policy dialogue on Southern African regional issues.

THE GOVERNMENT'S MACRO-ECONOMIC POLICY FRAMEWORK
The recently released Macro-Economic Strategy of the government is intended to offer an integrated framework for the realisation of the RDP goals. The RDP base document sought to address major pillars of government policy, mainly:

* meeting basic needs
* developing human resources
* democratising the state and society; and
* providing a macro-framework for sustainable growth and development.

The Macro-Economic Strategy document is therefore intended as a further elaboration of the fifth element outlined above. It therefore set out to address the following specific objectives:

* securing a return to a long-term growth trend in excess of population growth;
* reducing the budget deficit, reforming the tax system and re-prioritising public expenditure;
* bringing inflation down and easing the balance of payments constraints;
opening the economy to international competition and securing access to new markets;
* integrating the civil service and transforming public sector institutions; and
* establishing policy frameworks for delivery of social services.

The RDP base document asserted that the "central" for reconstruction and development is to create a strong, dynamic and balanced economy which will create productive employment opportunities at a living wages for all South African; develop a prosperous and balanced regional economy in Southern Africa based on the principles of equity and mutual benefit and sustains a viable and efficient domestic manufacturing capacity and increases our potential to export manufacture products.

It is clearly recognised that the attainment of these goals requires sustained growth premised on transforming the economy towards outward orientation. Inherent in the this approach is the development of strategies for among others, the following core elements:

* budgetary and expenditure reforms;
* fiscal prudence and deficit reductions;
* a competitive exchange rate and gradual relaxation of exchange controls;
* a consistent momentary policy to keep inflation low;
* stimulation of new investment in competitive and labour-absorbing projects;
* a reduction in tariffs to contain input prices and facilitate industrial restructuring; and
* an expansion of trade and investment flows in South Africa.

The unreadability of raw material exports in the 1980's persuaded policy-makers that the central thrust of trade and industrial policy has to be the pursuit of employment creating international competitiveness. This entails a shift away from demand-side interventions to supply-side measures designed to lower unit costs and expenditure goods in general, industrial policy must support and strengthen those internationally competitive industries that emerge on the basis of stronger internal linkages, meeting the needs of reconstruction and raising capacity utilisation.

To date substantive progress has been achieved in the following areas:

* replacement of quantitative restrictions with tariff
* rationalisation of the tariff structure by almost halving the number of tariff lines;
* abolition of import surcharges₁ completed in October 1995;
* phasing down of tariffs begin in 1995, by an average of one-third over 5 years; and
* phasing out of the general export incentive scheme GElS, to be completed by the end of 1997.

The real depreciation of the rand is also received as creating favourable conditions for an acceleration of the tariff reductions to which South Africa is committed in terms of the agreements of the World Trade Organisation. These reforms will be structured to lower prices for industrial inputs and low-income households, to avoid job losses in sensitive sectors and to remove price distortions in domestic markets. All these developments have a significant bearing on trade and industrial policies for the Southern Africa region.

GLOBALIZATION: A REALITY WE CANNOT EVADE
It is well known that the process of transition in our country is taking place against the background of enormous change in the international context. Globalisation is a phenomenon that has to be recognised as a process aimed at progressively integrating national commodity capital and financial markets into a single global market operating according to a universal set of rules. It is being driven by transnational co-operations, multilateral institutions and governments of advanced industrial countries in a context in which those capitals which are today the dominant forces in the world economy, and successful new entrants, have been seeking to move beyond national markets and operate on a global scale. Contemporary globalisation has been accompanied by the introduction of new technologies, notably info technologies which have transformed global communication and has seen knowledge, as distinct from materials intensive industries and processes emerging at the cutting edge of global production.

Closely linked to the process of globalisation is a driven towards liberalisation. This is to a considerable extent inherent in the process of seeking removal of barriers to the free movement of capital, finance and commodation across the globe. It has given rise to anew policy agenda, known as neo-liberalism, whose basic tenets that unregulated global commerce and a reduction of state services are the universal and exclusive route to global growth and development.

A third element, closely related to globalisation and liberalisation, has been the emergence of an international regulated ruIe-based trading system. Liberalisation and deregulation at national level have in fact, been accompanied by a strengthening of regulation at the global level. The Uruguay Round of GATT and the subsequent establishment of the WTO were important steps in this process. These phenomenon has led to an emergence of a brand of economic neo-realist though which perceives integration into the global economy as an unproblematic source of opportunity, provided that the domestic economy and social structure is adapted to the competitive norms of the global environment.

On the other hand, there is a school of thought on the Left, which holds that any form of engagement with the institution of governance of the global economy, is the slippery slope to subordination to the dictates of neo-liberalism. Domestic economic policy should according to this perspective, be inward orientated and try, to insulate South Africa from global pressures.

The problem with the first kind of perspective is that it takes us serious account of the unevenness, imbalances and inequities of the contemporary global environment. It thus underestimates the extent to which international economic relations are not necessarily currently structured to the advantage of a country like South Africa and it fails to sufficiently consider the effect on South Africa of a continuing division of the world into "winning" and "losing" nations, particularly in circumstances where several neighbouring states and a large part of the African continent seem doomed to remain "losing" nations.

