Department Trade and Industry Strategic Plan and Budget 2008-2011

Meeting report

Department of Trade and Industry (DTI) Strategic Plan presentation
Mr Tshediso Matona, Director General, DTI, noted that he was very satisfied with the way in which the relationships between the Department and both the Select and Portfolio Committees had developed.

He gave the strategic context and environment in which the DTI operated.  There was strong growth, notwithstanding challenges. The growth and employment creation in South Africa had been assisted by strong commodity demand, consumer spending and a favourable global economy. The DTI and Government programme of action was shifting from macroeconomic stabilisation to microeconomic transformation. There was a need to focus on deepening economic transformation by addressing a number of issues. The major factor affecting exports had been the exchange rate, which remained a challenge, and there was also a challenge in manufacturing. Public investment was needed in network infrastructure. Employment growth had been insufficient, and new leverage opportunities were required to revive or create competitive local supply industries. He illustrated this by way of several comparative graphs. It was vital to build infrastructure to sustain growth, as it was currently a major barrier to economic expansion. Manufacturing industries could not currently meet demand, and this was putting pressure on the balance of payments. The projection was that the deficit would be continuing. At the moment current account deficits were largely financed by portfolio flows, and the challenge was to lessen that dependence and increase the investment.

DTI believed that the challenges demanded that it intensify implementation. It believed it was focusing in the correct areas. There must be diversification beyond traditional reliance on minerals and mineral processing, with emphasis on job creating sectors. There must be competitive domestic supply infrastructure and investment. The huge investment into State Owned Enterprises (SOEs) must be leveraged. Competition law was another important area to focus on; the economy was still characterised by dominance of the larger industries. Dominance tended to lead to abuse of market power. The skills challenge was well known. There would be a broadening of economic participation. DTI would continue to work with other government departments in the economic cluster, focusing on apex priorities that fell within the mandate. It was increasingly working with the Presidency on the need to intensify implementation. DTI was grappling with what "business unusual" meant to it and had concluded that it involved a greater responsiveness.

DTI had set five strategic objections. These included promoting the coordinated implementation of accelerated and shared growth initiative (ASGISA), promoting direct investment and growth in the industrial and services economy, with particular focus on employment creation. It would have to raise the level of exports, promote broader participation, equity and redress in the economy and contribute to Africa's development and regional integration within the New Economic Partnership for Africa's Development (NEPAD) framework. The work of the DTI was organised in five themes: industrial development, trade, investment and exports, broadening participation, regulation and administration / coordination. It was not anticipated that there would be further restructuring although some of the divisions would be strengthened.

In the area of industrial policy, the DTI planned to fast track the effective implementation of the National Industrial Policy framework (NIPF) and action plans (IPAP). There would be fast-track implementation of four lead sectors of capital / transport equipment and downstream metals, automotives and components, chemicals, plastic fabrication and pharmaceuticals, and forestry, pulp and paper and furniture. Clothing and textiles would be stabilised to preserve capabilities and employment, and there would be maintenance of momentum on the ASGISA sector priorities of tourism, business processing offshore (BPO) and biofuels.

In the area of industrial development, DTI intended to introduce new incentives. It had revised the small and medium enterprise development programme (SMEDP) and tax incentive package and competitiveness incentive. The Industrial Development Corporation (IDC) would upscale and align support to priorities. The Critical Infrastructure Programme (CIP) continued to be important, and there would be emphasis on domestic film and TV production, business processing offshore, and the National Industrial Participation Programme (NIPP). The Support Programme for Industrial Innovation (SPII) and Technology and Human Resources for Industry Programme (THRIP) would continue. An aerospace village had been launched, and there were centres of excellence to increase manufacturing skills. Contributions were being made to the National Electricity Response Team, as DTI had a number of legislative instruments enabling it to make a contribution, particularly in the areas of standards. Most of the contributions would be made in the medium term. It would strengthen the Industrial Development Zone (IDZ) regulatory framework by finalising IDZ policy and the relevant legislation.

In the areas of trade, investment and export, DTI would be promoting economic development through equitable multilateral trading systems. There were a number of interventions either already in the process to be planned. It would continue to play an active role in the Doha Round World Trade Organisation (WTO) negotiations. Developing countries had previously seemed to be more attuned to linking to the North, but more recently South-South trade was growing, which would help South Africa to move away from the crisis-prone economies like America. Regional integration in Southern African Development Community (SADC) and the African Union (AU) would be advanced. South Africa was an important player in the China-Africa Forum, which would run parallel to South Africa's bilateral links with China. Cross border infrastructure development would continue through NEPAD. Technical cooperation with other countries was ongoing. With regard to exports, South Africa would be targeting high growth markets, but this would depend on South Africa being able to increase its export capacity. It was establishing a one-stop investment promotion centre, in view of the red-tape difficulties currently existing, and was adopting a more targeted approach. It would review the network of foreign offices to concentrate on the markets offering the greatest returns.

