Export Strategy Design and Implementation: Department’s briefing

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Trade, Industry and Competition

13 November 2007
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
14 November 2007
EXPORT STRATEGY DESIGN AND IMPLEMENTATION: DEPARTMENT’S BRIEFING

Acting Chairperson:
Mr S Njikelana (ANC)

Documents handed out:
Design and Implementation of the Export Strategy
Draft Export Strategy

Audio recording of meeting

SUMMARY
The TISA division of the Department of Trade and Industry briefed the Committee on the design and implementation of the export strategy that had been developed last year. South Africa had a limited manufacturing base and there was need to have more exporters and more manufacturers. South Africa had a strong trade policy initiative which must be applied to gain markets. The European Union accounted for 39.02% of SA global economy, and the lowest export market was South America at 1.39%. A comparison was made of the top products for export in 1990 and 2005. Export of precious metals, iron and steel, and mineral fuels had dropped in this period as against the rise of products such as vehicles, machinery and aluminium.

Members asked for the time frame within which the Draft Export Strategy would be implemented, whether it was in line with the dti medium term framework and the trade and industrial policy, the performance of the Small Enterprise Development Agency, the South-South cooperation on global trade, who financed exporters to access new markets, and coordination of intelligence and information on trade partners. Further questions addressed capacity, especially in view of the vacancy rate, exports in the motor vehicle industry, the need to improve transport infrastructure and ports, how the Department was addressing questions around expertise, and scarcity of skilled personnel. The support provided by the Department, the use of call centres, the aggressive nature of the China and India markets, the focus on labour-intensive industries in those nations, and alternative supplies of raw materials were also addressed. Export councils, the need for education, the structure of the department and the need for resources and infrastructure in previously disadvantaged areas were identified as challenges. The Department explained its partnerships, the projects in the rural areas and the work of its foreign offices and training strategies. Lack of capacity and tenure or office were cited as further challenges. The Committee believed that there was a need for a further workshop to discuss the export strategy in depth.

Finally the Committee attended to adoption of previous Minutes.

MINUTES
Design and Implementation of the Export Strategy: Briefing by Department of Trade and Industry (dti)
Mr Iqbal Sharma, Deputy Director General, dti,  briefed the Committee on the design and implementation of the Export Strategy. He stated that the Draft Export Strategy of dti was developed last year, and a study had been conducted on its status. It was identified that South Africa had a limited manufacturing base and that there was a need to had more exporters and more manufacturers. Mr Sharma stated that the National Industrial Policy framework spoke to the trade policy. He stated that there had to be some coherence in terms of these policies.

Mr Sharma noted that the National Industrial Policy Framework (NIPF) was the foundation of all policies and strategies administered by the dti. He affirmed that South Africa had a strong trade policy initiative which must be applied to gain markets. He noted that the world would be changing dramatically over the next decades. He took the Committee through slides highlighting a future view of the world in terms of population growth. In addition he took the Committee through slides of a future view of the world’s wealth. He noted that, according to the www.worldmapper.org website, the CIS states of Kazakhstan, Uzbekistan and the like would account for a significant part of the world’s wealth in 2050, as would India and China. On the other hand the United States economy would deteriorate substantially.

Mr Sharma tabled slides highlighting South Africa’s global trade. The EU accounted for 39.02% of SA global economy, and the lowest was South America at 1.39%. He stated that the strategy of the dti was to ensure that South Africa did not depend on one trade partner. He noted that the numbers in terms of imports had been growing, given that South Africa was not a mature economy. He stated that many of the imports were in the form of capital investments and that the economy was in transition.

Mr Sharma stated that the exports in terms of manufacturing had increased and the economy did not any longer depend entirely on the mining industry, as was the case in the past. He stated that the motor vehicle industry was growing in terms of exports. He highlighted the structure of South African imports, noting that the highest number lay in the manufacturing industry. He identified the 20 top export destinations, the highest being Japan, United States, United Kingdom and Germany. He stated that China and India represented the biggest opportunities for export growth to the South African economy. In terms of imports the top countries included Germany, China, United States and Japan.

Mr Sharma then gave comparisons of some of the top products for export in 1990 and 2005. In 1990 precious metals, iron and steel and mineral fuels accounted for 63.3% of the export products. This percentage had reduced to 46.8% in 2005, against the rise of products such as vehicles, machinery and aluminium. He stated that the key objective of the dti was to focus  on areas that it could realistically influence, and on key high growth markets rather than doing everything for everybody. It must ensure that the Export Community had  access to world class information and data, and access to finance to market themselves more effectively abroad.

