Trade & Industry Department’s Annual Report 2006/07

NCOP Economic and Business Development

19 February 2008
Chairperson: Ms N Ntwanambi (ANC, Western Cape)
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Meeting Summary

The Director-General of the Department of Trade and Industry (dti) gave a presentation to the committee on the Annual Report for 2006/07. The DG indicated that the 2006/07 economic trends were generally good, and were partly driven by the aggregate exports which grew by 5,5% in real terms during 2006. Challenges that emanated from the period into the new year included the increase in imports as compared to exports, and a drop in interest rates due to inflation and global economic conditions. The electricity and energy challenge, other domestic and global economic challenges had resulted in a drop in economic growth to approximately 4%. Positive growth was experienced in employment creation partly due to the increase in manufacturing production and capacity. The major achievements in the reporting year were listed, and these included Cabinet’s endorsement of the National Industrial Policy Framework, followed by the Industrial Policy Action Plan. The National Industrial Participation Programme sought to leverage the procurement for investment in certain areas. There had been establishment key bilateral trade links and negotiations, including an agreement with China to impose clothing and textile quotas against import surges, to provide relief to local manufacturers. Other significant achievements included establishment of a Women’s Fund, preferential procurement in ten priority areas for Small Medium and Micro Enterprises, cooperatives and the drafting of new legislation. A brief presentation was included on the financial statements, noting that the audit report for the Department had been qualified in respect of two new entities that had not yet completed their financial management.

Questions by Members addressed the dairy products banned by the European Union, the functionality of the manufacturing sector, grants to cooperatives, regulation of South African businesses operating abroad, skills development initiatives, and agricultural initiatives. Concerns were expressed over the high vacancy rate in senior management. Further questions related to where growth and development was taking place, the correlation between the Companies Amendment Bill and Public Finance Management Act, 2010 World Cup trade mark issues, the relationship with the Department of Foreign Affairs, the Department’s capacity to monitor and assess unfair competition, whether creation of skills was addressed in the FIFA contracts, and the Department’s role in addressing the electricity challenges.

Meeting report

 

Department of Trade and Industry (dti) Presentation on the 2006/07 Annual Report
Mr Tshediso Matona, Director-General, dti, gave a presentation to the committee on the Department’s Annual Report 2006/07. He indicated that some of the issues in the report and presentation were work in progress, and the presentation essentially focused on interventional work and support of enterprises. Government reporting was also covered by the National Treasury and was thus reflected in the dti’s report.

Mr Matona He focused on the: economic context, dti Strategic Objectives, 2006/007 Achievements and Progress, Six Year Expenditure comparison, Analysis of 2006/07 Under Expenditure, and Analysis of current Medium Term Economic Framework.

Mr Matona referred to the economic context section on page 2 of the presentation and commented that the 2006/07 economic trends were generally good as seen through the 5% economic growth average, which lasted till the end of 2007. This economic growth was partly driven by the aggregate exports which grew by 5,5% in real terms during 2006.

Challenges that emanated from this period included the increase in imports as compared to exports, a drop in interest rates due to inflation and global economic conditions. The electricity or energy challenge, and other domestic and global economic challenges had resulted in a drop in economic growth to approximately 4%.  Nonetheless, positive growth was experienced in employment partly as a result of the increase in manufacturing production and capacity.

The Strategic objectives indicated in the presentation essentially drove the Accelerated Shared Growth Initiative South Africa (AsgiSA), exports, investment and production.

Mr Matona set out the achievements and progress made (see attached presentation). He indicated that the dti organised its work in the following areas: industrial development, trade; investment and export, broadening participation, regulation, administration and coordination. -A paramount achievement under the industrial development key focus area was the Cabinet’s endorsement of the National Industrial Policy Framework, followed by the Industrial Policy Action Plan. There had been implementation of key sector strategies, particularly the Business Process Outsourcing and Offshoring (BPO) and Tourism sectors. A further achievement was the implementation of the National Industrial Participation Programme that sought to leverage the procurement for investment in certain areas. Any government procurement worth R10 million and above had to be involved in this National Industrial Procurement Programme.