The problem with the second type of approach is that it underestimates the extent to which globalisation is a phenomenon rooted in real trends in accumulation. It thus fails to take account of the degree to which a struggle for the transformation of the domestic political economy needs to be accompanied by an active foreign policy seeking to maximise opportunities within existing norms and structures white at the same time striving to become a force for change in current patterns of global economic and strategic relations.

In fact GEIS payments have been reduced from 12% to 6% as from 1 July 1996 - ahead of the 1 April 1997 target negotiated during the Uruguay Round.

The real depreciation of the rand has created favourable conditions for a significant acceleration of the tariff reductions to which South Africa is committed in terms of the agreements of the World Trade Organisation. These reforms will be structured to lower prices for industrial inputs and low-income households, to avoid job losses in sensitive sectors and to remove price distortions in domestic markets. These reforms have, therefore a significant bearing on trade and industrial policies for the Southern African region.

THE SIGNIFICANCE OF SOUTH AFRICA'S TRADE WITH SOUTHERN AFRICA
Trade with Southern Africa is of considerable importance to South Africa's macro-economic accounts. Officially published trade statistics have historically referred to the trade of the whole SACU with the rest of the world. This has had the effect of obscuring the trade that takes place between South Africa and other members of the customs union, namely: Botswana, Lesotho, Namibia and Swaziland (BLNS). Consequently, the full significance of trade with African countries has for too long been understated. South African exports to African in 1996, excluding the ELNS, amounted to R13,9 billion, equivalent to 13,6% of total manufactured exports. A similar pattern of trade is discernible with SADC countries. Export to SADC countries, outside of SADC amounted to R10,6 billion with imports ofR1,4 billion.

These figures, indicate that, with political impediments now removed, South Africa's trade with the rest of the continent has been increasing considerably. However, they also reveal a serious structural defect typified by a scissors crisis. The sources for the acute imbalances are many and varied. In part, they are derived from huge differences in the size and structure of production. Partly, they are an outcome of incoherent trade policies that have been pursued by countries of the region in the absence of a co-ordinated policy framework. Clearly, this pattern cannot be sustained for long without deliberate measure to promote two-way trade flows.

This realisation is what motivates South Africa to seek to restructure her relations with neighbouring countries. Hence South Africa's accession to SADC and the re-negotiation of the SACU agreement. South Africa's regional economic policy is premised on the following five elements:

* the creation of an asymmetrical free trade area;
* the recognition of variable speed in the dismantling
* the linkage of regional trade development to industrial restructuring and the promotion of new investment in infrastructure and the productive sector;
* the strengthening of customs control, monitoring and administration; and
* assistance to the least-developed countries as part of UNCTAD commitments.

THE RE-NEGOTIATION OF THE SAC AGREEMENT
The re-negotiation of the SAC Agreement has focused on three main areas:

* the review of the SAC institutional arrangement;
* a review of the revenue-sharing formula;
* policy development and co-ordination.

These goals are being pursued within an environment constrained by the following considerations:

* the need for a small and efficient institutional capacity to avoid a huge bureaucracy;
* the need to avoid massive fiscal disruption in a new revenue arrangements; and
* an arrangement that is mutually beneficial and enjoys the confidence of all parties.

Although the outlines of a potential agreement have already taken shape, a number of agreements still need to be reached on matter so detail. For instance, whereas agreement has been reached the institutions structure, consensus has yet to emerge on how the specialised functions relating to tariff policy, anti-dumping measure, competition policy are to be performed. Whether these function will require to be performed by a single body on a specialised bodies to be ironed out.

On the policy front, there has been varying progress with some sub-groups progressing satisfactory and ethers not. For instance, the delays with the tarrification process which have delayed the sub-groups on tariff policy and agriculture, we believe, have since been overcome. Unlike other regional arrangements elsewhere the structural are normally of one relatively economy and a group of comparable ones in clearly a major challenge for the evolution of co-ordinated interests may not always coincide. Despite these challenges, it is recognised that the re-negotiation process has gone for far too long and needs to be wound up very soon.

THE APPROACH TO REGIONAL COOPERATION AND INTEGRATION
South Africa's policy stands on the wider SADC agenda favours multilateral regional approach as the most viable route in addressing the perceived development disparities in the regional economy. Several reasons underline this approach including the desire to avoid duplication through a series of bilateral agreements and the need to take account of the implications of the Uruguay Round of GATT.

In SADC, a great deal of enemy of energy and effort has gone into making a case for the creation of the free trade area in Southern Africa. Interestingly, the proponents of this idea are to be found both within and outside of the region Needless to say, a few pre-requisites need to be taken into account.

Firstly, if the merit of a free trade arrangement lies in the opening up of markets and, arguably, the stimulation of investment flows, it also needs to be understood that the countries which are likely to benefit in the short term run are those with stronger supply response. This seems to suggest that South .Africa would in the regional context derive disproportionately more benefits than the rest, thereby further reinforcing the imbalances that needs to be reversed. Indeed, enhanced polarisation has been the graveyard of many schemes of co-operation and integration in the developing world.