In the area of broadening participation, the flagship would continue to be the work on black economic empowerment (BEE) as this included a number of other attempts. It would continue to align the sector charters with the legislation and the Codes. He appealed to both the Portfolio and Select Committees to assist in ensuring that National Treasury would give sufficient funding. The Advisory Council and verification process would be launched shortly.

DTI would be finalising the draft Strategic Framework on gender and women's economic empowerment. A number of instruments had been put in place. The South African Women's Entrepreneur Network (SAWEN) programme had been launched, together with the Isivande Women's' Fund.

DTI had spoken about small enterprise development over the last few weeks. Inclusion based work would be a core priority, and the Department was to be re-organised slightly to allow for this. The DTI had not done as well as it could have on cooperatives, but had recognised the gaps and would be improving on this. The demand for products and services was the lifeblood of small businesses, and DTI would be focusing on public procurement. Mr Matona reminded the Committees of the launch of the ten products for government procurement. Once again, he appealed for assistance in ensuring alignment of National Treasury, who would be issuing the practice notices to procurement officials across the public sector. Outreach activities would continue, to promote awareness of the DTI and its agencies.

In the area of regulation, there would be substantial activity. Bills would include the Companies Bill, the Consumer Protection Bill, the Competition Amendment Bill, and Intellectual Property Laws Amendment Bill. There would be reviews of the regulatory framework around estate agencies and trade metrology. The Lotteries Act was to be reviewed and amended, and regulations would be developed following enactment of the Bills. DTI recognised that there was a need for effective and efficient implementation of legislation, and would therefore be establishing the Companies and Intellectual Property Commission, with much stronger powers than the current structure, and the National Consumer Commission. The powers of existing enforcement agencies - such as the Competition Commission - would be enhanced. It would ensure that the enforcement agencies were well resourced and capacitated. It would build internal expertise and skills in the area of liquor enforcement.

The area of administration was negatively affected by the shortage of skills, as the public sector fared worse than the private sector. Initiatives would include a special project to fast-track recruitment and selection, a plan to address the skills gap between demand and supply, retention strategies, a revised HR Development Strategy to drive staff development and training and a revised performance management system. DTI had challenges, but was not in crisis. It was able to deliver on what it had undertaken to do. Employment equity and broad based black economic empowerment (BBBEE) needed specific focus. Although DTI was doing quite well in gender equity, it was not doing so well in the disability field, although its call centre would be managed and run by disabled staff. BBBEE would be promoted through procurement spending.

Most of the major initiatives were undertaken with other government departments, and that called into question the quality of coordination and cooperation. This remained an ongoing challenge. He would like the Committees to be more active in leveraging other departments (and their Portfolio Committees) with whom the DTI was required to work. DTI had achieved alignment, but wanted to see greater results. It regarded NEDLAC as very important, and also had an industry forum to interact with associations. He summarised that effective regulators were needed to ensure effective outcomes in the Economic Cluster.

Mr Matona tabled a number of slides dealing with the budget. A total of around R16 billion had been allocated over the Medium Term Economic Framework (MTEF), with R5.1 billion in the current year, R6 billion in the 2009-10 year and R5.2 billion in the 2010-11 year. The allocation of the budget was compared, with 21% going to agencies and 42% to incentive payments, 7% to compensation of employees, 18% to capital payments and 12% to goods and services (which could be spent on a discretionary basis). It had a limited scope. The DTI could do more if it was adequately resourced to do so. Economic transformation was a priority and should be reflected in the resources allocated. A comparison of budget and expenditure was given, noting that there had consistently been good spending between 93 and 99 percent over the last six years; where there were roll-overs this was generally to do with administrative issues.

Mr Matona noted that DTI had seven programmes and nineteen public entities, which were grouped into the Council of Trade and Industry Institutions (COTII). Each programme had its own medium term plan which contributed to the overall strategy. Monitoring and evaluation was important. DTI reported to Cabinet via the economic cluster. Its Executive Board, consisting of the Minister, the DG and the DDG met every second week to oversee planning, monitoring and reporting. There was a bi-annual Cabinet decision around the planning and prioritisation. There was emphasis on joint implementation.

In conclusion, Mr Matona reported that DTI had achieved its targets for the previous reporting period. The challenges included ensuring efficient and effective project performance, stronger strategic and operational management, greater integration of work, including that of agencies, achieving adequate financial resources, the HR challenges and improved cluster coordination.

Discussion
Members asked a variety of wide-ranging questions, and the various officials from the DTI made attempts to give composite answers. Some answers therefore do not appear below the questions, but are in the general responses.

Mr D Dlali (ANC) asked about the IDZ, linking this to the announcement made a few years ago about urban renewal. He noted that most of these attempts had not succeeded. He agreed that it was acceptable for the DTI also to promote cross-border matters, provided that there was growth internally. He wanted to check the priorities. The former homelands, in particular, were in dire need of infrastructure.