Mr Matona commented that the incentives, indicated in the presentation onwards, contributed to the manufacturing and services industries and included projects under the Small and Medium Enterprises Development Programme (SMEDP) that had been suspended but would soon be re-launched. An important incentive under development was the concept of Industrial Development Zones (IDZ), particularly in Kwazulu-Natal (KZN), which were attracting growing investor interest with commitments currently valued at R28 billion. The Film and TV productions were highly productive. The Technology and Human Resources for Industry Programme (THRIP) sought to develop skills through the universities and industry partners. A newly- launched initiative would support advanced manufacturing in the aerospace industry. A comprehensive review was performed, as a requirement of the National Treasury, of all major incentives undertaken to guide future support of Industrial Policy.

Mr Matona said that the Trade, Investment and Export initiatives included the negotiations with World Trade Organisation (WTO), with which the dti had been grappling since the Doha Round of negotiations. It was however uncertain if an agreement would be reached in these ongoing negotiations.

Several of the key bilateral trade links and negotiations, including those with the European Union (EU) indicated in the presentations, had subsequently led to Economic Partnership Agreements (EPAS). Last year also saw the agreement with China, which included the imposition of clothing and textile quotas against import surges from China, which was instituted to provide relief to local manufacturers. These measures were still place until the end of this year.

The dti had also engaged in the set-up of new Southern Africa Customs Union (SACU) and institutional arrangements that sought to make the institution more democratic.

Mr Matona then outlined the dti initiatives undertaken to promote export business. These initiatives included fostering increased coordination and cooperation in investment and international projects, rather than competition amongst provinces. This was being done in a targeted manner through various initiatives including the joint collaboration and coordination with Provinces on investment and international projects. Last year the joint initiatives were based in Durban and this year would be conducted in the Western Cape.

Under Broadening of Participation, the focus had mainly been on providing financial support for the development of Small Medium and Micro Enterprises (SMMEs) through Khula, the National Empowerment Fund (NEF) and the Industrial Development Corporation of South Africa (IDC), as well as the rollout of the Small Enterprise Development Agency (SEDA) and the South African Micro-Finance Apex Fund (SAMAF). There were now SEDA offices throughout the country and the Khula project had made significant progress and had reached full capacity. 

Mr Matona noted that the Codes of Good Practice for Broad-based Black Economic Empowerment (BBBEE) were completed and adopted by Cabinet in February 2007, with implementation due in 2008. The Economic Development work was a joint development of all tiers of government. This had previously been unsuccessful and thus efforts would be stepped up.

Significant progress had been made in increasing women’s empowerment through the successful creation and implementation of a Women’s Fund, with the involvement of the Deputy Minister. It would be starting with an initial outlay of R100 million.

Another challenge in broadening participation lay in the area of cooperatives. The dti’s efforts, as indicated in the presentation, would be increased in 2008.

Research was also conducted following the government decision to procure certain services and products from SMMEs. This resulted in the identification of 10 products to be set aside for preferential procurement from SMMES. The preferential procurement initiative would be done through the National Treasury. The 10 targeted products included the clothing and textile industry, event coordination services, panel beating and vehicle body work, and shuttle services.

Publications, road shows and imbizos to promote awareness of the dti’s services and offerings were essentially outreach programmes in the form of seminars and publications to be held in different provinces as part of the Integrated Participation Programme (IPP).

Mr Matona tabled achievements and progress in Regulation, noting that this included the National Credit Act and establishment of the Regulator. The Companies Bill was published for public comment, as the current companies legislation was outdated. It would be tabled in Parliament later in the year. The consumer protection legislation was underdeveloped and therefore an updated Consumer Protection Bill had been completed and published for public comment.

Due to the recent upsurge in concerns and complaints on uncompetitive behaviour, a policy review was completed and subsequent draft amendments to the Competition Act had commenced. These would now allow the Minister to undertake an investigation based on suspicion of uncompetitive behaviour without a complaint having been lodged. The list of Bills to be completed during the year was also tabled.