Second the credibility of such an arrangement would rest on developing adequate rules of origin conferring on originating status on goods that flow duty free arid the creation of effective customs control institutions to enforce such rules. Due regard would also have to be given to the sensitiveness of each economy.

Third, the potential conflict of overlapping trade regimes would need to be obviated. This many present a major confusion, for instance, if SADC and COMESA rules were conflicting given the overlapping membership, of course the issue of institutional affiliation is in a large measure a political one.

It is also useful to highlight that liberalisation by itself does not guarantee economic growth. The opening up markets will need to occur in a contest or a regional industrial development strategy. Some elements of such a strategy will have to include infra-structural rehabilitation and the linkage of resource-based industries to development corridors to attract significant private sector investment. Without concerted effort to develop the infra-structural and productive capacities, the advantages of trade liberalisation may be limited.

In this regard, the rehabilitation of infrastructure including energy, transport, communications, water and waste disposal has been given priority as a key factor in promoting and supporting industrial development. In fact, the provision of infrastructure is a major determinant of investment decisions, their size arid location. Indeed, the provision of the requisite infrastructure is important ingredient of a strategy for integration into the global economy.

SADC has concluded protocol of co-operation following areas:

* energy;
* transport and metereology;
* water; and
* combat of trafficking of illicit drugs.

A Southern African Power Pool (SAPP) Agreement has also been concluded between SADC states and Zaire and their respective power utilities to promote closer co-operation in the delivery of power supply in the sub-continent

It is in South Africa's long-term interest to reduce the trade balance with the region at the same time as the volume of total trade is increased. Yet, to sustain such a course it will be necessary to ensure that an increase in total trade is matched by net capital investment flows into the region to boost supply capacity.

This suggest a nuanced approach to trade liberalisation as opposed to wholesale elimination of tariff measures. Such liberalisation should be targeted in particular for the lowering of input pricing and the costs of consumer goods. The approach advocated here is one that recognises that uneven development cannot be rectified solely by trade policy. Indeed, it would require a blend of policy measures including a well-articulated regional industrial developments strategy and investment policy.

Whereas South Africa has no desire nor ambitions for hegemonic designs in the region, she nonetheless continues to have legitimate interests. These interests are better served in partnership with regional states as opposed to dominance and imposition. Admittedly, the process is at times tedious and slow. It is, however, a more responsible approach that will ensure that a long-term sustainable relationship is not sacrificed at the alter of short-term expediency. Yet, a new relationship can also be started if it is perceived to be based on a series of demands by the smaller states. By definition, processes of integration can only be successful if all parties derive tangible benefits, or at least if they are better off inside rather than outside the arrangement. This certainly cannot be achieved on the basis of dogged seIf-righteous by any of the parties involved.

REFERENCES
1. Growth, Employment and Redistribution: A Macro-Economic Strategy, Department of Finance, 1996

2. Ndegwa, P, and R.H. Green, Africa to 2000 and Beyond: Imperative Political and Economic Agenda. Nairobi: Past Africa Educational Publishers, 1994

3. Teunissen, J.J. (ed.), Regional and the Global Economy: The Case of Latin American and the Caribbean. The Hague: FONDAD, 1995.

4. Protocol on Trade Cooperation, Dar Es Salaam, August 1996

Annexure 2:

NATIONAL COUNCIL OF PROVINCES
24 APRIL 1998
LIQUOR BILL, 1998: OBJECTIVES AND SUMMARY

1. OBJECTIVES
- Establish regulatory framework for liquor industry;
- Restructure liquor industry;
- Facilitate entry into liquor trade;
- Enforce legislation effectively;
- Maintain adequate standards of service delivery in industry;
- Take community interests into account; and
- Promote co-operation with NGOs and private sector in combating alcohol abuse.

2. SUMMARY OF BILL
2.1 RESPONSIBILITY OF STATE TO LIQUOR INDUSTRY:
Enhance capacity of public to deal with socio-economic costs of alcohol abuse and enhance capacity of liquor industry to conduct its business.

2.2 NATIONAL LIQUOR ADVISORY COMMITTEE (NLAC) Representation on NLAC:
Departments of: - Health;
- Welfare;
- Education;
- Transport;
- Safety and Security;
- Trade and Industry;
- Public Works;
- and representatives from:
- the community; and
- the liquor industry.

THE NLAC's FUNCTIONS:
- Advise the Minister or MEC;
- Policy guidelines to PLAs on power concentrations in industry;
- Educational programmes on harmful effects of alcohol; and
- Resolve disputes between provincial governments.

2.3 PROVINCIAL LIQUOR AUTHORITIES (PLAs)
The PLAs will:
- Grant all applications that fulfil minimum requirements;
- Consider applications that were objected to;
- Withdraw or suspend registrations; and
- Determine conditions applicable to registrations

2.4 PANEL OF APPEALS AND APPEALS TRIBUNAL
Will be established provincially.

2.5 APPLICATIONS FOR REGISTRATION
- Will involve community.
- Persons convicted of crimes less than three years before, are barred from applying.
- No-one will be registered in more than one category.
- PLA can refer registered person to SAPS for criminal investigation.
- PLA may cancel registrations.