Mr L Labuschagne (DA) noted that the Export Processing Zones or Industrial Development Zones were being raised again and again. These had been cardinal to the successes of other countries. He asked what was the block here, particularly in Coega, where there was huge unemployment.

Mr J Sibiya (ANC, Limpopo) asked how the Industrial Development Zones would be linking up with industrial forums.

Mr Tumelo Chipfupa, Deputy Director General: Group Systems and Support Services, DTI,  said that many of the questions relating to the IDZ related to their nature of urban/rural placement, and why they were not in all provinces. The IDZs were conceptualised initially as South Africa's version of an export zone. They were intended to be trade facilitation. Government would provide the infrastructure, including a seaport or airport. In practice, quite a number of provinces saw potential for industrial projects, but this might not be related to trade. DTI was therefore looking, in the regional industrial development strategy, to consider having special economic zones, and to have IDZ as one kind of such zone. That would enable DTI to look more at the rural areas. Perhaps that would be developed further.

Mr Chipfupa added that DTI felt that the IDZ programme was increasing. The first phase was the putting in place of infrastructure. It was not possible to have investors locating in a green field without the necessary infrastructure. Once that was in place, then the investment pipeline would be built up. A number of firms were waiting to discuss contracts with Coega and locate in these areas. This had created new challenges, because government must now decide on the unknown demand from investors, and how to coordinate the limited facilities. A challenge had arisen from the emerging success.

Mr Dlali noted that a one-stop service centre would be set up. He asked what was being done for the SMMEs to assist them in getting through the red tape. The agencies had noted that there were problems, and DTI needed to address them seriously.

Mr Labuschagne agreed that red tape was a problem. Regulation needed to have some flexibility.

Mr Dlali said that provincial agencies were to be strengthened. However, the dti's own agencies were not fulfilling their roles - in particular Small Enterprise Development Agency (SEDA) which was experiencing severe problems.

Mr Dlali noted that there would be a review of estate agencies. He believed that there was a problem with the Advisory Board of Estate Agents, who were not servicing their members, nor collecting levies. He asked why this was so.

Mr S Njikelana (ANC) asked how far the Estate Agency Board had refined its work, and he would like to hear how the institutions would clean up the property management.

Ms Ntembe noted that government had a large task in accommodating the poor in housing. She wondered if the Estate Agency Board had anything to do with the pricing of property. Those in the middle classes were not able to purchase houses and were therefore perpetuating the burden on government. She requested that DTI look into property and house prices.

Ms Zodwa Ntuli, Deputy Director General: Consumer and Corporate Regulation, DTI, said that there had been some issues with the regulatory agencies Apart from those currently being addressed by DTI, the Estate Agents Board had being trying to deal with management problems. The Estate Agency Act was outdated, and had not been brought in line. The industry had grown and there was a huge gap between regulations and growth. DTI needed to look at the legislation, the powers of the regulator and how best to free up some activities. Certain mini-markets had developed in the industry. The Regulator was not empowered to deal with the growth.

The DTI was in constant engagement with the regulator as part of the review process and agency management areas, to try to align activities to objectives. It was achieving the objectives. This was a continuing process, and would be completed in this year. The Regulator should be looking into issues of price war on housing.

The most important aspect in relation to regulations was the issue of red tape. Ms Ntuli said that this was a focus area. The need to regulate industry should not undermine the objective of creating an enabling environment for industries to operate. There should be a focus on regulatory impact assessment. It was necessary to prevent a situation where there were more barriers and costs.

Mr Dlali said that the skills shortage was mentioned by every Department. He did not agree with this; he believed that there were skills that were not being tapped in general. In most cases, vacancies were being reserved for friends and relatives. Mr Dlali also asked on what basis merit bonuses were being paid. A number of bonuses were being incorrectly paid; he believed there were many staff who did not deserve those.

The Chairperson noted that this was far too general a comment. He asked for specific instances, otherwise there was a danger of speculation. He noted that the Committee had the legal capacity to summon people to the meeting, but could only do so on the basis of facts. He stressed that this engagement was specifically about DTI .

Mr Olifant said that there had been complaints about shortages of staff; and DTI had mentioned it wanted to fast track employment. He asked when this would be started, and how DTI would monitor the employment. He also wanted to know whether acting positions should not be for a limited period only. In DTI, there were acting posts that never seemed to be filled on a permanent basis.

Ms Sarah Choane, Deputy Director General, Group Systems and Support Services, DTI, said that in the past 12 months, DTI had made five appointments to fill the previously acting posts. There were two acting posts still operating; one because the vacancy was only two months old, and the other had arisen through restructuring. Efforts were being made to address this.

