Department’s Annual Report 2006/07: briefing

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
24 October 2007
DEPARTMENT’S ANNUAL REPORT 2006/07: BRIEFING

Chairperson: Mr B Martins (ANC)

Documents handed out:
Department of Trade and Industry Annual Report 2006/07 [available shortly at www.thedti.gov.za]
Presentation to the Portfolio Committee on Trade and Industry

Audio recording of meeting

SUMMARY
The Department of Trade and Industry briefed the Committee on its mandate and achievements, noting that its role was that of ensuring economic growth by removing all obstacles that hindered growth. The Department noted that through its strategic policies and programmes, the economy had sustained growth for seven consecutive years, registering 5% real GDP in 2006.

The Department noted that challenges to the economy with respect to manufacturing and export, which lessened growth in these sectors, included lack of capacity, rising input costs, exchange rates and interest rates. The Department similarly faced challenges with respect to enhancement of the effective programme and project performance, stronger strategic and operational management, greater integration of work and human resource.

Members were concerned with the issue of rural development, the challenge of human resources in the Department, the issue of evaluation of the effectiveness of the programmes undertaken by the Department and the time frames within which these projects were to be completed. The Department noted that it had various projects that focused on rural development, and that it did have plans in place before undertaking projects.

MINUTES
Annual Report 2006/07: Briefing by the Department of Trade and Industry (dti)
Mr Tshediso Matona, Director General Department of Trade and Industry, informed the Committee that the role of the Department was to ensure economic growth by removing all obstacles that hindered growth. The economy of South Africa had been growing for seven consecutive years driven by domestic demand. He noted that the economy had registered 5% real Gross Domestic Product (GDP) in 2006. The current performance was widening the current account deficit, driven by demand exceeding supply, import penetration and weak export performance. He stated that approximately 500 000 jobs had been created per annum. There was a modest improvement in manufacturing and the aggregate export had grown to 5.5% in real terms.

He noted that the key constraints likely to dampen manufacturing and export growth were lack of capacity, rising input costs, exchange rates and interest rates. Despite these constraints the economic growth remained robust. Accordingly he was of the view that this called for the dti and the government to ensure effective and sustainable implementation of the National Industrial Policy Framework and key sector action plans.

The dti’s strategic objectives were highlighted by Mr Matona as promoting the coordinated implementation of the accelerated and shared growth initiative other departments, promoting direct investment and growth in the industrial and service economy with particular focus on employment creation, raising the levels of export and promoting equitable global trade, promoting broader participation, equity and redress in the economy and contributing to Africa’s development and regional integration within the NEPAD framework.

Mr Matona noted that the work of the Department was based on industrial development, trade, investment and export, broadening participation, regulation and administration and coordination. The Department, under industrial development, sought to provide leadership in the development of policies and strategies. The National Industrial policy endorsed by the Cabinet together with an Industrial Policy Action plan would guide the Department. The Department aimed to finalise and implement key sector strategies and implement the National Industrial Participation Programme.

Key incentives that contributed to manufacturing and services industries were identified. These included the SMEDP (small and medium enterprise development programmes) where 11 309 projects were approved, Strategic Industrial projects (where R28billion was invested on ongoing projects), critical infrastructure programmes (where R32 billion was invested), industrial development zones, Film and TV production (including assistance on the Oscar winning film Tsotsi).

The Department noted also that it had established Centres of Excellence to increase manufacturing skills, in aerospace, clothing and textile. Under trade, investment and export the Department noted that it had played a leading role in the World Trade Organisation (WTO) for South Africa, it was involved in the Doha round negotiations and had a team of experts in Geneva to keep the Department abreast of emerging issues. Similarly it had entered into various bilateral treaties and also ratified the European Free Trade Association (EFTA) agreement as had been done by Lesotho and Namibia.

Under the clothing and textile industry, quotas against import surges from China had been instituted to provide relief to local manufacturers. There were ongoing negotiations to promote African and regional economic integration. He emphasised that the Department was involved in negotiations for economic integration with Southern African Development Community (SADC) countries and the European Union (EU). However there was need to integrate with SADC first before negotiating with the EU. He stated that there were instruments in place that governed trade relations with the United States to ensure fair trade. The Department had undertaken a widening of export promotion activities.