2.6 REGISTRATION
Six categories of registration:
- manufacturer;
- wholesaler;
- retailer (off-consumption);
- retailer (on-consumption);
- retailer (on- and off-consumption); and
- special events.

Restrictions will ensure orderly liquor sales.
Health warnings to be displayed by registered businesses.
Minister may prescribe benefits or allowances to registered persons.

2.7 CREATION OF NATIONAL AND PROVINCIAL INSPECTORATES
Inspectors will have powers to:
- carry out inspections;
- monitor compliance; and
- enforce compliance.

2.8 OFFENCES:
- Vertical integration will be an offence.
- "Tie agreements" will be an offence.
- Liquor may not be sold to persons under 18.
- Liquor may not be sold to intoxicated persons.

2.9 THE MINISTER MAY ISSUE REGULATIONS REGARDING:
- Restructuring the liquor industry;
- Empowerment of new entrants in the industry;
- Appropriation of funds for the NLAC;
- Norms applying to micro-manufacturers;
- General dealers;
- Notices of information regarding alcohol abuse; and
- Other matters.

3. MANPOWER IMPLICATIONS
- Trade and Industry will appoint personnel to the NLAC.
- Provincial governments will appoint personnel to the PLAs.
- Inspectorate will be appointed nationally by Minister and provincially by MEC.

4. FINANCIAL IMPLICATIONS
NLAC funded by:
- appropriations made by Parliament; or
- appropriations made by provincial legislatures; and
- any other source.

PLAs funded by:
- Parliamentary appropriations;
- fees charged in terms of this Act; and
- funds derived from any other source.

Panels of Appeals and the Appeals Tribunals funded by provincial governments.

5. COMMUNICATION IMPLICATIONS
The DTI will launch a communication program to educate the public.

6. OTHER DEPARTMENTS / BODIES CONSULTED
All affected government departments were consulted or invited to raise their concerns.

NGO's were invited to consult with DTI and make submissions.

7. ACCOUNTABILITY OF PLAs
Provision for payment of allowances to PLA members not in employ of State.
Strict enforcement of provisions should PLA members be guilty of misconduct.
Financial statements will be audited by AG.

Members of PLAs will be dismissed if:
- qualification by virtue of which they were appointed no longer applies;
- absent from more than two consecutive ordinary meetings;
- convicted of offence and sentenced to imprisonment without option;
- guilty of serious misconduct; or
- unable to perform any function for prolonged period.

8. Same provisions will apply to NLAC and members of NLAC.

OBJECTS OF THE LIQUOR BILL
The objects of this Bill are to encourage and support the liquor industry and to manage and reduce the socio-economic and other costs of excessive alcohol consumption by -
(a) establishing an administrative and regulatory framework, within which the liquor industry can conduct its business;

(b) restructuring the liquor industry by means of eliminating vertical integration and excessive concentration of ownership and control among participants in this industry;

(c) creating an environment in which the entry of participants into the liquor industry is facilitated;

(d) creating an environment within which appropriate steps are taken against those not working within the administrative and regulatory framework established in terms of this Act;

(e) creating an environment within which those involved in the liquor industry may attain and maintain adequate standards of service delivery;

(f) creating an environment within which community considerations on the registering of premises are taken into account; and

(g) promoting a spirit of co-operation and shared responsibility within government and among other interested persons in their dealings with consumers of liquor and in their attempt to address the socio-economic costs and health and other related problems associated with excessive alcohol consumption.

Annexure 3:

INVESTMENT SOUTH AFRICA

ISA PROGRESS INCEPTION TO DATE
Institution Building
*Completed most of the institution building
*Internal Structure of ISA [Ed. Note: diagram not included]
*Complements DTI’s internal structure which has a sector and regional focus.

Investor Targeting Studies
*Studies are complete
*Implementing the studies- using the studies to determine countries & companies to visit
*Simultaneously updating the studies- intended to be updated every 6 months

Data-Base
*Database is up and running - dynamic process
*Accessible to provinces, DTI national and foreign representatives through intra-net
*Web-site structure is developed- but content constantly changes
*Linked with the web-site of EC, KZN, MP

Tracking System
*Maximiser was installed in December 1998 and is now operational at ISA
*Software is to be installed in all nine provinces
*One outlet to be installed at DTI
*Pilot at one DTI foreign office

Road-Map Study
*A number of recommendations are made in this report to stream line the investment process
*Awaiting comments and indications of planned changes to the procedures
*Working with Home Affairs- assist with work permit, permanent residence
*Assist with evaluating business plans

NEW FOCUS
Capacity Building
*Discipline w.r.t. outward mission
*Emphasis on building skills in provinces for investment promotion

Pro-Active Marketing of South Africa
*Holistic Public Relations Campaign
*Involvement of All Stakeholders e.g. Department of Tourism, SATOUR, Foreign Affairs, DTI, Private Sector

Appendix 1:

ECONOMIC INTEGRATION IN SOUTHERN AFRICA: A SOUTH ARICAN PERSPECTIVE

Introduction

This discussion document is intended to share the policy perspective of the South African government on regional economic co-operation and integration in Southern Africa. Thus, it is primarily intended as a contribution to the policy dialogue on Southern African regional issues.