Mr Labuschagne said that there was much anecdotal evidence about the number of graduates abroad. One did not know how much was affected by the quota policy. The vacancies and quotas did not seem to balance. He asked whether a study was being done as to whether transformation was actually impacting. He was worried that South Africa, as a young country, was perhaps not using all its resources. He asked whether the Sector Education and Training Authorities (SETAs) were providing the skills that manufacturing needed.

Mr Labuschagne asked if all employees above Director level had signed performance management agreements.

Ms Choane noted that performance management agreements were in place. This was an apex priority. DTI was looking at how to deal with outstanding ones. Most agreements had been signed, but some were still in the window period for signature by new appointees. DTI would look at strengthening the controls.

Ms P Hollander (ANC, Northern Cape) asked for the current figures on women in senior management.

Ms Hollander thought that there was already a focus unit on gender, and she asked if there would be a separate unit for disability, or only a staff member to deal with this.

Mr Ravindra Naidoo, Head: Economic Research Policy, DTI , noted that the gender framework had been approved by Exco and was still to be finally approved by Cabinet. It would be presented to the Committee thereafter. However, there were separate programmes already running, including the Women Empowerment Fund.

Ms Choane added that the employment equity plan would have to address qualitative issues and targets. If there was a wish to promote BEE it would look at what could hamper it and what targets should be set. DTI would have to come up with measures to ensure that it realised what it set out to do.

Ms Choane noted that up until now the transformation committee had been dealing with general matters. However, the employment of those with disability had not received focal attention. It was necessary to appoint a specific person to focus on this alone.
 
Dr P Rabie (DA) noted that there was an intention to stabilise the clothing and textile industry. He asked if this would involve abandoning the quotas on Chinese manufacturers in the country. The textile manufacturers and retailers had complained that there was inadequate consultation on the quotas.

Dr Rabie noted that the manufacture of biofuels were more expensive than fossil fuels. Some concerns went into liquidation. He wondered if there was any intention to deviate from maize biofuels, for instance, to sugar cane, which would not interfere as much with food security.

Mr Sipho Zikode, Acting DDG: Enterprise and Industry Development, DTI, agreed that it was still costly to produce biofuels, rather than from fuels from coal and crude oil. However, DTI and others were putting together a strategy to support this industry. There was still a balance to achieve between food security and fuel needs. For a sizeable biofuels refinery, he explained that there was a need for good arable land.

Dr Rabie noted the intention to ramp up production of solar heating. This had been a distinctly neglected area. He wondered if there would be incentives for this to expand, particularly to the rural communities.

Mr Riaan le Roux, Chief Director: Exports, DTI, noted that over and above the inter-governmental task team on alternative energy, there was also an intra- DTI group. DTI had been shortlisted as one of the possible countries to undertake a project by a Scandinavian concern. There were questions on best practice, similar to those investigated for IDZs. Infrastructure was also a necessary concern.

Mr Zikode added that under the NIPF, DTI was starting to look at support to this industry. South Africa produced silicone matter, but the process to take that into solar panels was not available in South Africa. It was a sophisticated production process.  South Africa would import the solar panels and they would be assembled finally here. DTI was looking to try to close that gap.
 
Mr D Olifant (DA) wished to refer back to some of the presentations given earlier, when he had asked whether there was justification for Khula, SAMAF and other institutions. IDC seemed to be doing everything.

Mr Zikode noted that previously only IDC had been in existence. However, the integrated enterprise development strategy had undertaken a study in 2005, which recognised the need to establish financial and non financial support through establishing these institutions such as Khula and SAMAF.  Banks and the IDC were then not catering for all categories. The reasoning for setting up these institutions was that IDC was then funding bigger projects.

Mr Labuschagne noted that the DTI wanted to get rid of anti-dumping duties. Many manufacturers in the industries highlighted would be affected. He asked how far this had gone, and if this would be brought before the Committee for discussion before the final decision was taken whether the anti-dumping measures would be dispensed with.

Mr Matona said that South Africa had been an active user of anti-dumping measures. There had to be links between imports and injury; some firms failing because of poor management were quick to blame imports. It was important to prevent dumping.

Mr Labuschagne asked what was really new; the same matters seemed to be recurring, although phrased differently.

This question was answered in general by Mr Matona at the end of the discussion session.

Mr Labuschagne said that there was mention of the infrastructure and the assistance to Eskom. The situation was impacting hugely on industry. He asked if DTI had not foreseen the problems.

Mr Naidoo explained that between 2005 and 2007 there were a number of concerns expressed, particularly on the electricity reserve margin. There were many associations brought together and there had been engagement with Department of Public Enterprises, and a bilateral meeting with Eskom. DTI would not have access to internal information of Eskom, so although DTI was aware that there was a challenge, it did not know the extent of it. He pointed out that many of the outages were due to unplanned crises, so even Eskom could not plan fully. 