Mr Sharma stated that the National Export Strategy should be designed in line with best practices. He stated that the strategic vision envisaged by the dti by 2014 was to maintain a market share in traditional markets and substantially increase market share by prioritising new high growth markets through aggressive marketing. In addition the strategic direction of the Export Strategy was to align the relevant divisions of the dti around key objectives and strategic interventions, ensure policy coherence both within the dti and between dti and the rest of the government. It sought to increase exports in targeted priority markets and increase the number of exporters, with specific focus on Small and Medium Enterprises (SME) and Black Economic Empowerment (BEE) enterprises, and to improve export participation in geographically marginalised and economically depressed areas.

Mr Sharma stated that the dti had seven strategic themes. It sought to enhance industry competitiveness to compete in global markets, determine high potential high yield markets on a scientific basis, and increase access for SA products in priority markets. It would grow the exporter base through training, and development, and would enhance marketing. This would include efforts into markets and access, the  national trade information system, the small exporter’s development programme, the export mechanisms and financial instruments of exporters.

Mr Sharma concluded the presentation by addressing the performance management. He stated that the Small Enterprise Development Agency (SEDA) would help companies that were not export ready but had capacity to export. The dti would establish foreign economic offices and sell products through export promotion, exhibitions, pavilions and missions.

Discussion
Mr D Dlali (ANC) asked to be informed of the time frame within which the dti would implement the Draft Export Strategy.

Mr Sharma stated that the Export strategy was no longer a draft but that it had been approved by the dti.

Mr Dlali noted that the contention by the dti that it would rely on SEDA to help companies become export ready was misguided. SEDA was not performing with regard to support of small business enterprises.

Mr Sharma noted that the partnership with SEDA was working well. SEDA played a role in advising companies on how to become export ready and that had carried out its mandate effectively.

Mr Dlali noted that the highest percentage of SA global trade was conducted with the EU. He asked whether the dti was neglecting the South-South cooperation with respect of global trade.

Mr Sharma noted that there was high potential of growth of the South America and the Asian markets and that the dti had not neglected the South-South Cooperation. He stated that most exporters had neglected these markets as they were used to the traditional trading blocks such as the EU. The dti was educating exporters on the advantages of exploiting these markets.

Mr Dlali stated that the dti commented on the lack of coordination with respect to government departments’ support for global trade. He asked the presenter to comment on the issue of the EU’s suspension of ostrich meat exports and asked whether this was as a result of lack of coordination.

Mr Sharma noted that bans were placed on products from time to time. He gave examples of South Africa’s ban against meat products from the UK after the outbreak of the food and mouth disease. He stated that the government had the mechanisms to tackle these issues to ensure that their products were standardised.

Mr Dlali noted that one of the key observations of the dti was that it was doing everything for everyone in supporting them to export their products. He asked how the dti assessed its performance.

Mr Sharma noted that the dti had developed a scientific model to determine which exporters should exploit which markets. This would enable it to give sound advice to prospective exporters.

Mr Dlali asked who financed exporters’ moneys used to access new markets.

Mr Sharma stated that the finances were provided by the dti, its division Trade and Investment South Africa (TISA)  and through a fund established under Export Marketing and Investment Assistance (EMIA) scheme.

Mr Dlali stated that one of the challenges identified on the Draft Export Strategy was that there was no systematic coordination of information intelligence. He stated that one of the reasons was that government would traditionally send junior officials to negotiate trade agreements with high profile officials of important trade partners. He asked what the department was doing to coordinate information and intelligence.

Mr Sharma stated that the dti was in the process of establishing an information portal, which would house information on trade opportunities. He noted that the dti was working with Department of Foreign Affairs on a new programme to train officials, to establish offices with high growth markets areas. It had foreign economic representatives.

Mr L Labuschagne (DA) asked whether the dti had capacity to implement the strategy, given its 33% vacancy rate.

Mr Sharma stated that the vacancy rate was an ongoing challenge and clarified the point that no vacancy was left open on ideological grounds.

Mr Labuschagne noted that in the motor vehicle industry exports had grown. He asked the dti whether the venture was cost effective.

Mr Sharma stated that the motor vehicle industry had served its purpose and that it was growing tremendously. He stated that there were benefits to be gained from this industry.

Mr Labuschagne stated that for the export strategy to be implemented effectively the transport infrastructure and ports should be improved.

Mr Sharma stated that the government was spending billions of rand in the upgrade of ports, railway lines and airports. He noted that the growth of the South Africa economy overwhelmed the infrastructural capacity of the country. The dti was engaging the Department of Transport on improvement of infrastructure.

Mr Labuschagne asked what the big black companies were doing to support small black business enterprises to gain ground in the market.

Mr Sharma noted that it was not the responsibility of the big black companies or the white companies to help the small business enterprises, as this fell rather to dti and its agencies. Further he stated that the responsibility also falls with the already existing companies

Mr Labuschagne asked how the dti was addressing the issue of expertise with respect to exporting.