THE GOVERNMENT'S MACRO-ECONOMIC POLICY FRAMEWORK

The recently released Macro-Economic Strategy of the government is intended to offer an integrated framework for the realisation of the RDP goals. The RDP base document sought to address major pillars of government policy, mainly:

* meeting basic needs

* developing human resources

* democratising the state and society; and

* providing a macro-framework for sustainable growth and development.

The Macro-Economic Strategy document is therefore intended as a further elaboration of the fifth element outlined above. It therefore set out to address the following specific objectives:

* securing a return to a long-term growth trend in excess of population growth;

* reducing the budget deficit, reforming the tax system and re-prioritising public expenditure;

* bringing inflation down and easing the balance of payments constraints;

opening the economy to international competition and securing access to new markets;

* integrating the civil service and transforming public sector institutions; and

* establishing policy frameworks for delivery of social services.

The RDP base document asserted that the "central" for reconstruction and development is to create a strong, dynamic and balanced economy which will create productive employment opportunities at a living wages for all South African; develop a prosperous and balanced regional economy in Southern Africa based on the principles of equity and mutual benefit and sustains a viable and efficient domestic manufacturing capacity and increases our potential to export manufacture products.

It is clearly recognised that the attainment of these goals requires sustained growth premised on transforming the economy towards outward orientation. Inherent in the this approach is the development of strategies for among others, the following core elements:

* budgetary and expenditure reforms;

* fiscal prudence and deficit reductions;

* a competitive exchange rate and gradual relaxation of exchange controls;

* a consistent momentary policy to keep inflation low;

* stimulation of new investment in competitive and labour-absorbing projects;

* a reduction in tariffs to contain input prices and facilitate industrial restructuring; and

* an expansion of trade and investment flows in South Africa.

The unreadability of raw material exports in the 1980's persuaded policy-makers that the central thrust of trade and industrial policy has to be the pursuit of employment creating international competitiveness. This entails a shift away from demand-side interventions to supply-side measures designed to lower unit costs and expenditure goods in general, industrial policy must support and strengthen those internationally competitive industries that emerge on the basis of stronger internal linkages, meeting the needs of reconstruction and raising capacity utilisation.

To date substantive progress has been achieved in the following areas:

* replacement of quantitative restrictions with tariff

* rationalisation of the tariff structure by almost halving the number of tariff lines;

* abolition of import surcharges1 completed in October 1995;

* phasing down of tariffs begin in 1995, by an average of one-third over 5 years; and

* phasing out of the general export incentive scheme GElS, to be completed by the end of 1997.

The real depreciation of the rand is also received as creating favourable conditions for an acceleration of the tariff reductions to which South Africa is committed in terms of the agreements of the World Trade Organisation. These reforms will be structured to lower prices for industrial inputs and low-income households, to avoid job losses in sensitive sectors and to remove price distortions in domestic markets. All these developments have a significant bearing on trade and industrial policies for the Southern Africa region.

GLOBALIZATION: A REALITY WE CANNOT EVADE

It is well known that the process of transition in our country is taking place against the background of enormous change in the international context. Globalisation is a phenomenon that has to be recognised as a process aimed at progressively integrating national commodity capital and financial markets into a single global market operating according to a universal set of rules. It is being driven by transnational co-operations, multilateral institutions and governments of advanced industrial countries in a context in which those capitals which are today the dominant forces in the world economy, and successful new entrants, have been seeking to move beyond national markets and operate on a global scale. Contemporary globalisation has been accompanied by the introduction of new technologies, notably info technologies which have transformed global communication and has seen knowledge, as distinct from materials intensive industries and processes emerging at the cutting edge of global production.

Closely linked to the process of globalisation is a driven towards liberalisation. This is to a considerable extent inherent in the process of seeking removal of barriers to the free movement of capital, finance and commodation across the globe. It has given rise to anew policy agenda, known as neo-liberalism, whose basic tenets that unregulated global commerce and a reduction of state services are the universal and exclusive route to global growth and development.

A third element, closely related to globalisation and liberalisation, has been the emergence of an international regulated ruIe-based trading system. Liberalisation and deregulation at national level have in fact, been accompanied by a strengthening of regulation at the global level. The Uruguay Round of GATT and the subsequent establishment of the WTO were important steps in this process. These phenomenon has led to an emergence of a brand of economic neo-realist though which perceives integration into the global economy as an unproblematic source of opportunity, provided that the domestic economy and social structure is adapted to the competitive norms of the global environment.

On the other hand, there is a school of thought on the Left, which holds that any form of engagement with the institution of governance of the global economy, is the slippery slope to subordination to the dictates of neo-liberalism. Domestic economic policy should according to this perspective, be inward orientated and try, to insulate South Africa from global pressures.