Mr Chipfupa confirmed that DTI was part of an inter-departmental team looking at how government should respond to the need to use more renewable energy sources. DTI 's commitment was likely to be on the production, not the household, side. The Eskom incentives to households would be managed by Eskom. DTI would be looking at where the industrial capabilities could be further developed.

Ms P Hollander (ANC, Northern Cape) asked about finalisation of the draft strategic framework. She asked by when this would be achieved.
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Mr Labuschagne agreed that South-South trade was important, but there was not a lot of export to China and India. He asked if South-South trade was complementary or antagonistic; and whether there was a proper balance.

Mr Mudunwazi Baloyi, Chief Director: International Trade and Economic Development, DTI, said that in relation to South-South trade, key relationships needed to be established. Linked to this was the question of looking at diversifying the markets, and sources of foreign direct investment. Some economies had reached a level of growth that they were looking at alternative markets. Instruments had been developed to allow for institutionalisation of the relationships. China had offered duty free quota free market access and had asked South Africa to define a list of products. Beyond market access, there was also consideration of Chinese companies establishing manufacturing entities in the region. DTI was playing a critical role in this, especially in the minerals field. An elaborate programme had been defined to give DTI a sense of the strategic intent of relationships with China.

Mr le Roux added, in relation to South-South credibility, that the six priority countries did reflect certain economies. DTI had documents related to trading balances. DTI would be visiting Russia, with 35 South African companies, including chemicals, automotive equipment and other industries, shortly.

Mr Labuschagne said that there had been reports relating to the supply of coal to Eskom, alleging that there were some deals being done in relation to BEE tenders. It was alleged that a BEE firm would tender and win a contract, but then sub-contract to another company which had been precluded from applying. He wondered how much abuse was taking place; and whether the BEE company getting the work at a higher figure was then paying another non-BEE company to do the work at a lower figure. He felt that there were many situations where genuine BEE was not being applied.

Mr Chipfupa noted that the Preferential Procurement Policy Framework Act (PPPFA) gave a guide to government contracts, and there were also the BEE Act and Codes of good practice, which gave further guidance. Furthermore the Public Finance Management Act (PFMA) set out rules for public fund management. If someone was not performing functions properly then this would be a breach of the law and other issues would come into play.

Mr Chipfupa added that the PPPFA fell under the mandate of National Treasury and DTI had already submitted input on how this could be aligned. In regard to Khula Direct, the DTI was busy putting together the scheme to be approved firstly by this Committee, then by Cabinet.

Dr S Rasmeni (ANC) commented on the imbizos which were to promote awareness. He thought that the DTI was now quite well known. He felt that delivery was more important than awareness at this point.

Dr Rasmeni said that DTI was important for the economy, and must be accepted as such. Government did not appear to be taking it very seriously. It was a main coordinator and driver. Other departments tended to undermine it in the area of SMMEs or cooperatives. It should be given further authority.

Dr Rasmeni noted that there would more intensification of the work of local industry. He asked why, if local industry was already operating at full capacity, there was a deficit in the economy, and what could be done. It was possible that there were perhaps not enough industries or that the industrial base needed to be broadened. Dr Rasmeni noted also that consumer demands were greater than the output. Once again, he wondered if the answer would lie in developing industrial bases to remedy the problem. He indicated that perhaps the policies needed to be further considered, and he would like to know how far this had gone. He asked if there were teams dedicated to focusing on these areas, either in DTI alone or across the whole of government.

Dr Rasmeni noted that the SMEDP programme was to be revised. He asked why this was necessary.

Mr Chipfupa noted that the SMEDP was approved in 2001 for a six-year period. It was intended to review it in 2007. That coincided with the period in which the IPAP action and strategy was created. DTI felt that, given the clear focus, it could now align all incentives and SMEDP behind the industrial policy. Previously the DTI had a kind of cross-functional industrial policy not focusing on specific sectors. Given that there were now clear targets, it believed that this should be reflected in the industrial financing plan.

Dr Rasmeni asked what successes the African Growth and Opportunities Act (AGOA) had had.

Mr Baloyi noted that in regard to AGOA, there were certain challenges that benefits could be withdrawn. It was dependent on the generosity of the US Congress, who decided which products would remain in the product list. There had been success in accessing that market. The basket of exports was diverse and the profile was high. Other African markets were generally concentrated in energy-related products and textiles. In addition the smaller enterprises had managed to take advantage of the US markets through AGOA, particularly in clothing, textiles, fisheries and processed foodstuffs. The benefits of AGOA were to be included in a long term framework. Despite the failed attempt, it had opted for a gradual approach where a trade and investment development cooperation had been built, and there were a number of agreements.

Dr Rasmeni noted that the cooperatives had not been developed as fully as they could. He asked what had been wrong with the programmes and how this was to be corrected.

Mr Matona noted that this was an issue under investigation and development.

