Department of Trade and Industry: Strategic Plans, Legislation and Budget 2007/08

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
14 March 2007
DEPARTMENT OF TRADE AND INDUSTRY: STRATEGIC PLANS, LEGISLATION AND BUDGET 2007/08

Chairperson: Dr B Martins (ANC)

Documents handed out:
Department of Trade and Industry (DTI) presentation on their 2007/08 Strategic Plans

SUMMARY
The Department of Trade and Industry said that the change in the economy towards a higher growth path had now been well established, with GDP growth of 5% in 2006. Key drivers had been robust consumer spending and increased fixed investment by both the public and private sector. Some of the challenges were that increased imports exerted pressure on the trade balance. Unemployment was still high despite improving job creation. Export and foreign direct investment (FDI) performance was modest. However millions were still on the economic margins and many were poverty-stricken. A policy response had been to introduce ASGISA (Accelerated and Shared Growth Initiative for South Africa), which identified key binding constraints and interventions to address them. The DTI was key in the ASGISA conception its focus was on increasing economic efficiencies, promoting dynamic sectors and having an integrated small enterprise service delivery.

In terms of consumer and corporate regulation, the new Companies Bill had been approved by Cabinet and published for comment. A new Consumer Protection Bill had been through 12 months of consultation and had been amended to reflect public input. It would be sent to Cabinet for approval during March 2007. The Competition Policy Review had been completed and amendments were to be drafted.

Some of the institutional challenges facing the DTI were recruiting and retaining requisite capacity and skills. Another was ensuring continued sound corporate governance and financial management of the Department.

MINUTES
Department of Trade and Industry (DTI) strategic plans
Mr Tshediso Matona, DTI Director-General, said that the change in the economy towards a higher growth path had now been well established, with GDP growth of 5% in 2006. Key drivers had been robust consumer spending and increased fixed investment by both the public and private sector. The leading growth sectors were in construction (13.2%), finance and business services (7.9%), trade (6.9%), transport and communication (5.6%) Business confidence was high, despite rising inflation, interest rates and import competition.

Some of the challenges were that increased imports exerted pressure on the trade balance. Unemployment was still high despite improving job creation. Export and foreign direct investment (FDI) performance was modest but millions were still on the economic margins and many were poverty-stricken. The economy’s fortunes were still tied to global economic developments such as the oil price, although prospects were positive.

Some of the policy responses had been to introduce ASGISA, which identified key binding constraints and interventions to address them. The DTI was key in the ASGISA conception and played a lead role in the Economic Cluster’s implementation of ASGISA. The focus for the cluster in 2007-2009 was on increasing economic efficiencies, promoting dynamic sectors and having an integrated small enterprise service delivery. ASGISA identified the need to develop a robust industrial policy to promote diversification, competitiveness and labour-absorption. The National Industrial Policy Framework had been finalised and approved by the Cabinet with a directive for it to be implemented immediately. This implementation was being planned, with focus on priority sectors and key interventions. The Regional Industrial Development Strategy (RIDS) to stimulate growth in slower growing provinces, towns and rural areas to deal with regional disparities had also been finalised.

To support Enterprise Development, the DTI had established the National Small Business Advisory Council. Khula loans and advances had increased from R34 million in 2002 to R137 million in 2006. Also, three new funds were launched and capitalised at R300 million. Products for targeted procurement by Government Departments had been identified and would be implemented. The Industrial Development Corporation had approved investments in excess of R6 billion. Also, 15 co-operatives from 6 provinces (Eastern Cape; Kwa-Zulu Natal; Gauteng; North West; Northern Cape and Limpopo) had been supported financially, which benefited 205 youth and 188 women.

In support of Broad Based Black Economic Empowerment (BBBEE), the codes of good practice were gazetted. A BEE Advisory Council was to be established, and it would oversee and monitor the implementation of the code. The National Empowerment Fund had disbursed R424 million from and approved investment of R590 million. In the Black Business Supplier Development Programme, 854 projects were approved to the value of R46 million and a further R25 million would be disbursed during the year.

In terms of consumer and corporate regulation, the new Companies Bill had been approved by Cabinet and published for comment. It was expected to increase investment in firms by reducing regulatory and administrative burdens on small and medium size firms. A new Consumer Protection Bill had been through 12 months of consultation and had been amended to reflect public input. It would be sent to the Cabinet in March 2007. The Bill aimed to promote a fair and competitive market place for consumers. The Credit Act had been proclaimed and the regulations had been published for implementation. It would improve consumer protection, remove discrimination and create a single market for credit. It would also remove adverse data on about 1.7 million consumers. The Competition Policy Review had been completed and amendments were to be drafted. This Bill would improve the competitiveness of concentrated sectors and address anti-competitive behaviour.

The DTI contributed to the January 2007 resumption of WTO Doha Round of negotiations and led the development of the country’s position on industrial tariffs in Doha and led the development of the SADC negotiating position on the Economic Partnership Agreement with the EU.