The problem with the first kind of perspective is that it takes us serious account of the unevenness, imbalances and inequities of the contemporary global environment. It thus underestimates the extent to which international economic relations are not necessarily currently structured to the advantage of a country like South Africa and it fails to sufficiently consider the effect on South Africa of a continuing division of the world into "winning" and "losing" nations, particularly in circumstances where several neighbouring states and a large part of the African continent seem doomed to remain "losing" nations.

The problem with the second type of approach is that it underestimates the extent to which globalisation is a phenomenon rooted in real trends in accumulation. It thus fails to take account of the degree to which a struggle for the transformation of the domestic political economy needs to be accompanied by an active foreign policy seeking to maximise opportunities within existing norms and structures white at the same time striving to become a force for change in current patterns of global economic and strategic relations.

In fact GEIS payments have been reduced from 12% to 6% as from 1 July 1996 - ahead of the 1 April 1997 target negotiated during the Uruguay Round.

The real depreciation of the rand has created favourable conditions for a significant acceleration of the tariff reductions to which South Africa is committed in terms of the agreements of the World Trade Organisation. These reforms will be structured to lower prices for industrial inputs and low-income households, to avoid job losses in sensitive sectors and to remove price distortions in domestic markets. These reforms have, therefore a significant bearing on trade and industrial policies for the Southern African region.

THE SIGNIFICANCE OF SOUTH AFRICA'S TRADE WITH SOUTHERN AFRICA

Trade with Southern Africa is of considerable importance to South Africa's macro-economic accounts. Officially published trade statistics have historically referred to the trade of the whole SACU with the rest of the world. This has had the effect of obscuring the trade that takes place between South Africa and other members of the customs union, namely: Botswana, Lesotho, Namibia and Swaziland (BLNS). Consequently, the full significance of trade with African countries has for too long been understated. South African exports to African in 1996, excluding the ELNS, amounted to R13,9 billion, equivalent to 13,6% of total manufactured exports. A similar pattern of trade is discernible with SADC countries. Export to SADC countries, outside of SADC amounted to R10,6 billion with imports of R1,4 billion.

These figures, indicate that, with political impediments now removed, South Africa's trade with the rest of the continent has been increasing considerably. However, they also reveal a serious structural defect typified by a scissors crisis. The sources for the acute imbalances are many and varied. In part, they are derived from huge differences in the size and structure of production. Partly, they are an outcome of incoherent trade policies that have been pursued by countries of the region in the absence of a co-ordinated policy framework. Clearly, this pattern cannot be sustained for long without deliberate measure to promote two-way trade flows.

This realisation is what motivates South Africa to seek to restructure her relations with neighbouring countries. Hence South Africa's accession to SADC and the re-negotiation of the SACU agreement. South Africa's regional economic policy is premised on the following five elements:

* the creation of an asymmetrical free trade area;

* the recognition of variable speed in the dismantling

* the linkage of regional trade development to industrial restructuring and the promotion of new investment in infrastructure and the productive sector;

* the strengthening of customs control, monitoring and administration; and

* assistance to the least-developed countries as part of UNCTAD commitments.

THE RE-NEGOTIATION OF THE SAC AGREEMENT

The re-negotiation of the SAC Agreement has focused on three main areas:

* the review of the SAC institutional arrangement;

* a review of the revenue-sharing formula;

* policy development and co-ordination.

These goals are being pursued within an environment constrained by the following considerations:

* the need for a small and efficient institutional capacity to avoid a huge bureaucracy;

* the need to avoid massive fiscal disruption in a new revenue arrangements; and

* an arrangement that is mutually beneficial and enjoys the confidence of all parties.

Although the outlines of a potential agreement have already taken shape, a number of agreements still need to be reached on matter so detail. For instance, whereas agreement has been reached the institutions structure, consensus has yet to emerge on how the specialised functions relating to tariff policy, anti-dumping measure, competition policy are to be performed. Whether these function will require to be performed by a single body on a specialised bodies to be ironed out.

On the policy front, there has been varying progress with some sub-groups progressing satisfactory and ethers not. For instance, the delays with the tarrification process which have delayed the sub-groups on tariff policy and agriculture, we believe, have since been overcome. Unlike other regional arrangements elsewhere the structural are normally of one relatively economy and a group of comparable ones in clearly a major challenge for the evolution of co-ordinated interests may not always coincide. Despite these challenges, it is recognised that the re-negotiation process has gone for far too long and needs to be wound up very soon.

THE APPROACH TO REGIONAL COOPERATION AND INTEGRATION

South Africa's policy stands on the wider SADC agenda favours multilateral regional approach as the most viable route in addressing the perceived development disparities in the regional economy. Several reasons underline this approach including the desire to avoid duplication through a series of bilateral agreements and the need to take account of the implications of the Uruguay Round of GATT.

In SADC, a great deal of enemy of energy and effort has gone into making a case for the creation of the free trade area in Southern Africa. Interestingly, the proponents of this idea are to be found both within and outside of the region Needless to say, a few pre-requisites need to be taken into account.

Firstly, if the merit of a free trade arrangement lies in the opening up of markets and, arguably, the stimulation of investment flows, it also needs to be understood that the countries which are likely to benefit in the short term run are those with stronger supply response. This seems to suggest that South .Africa would in the regional context derive disproportionately more benefits than the rest, thereby further reinforcing the imbalances that needs to be reversed. Indeed, enhanced polarisation has been the graveyard of many schemes of co-operation and integration in the developing world.