Dr Rasmeni had expected there to be further mention of Khula, which had been complaining that it was operating "in a box" and could not move outside it.

Dr Rasmeni noted also that some of the business plans that were prepared by professionals for the Agencies were being rejected as not meeting the criteria. He asked if the systems were focused on those other than in the second economy.

Dr Rasmeni asked where the disabled employees were to be found. He believed that the country was not doing much in terms of skilling those with disabilities, from a young age.

Mr le Roux noted that the call centre was to be staffed with disabled people. Call centres or information or facilitation centres had been successfully pioneered in Australia, India and USA. India was able to share information on how best to use people with disabilities. The skills were likely to be found in banking, insurance and the call centre environment. DTI would be training.

Mr D Gamede (ANC, Kwazulu Natal) noted that poverty was a major challenge, and asked what interventions in agriculture were being made, especially in rural areas.

Mr Gamede asked what was happening in relation to exports, and whether they were experiencing the same problems of having to go from pillar to post as were experienced by the investors. He asked if the one-stop centre was able to deal with small enterprises as well and with exports.

Mr le Roux said that there would be an export help desk staffed by four people to cover all six areas of the development and value chains.

Prof B Turok (ANC) thought that the comments seemed to be representative of the economic cluster. He thought that there were two ways of handling a current account problem; either to increase exports, or to produce own goods. One of the biggest failures of our current economy was the failure to produce own goods. In addition South Africa was not controlling imports of luxuries - such as luxury cars for public servants. In Taiwan public servants were limited in the goods they could import. He asked if it was possible for DTI to give a comparison between the industrial capability of South Africa in the 1980s and today. He wondered if the emphasis on exports was in fact de-industrialising South Africa.

Prof Turok aired further comments. He had asked himself whether, after three years, South Africa would have a solid, self-reliant industrial base. He wondered if it would have a strong basic industrial capital goods industry, through building an industrial foundation to withstand the turbulence of the money market, not merely by budget surplus. The media were focusing presently on the dependence on volatility.

Prof Turok wondered if the infrastructure programme being put in place would impact on non-productive areas. He quoted Prof Ben Fine, who stressed that when looking at an infrastructure programme, it was necessary to decide who would benefit from it. He had a sense that the cost of doing business must be lowered. However, he felt that the possibility of production must be increased at the same time.

Prof Turok noted that 42% of the budget was going to incentives. He would like to hear more on this; and needed to know what incentives were involved. He wondered if the poor would be better off and have more jobs as a result of this programme.

Mr Chipfupa spoke to the issue of competitiveness incentives. This was something on which DTI could provide a discussion document. This looked to the issue of industrial upgrading. There were some that looked at capital investment. However, there was also a view that incentives should also look at how work was organised, at the softer technologies, upgrading workers, looking at relationships between workers and management and so forth. DTI was thinking of some instrument to complement other incentives.

Mr Matona said that the DTI must strengthen its industrial base. The analysis that Prof Turok was calling for was appropriate and that would be picked up. One of the ways that DTI thought was necessary to safeguard the industrial base was to expose it to competition. Therefore a major policy intervention as South Africa had entered into democracy had been to undertake massive trade liberalisation. The new government came into power in the middle of the Uruguay Round, and there were some changes made, but it continued with commitments to open up the economy. It was correct to deepen links with the global economy. There had been some positive result, as productivity had increased. South African industries were frequently competing well with imports.

Mr Matona referred to the comments raised by Mr Labuschagne on anti-dumping. The exchange rate was another issue, but many industries had managed to adjust to this. The capacity indicated that South Africa had not de-industrialised, but was at a crossroads. It had improved its productivity, but the critical question was where it should go in expanding productive capacity of the economy. That spoke to the incentives that The Enterprise Organisation was to make available. Unless there was a major push and investment in infrastructure and industry, then de-industrialisation could result. The trade liberalisation was taken without a clear industrial strategy. National Treasury must agree to finance industrialisation, and give the right signals. He felt that this was an area of great concern and that industrialists must know that they would be supported by government. He felt that this was achievable, but he was not sure that this would be fully completed in the three years. Certainly in that time the foundations could be built and the conditions laid for effective industrial reform. It was important to remember that the resources would be targeted, in order to unlock investment by the private sector. The full structural change would take a long time.

Ms B  Ntembe (ID) was aware of the Competition Commission investigations, but felt that it was necessary to look into the differences in prices for certain “health foods", such as wholewheat breads, more intensively.

Ms Ntembe was not sure if the Lotteries would also be looking into competitions advertised on television; particularly the cell phone lotteries.

Ms Ntembe agreed that it was necessary to investigate some of the imports; some of the quality offered on cheaper goods was very low.

Ms Ntembe asked about the mandate of the DTI to increase the strengthening of local economic development initiatives, particularly at local government level. She asked how would local government be assisted.