Mr Matona noted that the Department had developed policies and strategies promoting enterprise growth, empowerment and equity to broaden participation in economic growth. This was achieved through support of small enterprise development through rollout of the Small Enterprise Development Agency (SEDA) and the South African Micro Finance Apex Fund (SAMAF). Codes of good practice for broad based black economic empowerment (BBBEE) adopted by Cabinet were gazetted, regional industrial development work was being linked to the National Industrial Policy Framework and Local Economic Development work and BEE and women’s empowerment was also supported by incentives schemes. In addition training workshops on women empowerment and access to finance through South African Women Entrepreneurs Network (SAWEN) were carried out, cooperation legislation was developed and publications, road shows and imbizos had promoted awareness of dti’s services.

Mr Matona indicated that several pieces of legislation had been developed in the past year (see attached presentation) and described progress on this. Further legislation still being worked on included the Intellectual Property Laws Amendment Bill, the Standards Bill and the National Gambling Amendment Bill.

Mr Matona noted the critical challenges of the department in human resources. The Department had contracted specialised recruitment agencies to help recruit qualified candidates. It was looking to develop a HRD strategy covering recruitment, retention and training. The Department maintained strong corporate governance and had achieved unqualified audits for several years, and managed to have annual reports by its agencies submitted on time.

Mr Matona noted that the Department used its budget effectively, noting that 3% of the budget was unspent during the period of reporting. He noted that the under-expenditure occurred mainly in following areas; business process outsourcing, staple food Fortification programme, SMEDP, disaster recovery and the World Bank. He gave an outline of the allocation of the budget over the MTEF period. Finally he noted that as of 31^st August 2007, only 5% of the budget was under-spent against projects.

In conclusion Mr Matona said that the Department had achieved its targets. The challenges would be enhancement of the impact of the Department through effective programme and project performance, building stronger strategic and operational management, and achieving greater integration of work and human resource. He noted that the Department had sought increase of financial resources.

Discussion
Mr D Dlali (ANC) asked what role the Department had played in creating the 500 000 jobs.

Mr S Rasmeni (ANC) added that he would also like to know which sectors created these jobs.

Mr Matona noted that the Department implemented policies and strategies that assisted the industry in creating jobs – such as ensuring enterprise development through various programmes. He noted that most jobs had been created through the manufacturing, construction and retail sectors. However these sectors seemed to have seasonal fluctuation, and the retail sector tended to be affected by increases in interest rates. 

Mr Dlali asked if the Department had done anything to ensure the de-racialisation of the economy and how far this had been successful.

Mr Matona noted that the Department had various projects that were focused on benefiting disadvantaged groups, but there was no clear target. It would act to assist the transformation of the economy through projects such as the Black Business Supplier Programme (BBSP).

Mr Dlali referred to a challenge highlighted in the Annual report of meeting the Department’s mandate by ensuring integration. He asked the Department what measures it had put in place to tackle this challenge. Mr Dlali also inquired on the role of the Department’s agencies with respect to local economic development, with emphasis on the rural areas.

Mr Matona noted that the Department was involved in various projects in the rural areas and that he would expound on the issue of rural development further.

Dr P Rabie (DA) asked if the Department was working with other countries who were pioneers in the various areas in which the Department was establishing centres of excellence.

Mr Matona stated that the Department was in consultation with countries that were pioneers in these fields.

Dr Rabie noted that one of the most significant contributors to the economy of a country was crude oil. He noted that any country should have agreements with several supplier countries to ensure that it did not run out of crude oil, pointing out that reserves were drying up.

Mr Matona did not specifically deal with the question on crude oil, however he noted that the Department had entered into various agreements with several countries, and that Brazil was one of its largest suppliers of bio-fuel.

Mr Rasmeni asked whether, through the Industrial Development Zones, the Department had attracted local investors, under which sectors they fell, and the number of local investors attracted.

Mr Matona noted that the duty of the Department was to provide conducive conditions for local investors to be able to market their products. This would include imposition of quotas with respect to China, to encourage local investors in the clothing and textile industry.

Mr Rasmeni was concerned about the negotiations with the EU on free trade markets, noting that it would be better to first advance economic integration in the SADC countries before negotiating with the EU. He cautioned that rushed agreements could be exploitative.

Mr Matona noted that he was correct that the negotiations of free markets with the EU should await the economic integration of the SADC countries.

Mr Xavier Carim, DDG: International Trade and Economic development, DTI, noted that one of the reasons why economic integration in SADC had not been realised was that some members were members of more than one regional body (for instance, the East African Community) and had disintegrated from SADC due to the influence of the other regional bodies.

Mr Rasmeni asked whether the Department had made any progress in the upgrading and restructuring of the clothing and textile industry, to enable the industry to compete with foreign investors. He stated that the protection mechanisms implemented by the Department were short lived.