Second the credibility of such an arrangement would rest on developing adequate rules of origin conferring on originating status on goods that flow duty free arid the creation of effective customs control institutions to enforce such rules. Due regard would also have to be given to the sensitiveness of each economy.

Third, the potential conflict of overlapping trade regimes would need to be obviated. This many present a major confusion, for instance, if SADC and COMESA rules were conflicting given the overlapping membership, of course the issue of institutional affiliation is in a large measure a political one.

It is also useful to highlight that liberalisation by itself does not guarantee economic growth. The opening up markets will need to occur in a contest or a regional industrial development strategy. Some elements of such a strategy will have to include infra-structural rehabilitation and the linkage of resource-based industries to development corridors to attract significant private sector investment. Without concerted effort to develop the infra-structural and productive capacities, the advantages of trade liberalisation may be limited.

In this regard, the rehabilitation of infrastructure including energy, transport, communications, water and waste disposal has been given priority as a key factor in promoting and supporting industrial development. In fact, the provision of infrastructure is a major determinant of investment decisions, their size arid location. Indeed, the provision of the requisite infrastructure is important ingredient of a strategy for integration into the global economy.

SADC has concluded protocol of co-operation following areas:

* energy;

* transport and metereology;

* water; and

* combat of trafficking of illicit drugs.

A Southern African Power Pool (SAPP) Agreement has also been concluded between SADC states and Zaire and their respective power utilities to promote closer co-operation in the delivery of power supply in the sub-continent

It is in South Africa's long-term interest to reduce the trade balance with the region at the same time as the volume of total trade is increased. Yet, to sustain such a course it will be necessary to ensure that an increase in total trade is matched by net capital investment flows into the region to boost supply capacity.

This suggest a nuanced approach to trade liberalisation as opposed to wholesale elimination of tariff measures. Such liberalisation should be targeted in particular for the lowering of input pricing and the costs of consumer goods. The approach advocated here is one that recognises that uneven development cannot be rectified solely by trade policy. Indeed, it would require a blend of policy measures including a well-articulated regional industrial developments strategy and investment policy.

Whereas South Africa has no desire nor ambitions for hegemonic designs in the region, she nonetheless continues to have legitimate interests. These interests are better served in partnership with regional states as opposed to dominance and imposition. Admittedly, the process is at times tedious and slow. It is, however, a more responsible approach that will ensure that a long-term sustainable relationship is not sacrificed at the alter of short-term expediency. Yet, a new relationship can also be started if it is perceived to be based on a series of demands by the smaller states. By definition, processes of integration can only be successful if all parties derive tangible benefits, or at least if they are better off inside rather than outside the arrangement. This certainly cannot be achieved on the basis of dogged seIf-righteous by any of the parties involved.

REFERENCES

1. Growth, Employment and Redistribution: A Macro-Economic Strategy, Department of Finance, 1996

2. Ndegwa, P, and R.H. Green, Africa to 2000 and Beyond: Imperative Political and Economic Agenda. Nairobi: Past Africa Educational Publishers, 1994

3. Teunissen, J.J. (ed.), Regional and the Global Economy: The Case of Latin American and the Caribbean. The Hague: FONDAD, 1995.

4. Protocol on Trade Cooperation, Dar Es Salaam, August 1996

 

 

Appendix 2:

NATIONAL COUNCIL OF PROVINCES

24 APRIL 1998

LIQUOR BILL, 1998: OBJECTIVES AND SUMMARY

1. OBJECTIVES

- Establish regulatory framework for liquor industry;

- Restructure liquor industry;

- Facilitate entry into liquor trade;

- Enforce legislation effectively;

- Maintain adequate standards of service delivery in industry;

- Take community interests into account; and

- Promote co-operation with NGOs and private sector in combating alcohol abuse.

2. SUMMARY OF BILL

2.1 RESPONSIBILITY OF STATE TO LIQUOR INDUSTRY:

Enhance capacity of public to deal with socio-economic costs of alcohol abuse and enhance capacity of liquor industry to conduct its business.

2.2 NATIONAL LIQUOR ADVISORY COMMITTEE (NLAC) Representation on NLAC:

Departments of: - Health;

- Welfare;

- Education;

- Transport;

- Safety and Security;

- Trade and Industry;

- Public Works;

- and representatives from:

- the community; and

- the liquor industry.

THE NLAC's FUNCTIONS:

- Advise the Minister or MEC;

- Policy guidelines to PLAs on power concentrations in industry;

- Educational programmes on harmful effects of alcohol; and

- Resolve disputes between provincial governments.

2.3 PROVINCIAL LIQUOR AUTHORITIES (PLAs)

The PLAs will:

- Grant all applications that fulfil minimum requirements;

- Consider applications that were objected to;

- Withdraw or suspend registrations; and

- Determine conditions applicable to registrations

2.4 PANEL OF APPEALS AND APPEALS TRIBUNAL

Will be established provincially.