Ms Ntembe commended the work that the Department was doing, stating that her Committee appreciated the efforts being made.

Mr S Njikelana (ANC) asked for more explanation on what was meant by “portfolio flows” in slide 11. He noted that there was focus on foreign direct investment and asked how this compared to domestic direct investment.

Mr le Roux noted that portfolio investment was short term investment not reflecting lasting control by a foreign investor. It could be residential property or short term capital. It was high risk and flighty. In terms of Foreign Direct Investment (FDI) and domestic direct investment, the reason for shifting was that this would put out a signal to foreign investors that South Africa had faith in itself.

Mr Njikelana said that in 2006 the DTI had updated the Committee on investment profiles. He felt that it would be useful to have a follow up on that. There should be input also on the trade policy.

Mr Baloyi noted that there was currently a policy reference group to look at this, and a timeline had been set for mid year. This was informed by the adoption of the NIPF, as opposed to the approaches in the past, where sectors of priority were not clearly defined. The current work was focusing on goods and services. Priorities on new generation issues were more clearly defined.

Mr le Roux noted that the investment strategy had come before the Executive Board of the DTI . It was to be finally ratified and could be brought to the Committee for final review after that.

Mr Njikelana asked that the Department should indicate which particular policies drove the various matters.

Mr Njikelana said that last year there had been some interesting input around the incentive programme. He wondered if there would be an update on that.

Mr Njikelana asked why THRIPS and SPII were to have modus transfers. He asked who would decide on the allocation.

Mr Njikelana asked if the department was beginning to look into IDZs. There was a strong focus on agricultural processing, but he would have thought that this should be included here.

Mr Njikelana asked for an update on regional integration. This needed constant monitoring. At some stage he would like to have a presentation with strong input from SADC and NEPAD on the effect of the DTI work. The role of parliament was quite fundamental. This Parliament had a formal exchange mechanism with the Parliament of China. There was an important link between trade and foreign relations.

Mr Njikelana asked what partnerships were being established between the COTII agencies and provincial structures. He would like to see more information on this in the presentations.

Mr Njikelana noted that the South African Women Entrepreneurs Network had made a presentation, but not much input had been seen from them. Although they did have constraints, they did not seem to be delivering. He hoped that DTI would assist them to extend themselves. It would be helpful also to see some focus on rural youth and the disabled.

Mr Njikelana noted that there was training taking place for cooperatives. He wondered if there was possibility of partnerships with the international bodies dealing with cooperatives. There was a formal partnership between SEDA of India and South Africa and that could be a focal point. He would like there to be improvements in future.

Mr Njikelana wanted to hear an update on the negotiations with Treasury.

Mr Njikelana noted that the promotion had been a good exercise. He suggested that it was necessary to look into structuring efforts to ensure sustainability, particularly with reference to public representatives and councillors. When impact assessments were done, he would like to hear what was happening.

Mr Njikelana noted that South African Qualifications Authority was to be integrated into the Small Enterprise Development Programme. He would like to hear reports on this.

Mr Njikelana said it was unfortunate that Trade and Investment South Africa, who was responsible for attracting investment into South Africa, had not made a presentation to Parliament.

Mr Njikelana also wanted to comment on merit or performance bonuses. He would like to hear if there were any achievement awards being given by the dti, and how precisely it was attempting to improve efficiency and commitment in the Department.

Ms Choane responded that awarding of the performance bonuses was informed by the performance agreements. There was an assessment  system. DTI wanted to align and define the alignment between the department plan, business unit plans and individual agreements, She would make the information available.

Mr Njikelana spoke of the role of DTI in the economic cluster. It had a formal mandate, but often integrated its work with other cluster players, and that was of key interest, also to know the extent to which those other departments extended or retarded the work of DTI. He would like this to be linked to some form of inter-Committee consultation. He wondered why there was a disparity in the time frames for the Department and the cluster.

Mr Njikelana felt it would be helpful for the Department to share information in more creative ways. He would like to hear what issues had been raised on the various platforms.

Prof E Chang (IFP) noted that the Department should engage the Committee more to let it understand and interact more. The Industrial Policy Framework and action plans were not necessarily clear. She would like to hear more about comparative incentives.

Prof Chang wanted to hear more about the electricity response, whether this was based on the lower rates, or whether it was based on an average over a month. This would help the industries to manage the power more effectively.

Mr Matona said that DTI would want to establish with Eskom the basis of rationing of power, to ensure that the industries were represented and their needs heard. The interests of small and medium enterprises would also have to be taken into account. It was working with the Presidency to ensure that it would be managed properly so that sustainability and profitability issues were taken into account.

Mr J Sibiya (ANC, Limpopo) noted that when the Director General had spoken on technology and innovation he said that in metrology and quality assurance it had reached a good level. That seemed to suggest that certain matters, such as the European markets refusal to take cheese exports, would not recur.