Mr Sipho Zikode, Acting DDG Enterprise and Industry Development Division, dti, noted that the Department had designed customised programmes and incentives protocols to assist in the upgrading of technology in the clothing and textile industry.

Prof E Chang (IFP) stated that the protection of industry was very important. She noted that this aspect was alluded to by American aspiring presidential candidate Hillary Clinton.

Prof Chang asked if the Department had developed any strategy for educating the people on exploitation of natural resources and processing, such as diamond processing, as this would help the people benefit.

Mr L Labuschagne (DA) asked whether beneficiation was part of the industrial policy of the Department.

Mr Matona noted that the issue of beneficiation was a challenge to the Department. He noted that in most cases minerals were exported as raw materials. He noted that the mineral markets were situated far from the country, and that in the long run minerals were sold at a high price by companies that could afford to export processed minerals. The local people therefore would not benefit from the minerals as they were unable to process them. He noted that the Department of Minerals and Energy was carrying out programmes to assist the local people, for example in diamond processing.

Prof Chang asked whether the Department consulted with parliament on the National Industrial policy, before implementing such policies.

Mr Matona noted that he was aware that national policies did come to Parliament for consultation before they were forwarded to the Cabinet, and that the same must have applied to the National Industrial Policy

A member of parliament requested the Department to specify what projects were included in the 150 projects to be implemented under the Industrial Participation Programme.

Mr Zikode noted that a presentation on the NIP projects would be given to the Committee in future. He noted that these projects spanned across all sectors such as mineral beneficiation and chemical equipment.

A Member asked what was the progress on the Consumer Protection Bill.

Mr Fungai Sibanda, Chief Director, Regulatory policy & Legislation, dti, noted that there was an extension of the consultation period for the Consumer Protection Bill.

A Member asked the Department whether the unfilled vacancies impacted on delivery of services.

Mr Matona noted that the impact of the unfilled vacancies was that the employees of the department had more work to do. He thanked his team for meeting their targets despite these challenges.

Mr Labuschagne noted that most Annual Reports did not identify the effectiveness of the projects carried out by the Departments. He asked the Department to give details of results of the various projects implemented.

Mr Labuschagne asked the Department also to identify the effectiveness of the training workshops and where the training acquired was applicable.

Ms M Ntuli (ANC) noted that the Director General had identified various challenges in his conclusion. She asked whether the Department had taken any steps to evaluate the effectiveness of their programmes to meet the needs of the masses through research.

Mr Matona replied that the Annual Report was structured in a way that identified the mandate of the department, the activities it had undertaken and the money spent. He noted that he would have to give a very detailed report to the Committee on the evaluation of these projects, but this would not be in the nature of the Annual Report. He noted however that the government had in place mechanisms for the evaluation of projects undertaken by departments and that dti also had its own mechanisms for evaluation of its programmes.

Ms Ntuli asked whether the Department supported industrial innovation, or whether it would become involved at the commercialisation stage.

Mr Matona noted that the Department would only become involved at the commercialisation stage, in identifying markets to trade these products.

Mr Labuschagne asked the Director General to clarify whether Botswana was a signatory to the EFTA agreement.

Mr Cassim noted that Botswana had signed the EFTA agreement and apologised for the typographical error.

Mr Labuschagne asked whether the quotas imposed on China in the clothing and textile industry were effective.

Mr Matona noted that there were many ways of protecting the industry, as noted by Prof Chang. However, the imposing of quotas was one method used by the Department and it was effective.

Mr Labuschagne noted with concern that there had been an outcry from various institutions about lack of sufficient consultation during the public hearings for Bills. He requested the Department to ensure the participation of as many stakeholders as possible.

Mr Labuschagne wanted to know whether the Corporate Laws Amendment Bill had been promulgated.

Mr Sibanda noted that the Corporate Laws Amendment Act had been promulgated, but its effective date was yet to be declared in the Government Gazette. The Department had written a letter to the President requesting that the date be gazetted.

Mr Labuschagne wanted to know whether there was a large salary difference between that of the department and the COTII given that the department oversees the activities of Council of Trade and Industry Institutions, and whether that would affect the relationship between the two.

Mr Labuschagne wanted to know the reasons for the resignation of employees of the Department.  Given the fact that the Department was stated as having met its targets, he wondered if there was any need to fill the vacancies. He also asked whether senior staff signed performance contracts.

Mr Matona noted that the Department had carried out several exit interviews and noted that one of the main reasons for the resignation of staff was the lack of tenure of office. He also noted that most young people would work for the Department for a short period before being poached by private companies.