Mr Sharma noted that there was need to create a culture of exporting. He noted that companies needed to first establish themselves in the domestic markets to achieve stability, before exploring the idea of exporting products.

Mr Labuschagne stated that there was consensus that education and skills development were essential components of the manufacturing industry. He asked what the dti was doing to ensure that the Department of Labour provided skilled personnel.

Mr Sharma noted that scarcity of skilled personnel was an ongoing challenge. The dti had a joint venture with the Deputy President’s office on skills development.

Mr Labuschagne asked how the dti supported companies in terms of exports.

Mr Sharma noted that the dti mandate was to establish a base for these companies to enable them to export their products. The dti was seeking to increase the number of companies that could export.

Mr Labuschagne noted that the presenter had highlighted the existence of a call centre. He was of the view that use of call centres to solve issues was not effective.

Mr Sharma noted that the comment on call centres was correct. He stated that the dti call centre was established under the directorate of the TISA and that people seeking information would be directed to the appropriate personnel who could answer their questions.

Prof E Chang (IFP) noted that the Indian and China domestic markets were very aggressive in terms of trade. She stated that the South African domestic market could not compare to these markets. She asked whether the dti had carried out research to identify why these markets were so robust.

Mr Sharma noted that the South African economy was a small economy that was endowed with great natural wealth. He stated that in previous years the economy was in the hands of a few people, which was the reason behind so few exporters.

Prof Chang noted that there was a shortage of educated people in the country. She asked why the dti did not focus on the labour intensive industry, as was the case in the Asian countries who had prospered from industries such as textiles.

Mr Sharma noted that the global situation was different, and identified that some of the examples she referred to used cheap labour. This was not the case in South Africa. He stated that the industrial policy had taken account of labour intensive industries.

Prof Chang asked what the dti was doing to secure raw materials from within South Africa to reduce the amount of imports. She was referring to the slides in the presentation that highlighted the top 20 imports of materials to South Africa.

Mr Sharma noted that a large part of the economy was linked to traditional ties, which necessitated importation of raw materials from countries like Germany.

Ms D Ramodibe (ANC) noted that the presenter was of the view that out of 2000 companies in existence in South Africa only 2 companies were interested in attending a pavilion in India. She asked whether this resulted from lack of knowledge of the existence of markets in countries like India.

Mr Sharma noted that in 1998 the dti established export councils to act as advisory bodies to help government promote exportation. He noted that these councils became mouthpieces for a small number of companies whose focus was on traditional markets. He stated that this was one of the reasons behind the reluctance of the companies to tap into the India market and was also due to lack of knowledge and bias against the Indian market.

Mr Labuschagne asked how many export councils were in place.

Mr Sharma stated that every sector had an export council and there were currently 28. He stated that the dti had put the councils on notice as they were not performing their mandate. The councils were required to show cause why they should continue to be in existence.

Ms Ramodibe stated that there was a need to educate the SMMEs and the BBBEE on the export strategy for them to come on board.

Ms Ramodibe noted that there was lack of national integration with regard to the export strategy.  She stated that the President’s office had approved an integration policy. Her concerns were that the dti was still talking about lack of national integration.

Mr Sharma noted that there was no integration with respect to export services information. He noted that one of the major reasons behind this was that TISA did not have a DDG to coordinate national departments, agencies and the provincial offices.

Mr J Maake (ANC) asked the dti to give an outline of the structure of the TISA.

Mr Sharma noted that the mandate of the TISA was carried out through two directorates. The  Director for export development was in charge of trade information services and identifying trade opportunities, and the Director for export promotion in charge of export promotion.

Ms M Ntuli (ANC) stated that the Draft Export strategy should focus on what the dti could do to help the previously disadvantaged areas. She stated that these areas did not have resources or infrastructure to be able to compete in the markets. She asked the dti to identify when the strategy would be implemented with respect to Small, Medium and Micro Enterprises (SMMEs)..

Mr Sharma noted that this was one of the major challenges that the dti was facing. He noted however that the industrial policy identified the need for industrial spread.

Ms Ntuli asked the dti with whom they partnered to ensure that strategy trickled down to the small business enterprises.

Mr Sharma noted that the dti partnered with non-government organisations (NGOs) and Community Based Organisations to be able to reach the marginalised areas.

Ms Ntuli noted that SEDA was not visible in the marginalised areas. She asked whether the dti had plans in place to cover these areas.

Mr Sharma noted that the dti had a project, together with the Deputy President, whose theme was “one municipality - one product”. The dti was promoting integration of rural areas into the economy.

Ms Ntuli asked what the dti was doing to ensure that the foreign offices delivered services effectively.