2.5 APPLICATIONS FOR REGISTRATION

- Will involve community.

- Persons convicted of crimes less than three years before, are barred from applying.

- No-one will be registered in more than one category.

- PLA can refer registered person to SAPS for criminal investigation.

- PLA may cancel registrations.

2.6 REGISTRATION

Six categories of registration:

- manufacturer;

- wholesaler;

- retailer (off-consumption);

- retailer (on-consumption);

- retailer (on- and off-consumption); and

- special events.

Restrictions will ensure orderly liquor sales.

Health warnings to be displayed by registered businesses.

Minister may prescribe benefits or allowances to registered persons.

2.7 CREATION OF NATIONAL AND PROVINCIAL INSPECTORATES

Inspectors will have powers to:

- carry out inspections;

- monitor compliance; and

- enforce compliance.

2.8 OFFENCES:

- Vertical integration will be an offence.

- "Tie agreements" will be an offence.

- Liquor may not be sold to persons under 18.

- Liquor may not be sold to intoxicated persons.

2.9 THE MINISTER MAY ISSUE REGULATIONS REGARDING:

- Restructuring the liquor industry;

- Empowerment of new entrants in the industry;

- Appropriation of funds for the NLAC;

- Norms applying to micro-manufacturers;

- General dealers;

- Notices of information regarding alcohol abuse; and

- Other matters.

3. MANPOWER IMPLICATIONS

- Trade and Industry will appoint personnel to the NLAC.

- Provincial governments will appoint personnel to the PLAs.

- Inspectorate will be appointed nationally by Minister and provincially by MEC.

4. FINANCIAL IMPLICATIONS

NLAC funded by:

- appropriations made by Parliament; or

- appropriations made by provincial legislatures; and

- any other source.

PLAs funded by:

- Parliamentary appropriations;

- fees charged in terms of this Act; and

- funds derived from any other source.

Panels of Appeals and the Appeals Tribunals funded by provincial governments.

5. COMMUNICATION IMPLICATIONS

The DTI will launch a communication program to educate the public.

6. OTHER DEPARTMENTS / BODIES CONSULTED

All affected government departments were consulted or invited to raise their concerns.

NGO's were invited to consult with DTI and make submissions.

7. ACCOUNTABILITY OF PLAs

Provision for payment of allowances to PLA members not in employ of State.

Strict enforcement of provisions should PLA members be guilty of misconduct.

Financial statements will be audited by AG.

Members of PLAs will be dismissed if:

- qualification by virtue of which they were appointed no longer applies;

- absent from more than two consecutive ordinary meetings;

- convicted of offence and sentenced to imprisonment without option;

- guilty of serious misconduct; or

- unable to perform any function for prolonged period.

8. Same provisions will apply to NLAC and members of NLAC.

OBJECTS OF THE LIQUOR BILL

The objects of this Bill are to encourage and support the liquor industry and to manage and reduce the socio-economic and other costs of excessive alcohol consumption by -

(a) establishing an administrative and regulatory framework, within which the liquor industry can conduct its business;

(b) restructuring the liquor industry by means of eliminating vertical integration and excessive concentration of ownership and control among participants in this industry;

(c) creating an environment in which the entry of participants into the liquor industry is facilitated;

(d) creating an environment within which appropriate steps are taken against those not working within the administrative and regulatory framework established in terms of this Act;

(e) creating an environment within which those involved in the liquor industry may attain and maintain adequate standards of service delivery;

(f) creating an environment within which community considerations on the registering of premises are taken into account; and

(g) promoting a spirit of co-operation and shared responsibility within government and among other interested persons in their dealings with consumers of liquor and in their attempt to address the socio-economic costs and health and other related problems associated with excessive alcohol consumption.

 

 

Appendix 3:

INVESTMENT SOUTH AFRICA

ISA PROGRESS INCEPTION TO DATE

Institution Building

*Completed most of the institution building

*Internal Structure of ISA [Ed. Note: diagram not included]

*Complements DTI's internal structure which has a sector and regional focus.

Investor Targeting Studies

*Studies are complete

*Implementing the studies- using the studies to determine countries & companies to visit

*Simultaneously updating the studies- intended to be updated every 6 months

Data-Base

*Database is up and running - dynamic process

*Accessible to provinces, DTI national and foreign representatives through intra-net

*Web-site structure is developed- but content constantly changes

*Linked with the web-site of EC, KZN, MP

Tracking System

*Maximiser was installed in December 1998 and is now operational at ISA

*Software is to be installed in all nine provinces

*One outlet to be installed at DTI

*Pilot at one DTI foreign office

Road-Map Study

*A number of recommendations are made in this report to stream line the investment process

*Awaiting comments and indications of planned changes to the procedures

*Working with Home Affairs- assist with work permit, permanent residence

*Assist with evaluating business plans

NEW FOCUS

Capacity Building

*Discipline w.r.t. outward mission

*Emphasis on building skills in provinces for investment promotion

Pro-Active Marketing of South Africa

*Holistic Public Relations Campaign

*Involvement of All Stakeholders e.g. Department of Tourism, SATOUR, Foreign Affairs, DTI, Private Sector