Mr Labuschagne asked the Department what steps it had taken in terms of transformation,  whether the Department had a target, and whether it was based on a percentage.

Mr Matona noted that the Department had no specific target on transformation, but that it was working constantly towards the realisation of this goal.

Mr Labuschagne asked what shortcomings were brought about by other departments.

The Chairperson thought that it would be difficult for dti to report on the shortcomings of other departments and their impact.  Dti was concerned with its own mandate. Any impact of other department would be best assessed by government.

Ms Ntuli asked the Department whether it had created sustainable jobs.

Mr Matona noted that most of the jobs created were sustainable, but that the manufacturing jobs were much more sustainable as this industry was not so greatly affected by trends in the economy.

Ms Ntuli asked whether the challenge of skills shortage covered only shortage amongst departmental employees, or also covered general lack of skills by those engaging in trade and investment.

Ms Ntuli asked what type of training was being given to previously disadvantaged people who wanted to be involved in trade and investment.

Mr Matona noted that the shortage of skills applied throughout the trade and industry sector as a whole. The Department, in coordination with training institutes and universities, was in the process of training people in various skills.

Ms Ntuli noted that the report stated that some sector jobs were low paying; and asked whether that meant that some sectors were paying people below the minimum wage.

Mr Matona noted that there were sectors that paid people very poorly but this did not necessarily mean that the wages were below the minimum wage. If it was found that a company was paying below the minimum wage, the Department of Labour would be informed and action would be taken.

Ms Ntuli noted that several projects mentioned in the report had not identified the time frame for completion. She gave an example of the SMEDP, which had been in place since 1994. She asked the Department to identify the time frame within which this project would be finalised.

Mr Matona noted that the Annual Report had identified the time frames for projects. He stated that some of the time frames were projections, as the financial year had not yet lapsed and that some were ongoing projects.

Ms Ntuli asked the Department to give a geographic spread of the number of projects approved and funded by it under the Black Business Suppliers Programme. She asked that the Department should also inform the Committee whether this project benefited the provinces.

Mr Zikode noted that all the provinces in the country benefited from the projects that were carried out by the Department.

Ms F Mohammed (ANC) noted that BEE was a tremendous challenge to the country, and was concerned at the amount of fronting of companies.

The Chairperson noted that there was as yet no legislation to prevent fronting but where it could be proved, it was possible to institute a prosecution for fraud.

Ms Mohammed wanted to know the reason for the contingent liability identified on the Annual report. She mentioned some names and asked why they were loaned funding, and what was the purpose. She also was concerned that there were 18 cases of corruption mentioned in the report, and wanted clarity on the cases that were not resolved.

This question did not appear to have been directly answered.

Ms Mohammed was worried about the corruption in the department with respect to registration of cooperatives. She noted that there were some complaints of corruption from her constituency with respect to registration of cooperatives.

The Chairperson noted that it was the duty of the members of parliament to take up cases of corruption in their constituencies and ensure that those involved were prosecuted, by encouraging members of the constituencies to give evidence.

Ms Mohammed wanted to know the effect of the bi-national treaties.

Mr D Olifant (ANC) was concerned about the issue of rural development. He noted that the Department had not focused on this issue although it was crucial to the regional development in the country. Similarly Mr Olifant noted that the department was silent on the rural development aspects of the SMEDP.

Mr Matona noted that the issue of rural development was not only the work of dti. He stated that the Department had various projects that were run in the rural areas, especially in the underdeveloped areas, for example, the agro processing and infrastructure development.

Mr M Bhengu (IFP) asked whether there was a relationship between the dti and other Departments, particularly those responsible for mining and agriculture. He noted that there was no mention of agricultural products in the Annual Report.

Mr Matona noted that the Department worked in coordination with other departments. Specifically in relation to agriculture and minerals, dti was mandated to look for markets for these products.

Mr Bhengu wanted to know whether the relationship between governmental departments was clearly demarcated.

Mr Matona noted that the Department worked in coordination with various other departments but did have a clear mandate that was different from that of other departments.

Mr S Njikelana (ANC) noted that the incentives created by the Department were prone to abuse and corruption, and asked whether the Department had faced this challenge.

Mr Tumelo Chipfupa, DDG: The Enterprise Organisation, dti, noted that all incentives were prone to abuse and corruption. The Department had tried to curb this by taking a number of steps before the incentives were advanced. For example, incentives could only be offered when the persons seeking them had met certain criteria. Where the department identified cases of fraud it had tried to collate as much information as possible to ensure that it had a strong case.

The meeting was adjourned.