Mr Sharma noted that the dti had 43 foreign offices in 36 countries. The dti was working with the Department of Foreign Affairs to ensure coordination with these offices. He stated that the dti would increase the number of offices, especially in the key market areas. He stated that business plans would now be developed from the head office, as opposed to previous years when these were developed by the foreign office.

Ms Ntuli noted that SEDA outsourced the training of the export communities. She was of the view that the quality of the training was not guaranteed.

Mr Sharma noted that the training was not undertaken only by SEDA. The Department had engaged other partners and agencies around the world who trained companies on best practices.

Ms Ramodibe noted that the presenter highlighted that the TISA was without a Deputy Director for a long period. She asked about the impact of this vacancy.

Mr Sharma noted that the major impact of the vacancy in the DDG post was lack of coherence and coordination in the implementation of policies.

Mr Dlali noted that several weaknesses were highlighted on the Draft Export Strategy. He asked the dti to identify how it intended to deal with these weaknesses and challenges.

Mr Sharma noted that the draft export strategy did not address the weaknesses. One of the many weaknesses was that companies were not export-ready. The dti was working towards ensuring that these companies were ready.

Mr Dlali noted that there was a shortage of cement and steel for the building of stadiums for the forthcoming 2010 Soccer World Cup. He was of the view that there might be collusion between companies to create shortages and increase the demand for the products. He asked whether there was some cooperation between the dti and the Competition Commission to ensure that these companies did not exploit the government by charging high prices for the products.

Mr Sharma noted that there was an unprecedented demand worldwide for steel and cement products. He noted that the dti was strong on the steel companies’ adherence to import parity pricing. He stated that there were only three major cement providers. The government did not tolerate unfair competition or cartels.

Mr Dlali aired his frustrations about so many government departments complaining about lack of capacity. He noted that departments had had 13 years to build capacity and should therefore not be complaining.

Mr Sharma noted that the lack of capacity was an issue that the government departments such as the TISA could not escape. He stated that dti was getting busier as a result of the growth of the economy.

Prof Chang noted that one of the reasons that government departments lacked capacity was because they had short contracts which would end even before they were able to implement policies.

Mr Sharma agreed that tenure of office was very important to the implementation of policies. He noted that the major challenge was that government departments were losing people to the private sector, as they could not match the wages paid there. He noted that the Director General positions were political in nature and therefore could not be made permanent.

Prof Chang asked whether the dti negotiated bilateral agreements and trade agreements through the Southern African Customs Union (SACU).

Mr Sharma noted that the South Africa worked collectively with the SACU countries. However it would be wrong to develop an export strategy there alone.

The Acting Chairperson noted that the export strategy was in place for three years. He asked how this related to the overall dti medium term framework.

Mr Sharma stated that the dti had achieved some gains on the target of 100 companies. Dti had actually attracted 170 companies and helped them be export ready. He stated that the export strategy was directly in line with the dti medium term framework. He stated that National Treasury, however, had not acceded to the dti’s budget request.

The Acting Chairperson stated that Brazil was a good example of a country where export promotion was a key trade policy. In terms of policy coherence, he asked how the export strategy talked to the trade policy.

Mr Sharma stated that the export strategy was rooted on the industrial policy and the trade policy. The trade policy would speak to the export strategy. He identified issues such as tariffs and registration of companies. He noted that the dti was developing ideologies that would assist on the standardisation of the regime.

The Acting Chairperson wanted to know how many countries traded with South Africa.

The Acting Chairperson was concerned with the fluctuation of import numbers between the period October 2006 and January 2007.

The Acting Chairperson also requested comment on the issue of incentives.

Mr Sharma stated that the incentive regime was undergoing review. He stated that some programmes such as the Small Medium Enterprise Development Programme (SMEDP) had been suspended. He noted that the EIMA was a programme introduced as an incentive for existing export-ready companies, to provide financial incentives. The programme would also target emerging exporters.

The Acting Chairperson asked what support was given by other departments with regard to policy coherence.

Mr Sharma noted that the dti was trying to drive policy coherence with the government departments. He noted that traditionally there was no coordination. He stated that the dti was institutionalising coherence.

The Acting Chairperson asked how the Codes of Good Practice aligned with respect to the export strategy.

Mr Sharma noted that they were part of the every aspect of trade carried out by the Government of South Africa.

Mr Sharma concluded the discussions by noting that there was an increase in the manufacturing industry of exports. He stated that the industrial policy was not sufficient alone with respect to coordination of exports. He stated that 80% of the global trade passed through South Africa. He noted that there was a need to increase the capacity of companies in South Africa to be able to benefit from this trade.

The Acting Chairperson noted that there should be a workshop held specifically to discuss the export strategy in depth.

Committee business: Adoption of Minutes
Members adopted minutes of the previous meetings.

The meeting was adjourned.

 

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