In human resources, the DTI had targeted filling 150 vacancies by the 31 January. It managed to fill 135 of them (90%). The Department launched a special recruitment project on identified posts via a recruitment agency and at present the DTI had a 25.8% vacancy rate as at the 28^th of February 2007. Extensive training was provided via bursaries, in-house training, internships, the Adult Basic Education and Training programs, and the Regional Trade and Investment Capacity building programs. The Department was certified for Employment Equity Act compliance.

In terms of its financial performance, the DTI received an unqualified audit report for 2005/06 and the yearly spending trend reflected an average spend of their allocated budget over the past four years of 95%. The under-expenditure was largely due to limited spending on critical infrastructure, resulting from the nature of the incentive scheme which, required payment to be made only after expenditure had been incurred. The under expenditure in 2005/06 was due to late expenditure of R50 million on the APEX fund which only became operational on the 1^st of April 2006.

Some of their strategic deliverables in Enterprise and Industry Support and Development were the implementation of the National Industrial Policy Framework (NIPF). Here they would continue sector strategy development in alignment with the NIPF and the implementation of key sector initiatives such as tourism. Over 40% of their budget went to the support of enterprises through incentives. They developed a human capital strategy to support critical skills areas, including industrial centres of excellence. Continued technology support to enterprises via current schemes was also an important programme. The DTI also wanted to increase targeted support for women-owned enterprises.

They wanted to continue and step up non-financial enterprise development support through an effective service delivery network with the Small Enterprise Development Agency (SEDA), which sought to provide export readiness for small businesses, training and mentorship, manufacturing support and information and advice to businesses.

Some of the institutional challenges facing the DTI were recruiting and retaining requisite capacity and the requisite skills. Another was ensuring continued good corporate governance and ensuring the continued sound financial management of the Department. It was also a challenge to oversee the agencies and increase the budget to support the DTI’s new and expanding mandate. Their aims were to reduce the level of vacancies to less than 15% by having a dedicated Human Resource Development strategy, aiming for competency enhancement and development. They were also focusing on the development of a supportive DTI organisational culture while maintaining and improving its corporate governance (including the agencies).

The DTI chaired the Economic Cluster of Departments. The cluster’s three-year programme of action for 2007-2009 was adopted at the Cabinet Lekgotla in January 2007. The programme focused on increasing economic efficiencies, promoting dynamic sectors and integrating small and micro enterprises.

Discussion
Dr P Rabie (DA) said that the DTI was a large department. How were they going to exercise greater oversight functions over all of the agencies?

Mr Matona replied that oversight was a challenge in an organisation like the DTI where some agencies were established by legislation and had their own management structures. In the past, the agencies had been distant from the DTI but now they accepted that they had to take their ‘cue’ from the Department. Some agencies were still presenting challenges in how the DTI could influence them, but many of the DTI’s resources went to the agencies so they had to have some influence, without micro managing them. He added that it would be helpful if the Committee gave the DTI some feedback on the agencies’ progress after their visits to Parliament.

Mr S Rasmeni (ANC) asked what plans the DTI had in place to rehabilitate towns that had relied on mining but were now derelict since the mining ceased. What was being done to help co-operatives since their funding was being suspended? What imports were negatively affecting the balance of trade and what was Government doing to redress this imbalance?

Mr Lionel October, the Deputy Director-General of Enterprise and Industry Development, said that there were provisions in the Mining Charter that dealt with the issue of ‘declining towns ’ and the DTI was dealing with this issue via the RIDS. Many countries had faced this issue in the past so South Africa was no different. It was important for there to be diversification in these areas, but this needed more resources. Specific support measures were in place to assist co-ops. Many lacked the capacity to spend their money and there were weaknesses in keeping records. The DTI had made changes to its unit that dealt with co-ops to make sure that better monitoring took place.

With regards to imports, the main products brought in were petroleum, computing, high technology and capital investment products. South Africa’s main problems were a small export space, a lack of capacity to export and restricted market access. Export diversification, mining export development and accessing high growth markets (such as Saudi Arabia) could be a way to improve things.

Mr Matona said that the easy answer to cure the trade imbalance was simply to increase exports, but the country could not restrict imports. The main composition of imports was capital goods.

Mr J Maake (ANC) asked how the DTI intended on reducing the regulatory burden on small businesses. Also, what progress was being made to develop the ‘second economy’ and how was this measured?

Mr Matona said that no one knew how many laws affected SMEs. Some argued that some affected the SMEs negatively so the DTI was actually carrying out research to find out if this was the case. Some laws were fine in their own right, but the DTI had to find out what the cumulative effect of all of the laws was. The second economy presented a challenge conceptually and practically. Its existence had made the Government aware that it had to change the practices of the past Government where some laws were only responsive to the needs of one section of the populace. There was a big challenge in identifying, measure and intervene in the ‘second economy.’ The Cabinet had however, made the issue of clarifying and measuring it a priority.


The meeting was adjourned.