Mr Sibiya noted that among the challenges was the fact that sustaining and improving growth rates was hampered by monopolistic industries, who were using their powers incorrectly. One of the strategic objectives of the DTI was to promote global trade. He asked what role would South Africa play, both for itself and as part of Africa.

Mr Baloyi relied on the role played by DTI in promoting stable trading systems. It had more of a strategic role. DTI would firstly define itself in terms of its own interest and beyond that would look at itself as part of the continent. 

Mr Sibiya asked for more information on the Centurion Aerospace Village. He noted that the Department of Public Enterprises had indicated that South Africa had a good chance of having an entity on its own and was beginning to specialise in aircraft technology. In the even that this did happen, he asked if DTI could help to get access to international markets.

Mr Sibiya asked what cooperation or assistance would DTI get from Department of Foreign Affairs (DFA) when going into trade agreements abroad.

Mr Baloyi noted that DFA was a key partner. The fact that DTI could not be all over the world made it sense for DFA to fill in the gap.

Mr Sibiya asked what economic links there were with Russia, apart from the space technology and mining agreements.
 
Mr Baloyi said, in relation to Russia, that there was an economic relationships. A mechanism had been launched to govern the relationship with International Trade Administration Commission (ITAC) and DTI was the leader of this. The Commission looked at market access but also collaboration with a number of projects, in aerospace and defence. Russian companies were playing a critical role to help it roll out the infrastructure problem.

General policy issues
Mr Matona said that he would deal with the more general policy questions. On the question of coordination, DTI would be cooperating with most departments. He was worried about the quality of that coordination. The system was still based on departments being seen as independent and autonomous actors. This was despite the strategies having being endorsed by government. Often institutional arrangements left much to be desired, and many opportunities were missed because a department did not come to the table on time. The Industrial Policy Framework was a good one but whether there were appropriate institutional prerequisites in place was another issue. The relationship between industry and business was another dimension that left much to be desired. Organised industry and business was not yet at the level it should be in terms of partnering government. Industry associations had often not changed their approaches and were mistrustful of government. There was much confidence building still to be done.

Mr Matona noted, in relation to regional industrial development strategy and IDZs, that this economy did not have an inherent capacity to close the regional disparities. Prof Turok was correct to ask who would get the incentives. It was true that they largely went to enterprises in the larger metropoles. This led DTI to think about what it would do to ensure that economic activity was to take place on a more even geographic basis. DTI could not adopt a top-down approach, because of the three tiers of government. It had to consider what was happening at local level, and how to partner with those efforts. It had partnered with Department of Provincial and Local Government (DPLG) and would be elaborating a programme to build synergies with what was happening at local and provincial level. It was work in progress. There were sufficient ideas and projects to implement in the area of regional development. Regional integration was built into the National Industrial Policy Framework.
 
In terms of capacity building, DTI and DPLG had a programme to take a limited number of municipalities and engage with capacity building on a trial basis. This should not, however, be seen as a stand-alone strategy but would be implemented as an integral part of the industrial policy.

Mr Naidoo noted that the implementation issues were complex and the various answers very fragmented. Apart from resourcing, which was a constant challenge, there was a question of how to strengthen implementation in government. It was important to have active management of the current account, but this was not a sole preserve of dti. The exchange rate was out of DTI ‘s hands. If there was not sufficient investment in public infrastructure then there would be a problem. It was trying to localise production of inputs. However, this would require other aspects of joined-up economic policy to make it succeed.

Mr Naidoo then commented on the various questions around the skills issue. He said that notwithstanding debate about governance that might affect the intake of skills, it was important to acknowledge that there was a severe shortage, and that it would get worse. For the economy and job creation it must be recognised that high skills and low skills were complementary. He cited that in South Africa, for every 100 000 of the population there were around 30 to 40 engineers. In Australia the proportion was in the hundreds, and in Eastern Asia as many as 3000 per 100 000 head of population would be engineers. The fast track implementation of high skills was on the programme of action.

Ms Choane added that there were a significant number of graduates abroad, so she would confine herself to those in the country. Apart from competing for skills from a limited pool available in South Africa, DTI was also trying to capitalise on its intern programmes. This was not something that could be achieved overnight.

Mr Matona said that the substantive issues had been covered as far as possible, relating to the strategy. It would be useful to continue the engagement. He noted that the economic programme was a long term one. The same issues would be addressed time and again. Within those broad focus areas it would be useful to know if there was any area that was missing. Clearly, the detail may differ. Critical areas of transformation in the economy were being covered. In future, he expected that engagement would be on specific focus areas and action. Without sufficient resources to increase the scale, DTI could not achieve more. There was a need for consistency and that was what DTI was trying to achieve.

The Chairperson noted that some of the Members asking the questions were regrettably not able to be present for the answers. This was a process; there must be consistency to achieve the mandate from both sides.

The meeting was adjourned.