The Federation of International Football Association’s (FIFA) request for trademark protection was completed and public notices were issued. Some of the requests were denied as they limited South Africa from benefiting from the 2010 FIFA World Cup.

The presentation also outlined the achievements and progress in Administration and Co-ordination. The Human Resources (HR) critical challenge was high staff-turnover that was currently prevalent in all government departments. This was being addressed by recruitment efforts to fill current vacancies and also included the use of specialised recruitment agencies. There was development of an integrated Human Resource Development (HRD) strategy to address recruitment, retention and training. Recent research had revealed that the dti was considered an attractive employer, and this would be used in the recruiting and retention efforts.

Mr Matona noted that unqualified audit reports had been received by the dti for a number of years, and this had continued with the exception of two units that were only set up last year and were still putting in place their financial monitoring systems.

Mr Matona tabled graphs of the budget and expenditure trends. There had been an under spending against targets of around 3%. The dti was confident that with more funding it could do more. There had been approval of roll overs of R109 million.

Discussion
The Chairperson commented that several questions raised in a previous meeting had been answered through the presentation.

Mr I Sibiya (ANC) commented that he was pleased to see that there was improvement in the manufacturing sector, which had grown at 5% last year. He asked to know the capacity or functionality rate.

Mr Matona replied that the manufacturing sector had been in recession for the last 10 to 15 years owing to various reasons. These included the previous protectionist policies that resulted in the sector lagging behind in technology and skills development. He added that there was also low investor confidence in the sector. However, the growth in investor confidence in other sectors was filtering into the manufacturing sector. Subject to certain conditions, such as foreign exchange rate, the sector had the potential to improve.

Mr Sibiya aired his displeasure with the dti’s refusal to provide grants to a cooperative in his constituency that intended to undertake construction projects. He added that the cooperative was informed that the dti only provided grants for agricultural projects.

Mr Matona replied that Khula provided loans up to R3 million, with the NEF and IDC providing much larger loans. The Khula projects should be appropriate for the construction project.

Mr Sibiya asked to know if the dti provided any support for the export of locally manufactured tin.

Mr Sibiya asked for clarification on the dairy products that were recently banned by the European Union (EU) from its markets. He asked the reasons for the bans and the measures that the dti had taken to redress the situation.

Mr Matona replied that the ban on dairy products was specifically on cheese, and related to sanitation issues. The SAPS standards are on par with international standards although foreign governments still had some discretion regarding their standards.

Mr Xavier Carim, Chief Director, dti, commented that the problem with South African dairy products also extended to beef. He added that the EU had suspected that South Africa did not meet the required standards. This was taken up to the Director-General of Agriculture and the misunderstanding had been subsequently resolved. The issue of South African cheese had been under negotiations since 2000 and was yet to be resolved.

Mr Sibiya asked if there was any legislation regulating the activities of South African companies operating in other countries.

Mr Matona replied that complaints about South African businesses operating abroad had been received and concerned racial issues. The companies were reported as not engaging in any form of empowerment, yet foreign businesses operating locally were required to do so. He added that there had been suggestions to draft a Code of conduct to guide the activities of South African businesses abroad. The dti would ideally want Business Unity South Africa (BUSA) to govern these issues.

Mr Carim commented that the South African businesses abroad were governed by the legislation in those countries and international regulations. However, some of these countries were under-developed and thus South African business had abused this situation.

Ms L Matlhoahela-Nembe (ID) referred to page 72 of the Annual Report indicating skills development initiatives by the dti. She asked if there were any plans to increase the number of individuals in the Technicians and Associate Professionals occupational category undergoing skills development training, as the report only indicated an enrolment of six individuals.

Mr Matona replied that the Human Resources (HR) categories in the report were outdated and arrangements would be made to provide updated information

Ms Matlhoahela-Nembe (ANC) referred to the table on page 76 of the Annual Report that indicated Foreign Workers by major occupation. She asked to know whether the ‘other’ category referred to occupations that could not be filled by South Africans.

Ms Matlhoahela-Nembe (ANC) asked for examples of the grievances lodged by employees.

Ms Matlhoahela-Nembe (ANC) asked for more information on the Agricultural initiatives being taken by the dti.

Mr Matona replied that the Agriculture was the responsibility of the Department of Agriculture (DOA) although the dti had vested interests in Agro-Processing, with a relevant strategy to guide it. He added that the dti had a particular in interest in the canning industry in Ashton, Western Cape, which was currently depressed. The DOA was asked to provide a comprehensive Agriculture Development Strategy, particularly since agriculture was liberalised and was not supported by government subsidies. It was a very important sector in terms of job creation and needed to receive more emphasis. Nonetheless, it was currently addressed in the Industrial Policy framework.

Mr D Gamede (ANC) aired his concern over the high vacancy rate in senior management indicated in the Annual Report.

Mr Gamede asked to know the progress made by the dti in the development of its integrated Human Resource Development (HRD) strategy that was meant to address the recruitment, retention and training challenges being faced by the dti.

Mr Matona replied that the dti previously did not have an HR Deputy Director –General and thus there had been no HRD strategy. He added that there was now an experienced HR Deputy Director-General and the dti would be coming back to brief the Committee on its strategic plans, and would include more information on the HRD strategy.

Mr Gamede referred to page 148 of the Annual Report and asked for more clarification on the bursaries awarded as well as the debtors.

Mr Gamede asked to know exactly where the growth and development indicated in the Report had been experienced.

Mr Matona replied that the development and growth had previously been in the formal economy, but focus had changed since 1994 to include the informal economy. He added that this change in focus was typified by the focus on Black Economic Empowerment and gender balance, which was still work in progress.

Mr Gamede referred to the Companies Amendment Bill and asked how it would be reconciled with the Public Finance Management Act, (PFMA), which was stringent and already regulated business.

Mr Matona replied that the PFMA regulated corporate governance in the public sector and the company law legislation would regulate the private sector.

Mr Gamede asked for further clarification on the 2010 World Cup trade mark issues.

Mr Gamede asked to know if the dti and the Department of Foreign Affairs embarked on joint initiatives and programmes or had a joint office since they were the largest government departments.

Mr Matona replied that the dti worked very closely with the Department of Foreign Affairs (DFA), since the dti offices abroad were located in the embassies run by DFA, and since it represented the dti abroad if there were no dti officials present.

Mr D Mkono (ANC) was pleased that 5 million jobs were being created annually. He asked to know the type of jobs that were being created.

Mr Matona replied that the greatest job creation took place currently in the retail and services sector. However the sustainability of these jobs was a serious concern, particularly in the hospitality sector, as the job demand tended to fluctuate more here than in other sectors such as manufacturing. The employment security in these sectors was thus very low and dependent on the business cycle. Discussions on these issues hade taken place with the Congress of South African Trade Unions (COSATU). Casualisation, which was a global phenomenon, was also prevalent and necessitated the need for skills development of the workers in these sectors. In addition there was also a need to promote the manufacturing sector since this sector provided more employment security. The Industrial Policy Framework currently being developed addressed these issues through promoting sustainable employment creation. It as however difficult to determine which sector to focus on.

Mr Mkono asked to know if the dti would have the capacity to monitor and assess unfair competition when the Competition Amendment Bill came into force.

Mr Matona replied that the capacity to monitor unfair competition was a major issue, although the National Treasury was providing sufficient funds to the Competition Authority to enhance its capacity.

Mr Mkono asked to know if the intellectual property regulations had been relaxed, and their effect in protecting investment attracted by hosting the 2010 world cup.

Mr Matona replied that no one owned the 2010 title, although there were issues raised regarding the pairing of 2010 with other names, such as city names.

Mr Mkono asked for more information on the extent of the electricity challenge currently being faced by the country.

Mr Matona replied that the dti was monitoring and assessing the impact of the electricity challenge, although this was a fairly recent issue, and was thus not reflected in the Annual Report. He added that the dti was part of a task team addressing the issue.

Mr Mkono asked to know whether there was a clause requiring the creation of skills in the contract signed with FIFA.

Mr Matona replied that skills development was a priority, and contracts signed with foreign companies stipulated that skills development and skills transfer would need to occur.

The meeting was adjourned.


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