Industrial Policy Action Plan 2007/08: Implementation Report: Department of Trade and Industry

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Trade, Industry and Competition

20 May 2008
Chairperson: Mr B A Martins (ANC)
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Meeting Summary

A delegation from Department of Trade and Industry reported on the implementation of the  2007/08 Industrial Policy Action Plan. This plan involved sectoral actions which fast tracked implementation of four lead sectors, identified from research and intensive interactions with stakeholders. The four lead sectors were the Metal Fabrication, Capital and Transport equipment sector; the Automotives and Components sector; the Chemicals, plastic fabrication and Pharmaceuticals sector; and the Forestry, Pulp and Paper, and Furniture sector. The sectoral actions intended to stabilise the clothing and textiles sector to preserve capabilities and employment, and to maintain momentum on sector priorities. The sectoral plans included other sectoral projects and sectors on which further strategy work must be developed. A major challenge was the rejection by National Treasury of the requests for funding, and the lack of certainty on what criteria were used in granting or rejecting requests for funding.

Members posed a number of questions around bio-fuels, holding divergent views as to whether this sector should continue to be promoted. Members commented that industrial policy was crucial, as it guided other government policies. Further questions were asked about the quota system, and whether the voluntary restriction on quotas had worked, the manufacturing growth figures, the reasons why employment growth had been declining in the sectors indicated, and the possibility that opting for cheap goods vied with the principle of employment creation, querying whether the industry would be made more capital intensive.   A Member commented that the fiscal discipline indicated by National Treasury on 20 May was too low. Members further queried whether the Department would be able to handle more funds, commented on the inter-governmental coordination challenges, questioned whether sufficient attention was being given to employment creation, and said that the quota system did not need proper assessment in conjunction with all relevant stakeholders. They suggested that other portfolio committees, municipalities and departments needed to be brought on board in relation to the strategic planning. It was highlighted that one of the main problems was lack of coordination in the sector and problems had arisen because the dti policies had been drafted after, and to some extent conflicted with, other government policies.

Meeting report

Industrial Policy Action Plan: Department of Trade and Industry (dti) Briefing
Mr Sipho Zikode, Acting Deputy Director-General (DDG); dti, Mr Nimrod Zalk, Chief Director-Industrial Policy, dti ; and Mr Nkosimyozi Madula: Director: Industrial Policy, dti, briefed the Committee on the implementation of the 2007/08 Industrial Policy Action Plan.

Mr Zikode reminded the Committee that one of the Department of Trade and Industry (dti) mandates was to level the playing fields in the economy and integrate those who were previously disadvantaged through affirmative policies. Previously there were very few policies in place to implement some of the strategic goals and mandate. These policies had also been drafted to guide other departments in promotion of industries.

Mr Zalk noted that the action plan involved sectoral actions which fast tracked implementation of four lead sectors which had emerged from research and intensive interactions with stakeholders. The four lead sectors were the Metal fabrication, Capital and Transport equipment sector; the Automotives and Components sector; the Chemicals, plastic fabrication and pharmaceuticals sector; and the Forestry, Pulp and paper, and furniture sector. The sectoral actions further intended to stabilise the clothing and textiles sector to preserve capabilities and employment, to maintain momentum on Accelerated Shared Growth Initiative (ASGI-SA) sector priorities. These included tourism, and business process outsourcing (BPO). The sectoral plans included other sectoral projects and sectors on which further strategy work needed to be developed.

Mr Zalk further indicated that the Industrial action plans involved cross-cutting actions. These entailed new areas of emphasis in industrial financing and upgrading; and reducing input costs through competition policy and trade policy, in respect of selected import duties.
The third component of the Industrial Action Plan was to make improvements in government organisation and capacity.

Mr Zalk noted that notwithstanding the global and economic challenges, manufacturing had remained robust. Manufacturing Output growth had grown steadily since 2000 and although it was affected in the last quarter by the power shortages, this did not significantly impact on the overall trend. The output growth in the sector was resilient. Progress had thus been made in the implementation of the industrial policy action plan, although intergovernmental challenges had been an impediment.

In respect of the Metal Fabrication, Capital and Transport Equipment sector, Mr Zalk added that public expenditure in transport and electricity necessitated the need for coordination and resuscitation of the sectors. A key driver for the resuscitation would be the Supplier Development Programmes (SDPs) driven by the Department of Public Enterprises (DPE). The SDPs needed to be further strengthened and enhanced through a general increase in supply. Transport Rail and Commuter Rail were areas that needed policy intervention as they possessed manufacturing and employment opportunities. The employment levels had also risen in the metal sector and remained stable in the transport sector. The National Tooling Initiative entailed resuscitation of tooling in the country. The National Foundry Technology Network would resuscitate the National Foundry sector, which had been in decline, through pilot projects that will commence in July 2008.There was also a crucial need to increase both supply and investment in Carbon manufacturing.

A major challenge faced by the dti was the continual rejection by National Treasury (NT) of the requested funding for initiatives. dti had not managed to obtain the criteria for funding from NT, and it would be helpful to get this so that dti would be in an informed position when requesting funding for initiatives and programmes crucial to industrial and economic growth.

Mr Zalk corrected the date in Slide 10 for announcement and tabling of the Motor Industry and development Programme, to August. The legislation would be implemented the following year.

There was a steady growth in the Automotives and Components sector. This was a key sector which required focus o ensure further and higher growth. There had also been steady employment growth in the sector, and it seemed to be stabilising. 

Discussion
Mr Zalk requested that the Committee put the questions and comments raised in writing, so that dti could respond, sector by sector. Some comments and questions were not answered at the meeting.
 
Dr P Rabie (DA) commented that the textile industry showed vulnerability in terms of employment. He further commented that the quota system appeared not to have been successful as imports appeared to be on the increase, which was a serious concern.

Dr Rabie commented that the bio-fuels industry was important to South Africa’s economic and employment growth, notwithstanding the concerns over food security raised in connection with the industry.

Dr Rabie commented that scrap copper was costing the government a lot of money and there was a need to reconsider the issue.

Ms D Ramodibe (ANC) commented that industrial policy was crucial as it guided other government policies.

The Chairperson and Ms Ramodibe asked for clarification on the remark that the quota system had not worked as various reports, including that by Ibrahim Patel, had indicated that the voluntary restriction on quotas had worked.
 
Mr Zalk replied that the committee had misunderstood the comments on the quota system. He said the quota system, in particular the voluntary system, had worked and had assisted industries in South Africa, but was not sufficient to deal with the surge of imports.

Ms Ramodibe commented that the lack of inter-governmental coordination wasted a lot of resources. She referred to the Policy Action Plan initiative to leverage public procurement ,to promote domestic manufacturing of  Anti-Retrovirals (ARVs) and asked to know if the initiative was being conducted in conjunction with the Department of Health.

Ms Ramodibe referred to slide 18 and commented that the initiatives indicated would only be successful if implemented with monitoring and evaluation mechanisms. She further indicated that the skills transfer programme was imperative, considering the skills shortages being faced in the country.

Ms F Mohamed (ANC) referred to the manufacturing output growth i and commented that there appeared to be negative percentage growth figures, whereas the dti indicated that the growth in manufacturing was robust. She asked the dti delegation to reconcile the negative figures with their indications.

Mr Zalk replied that slide 5 was not a year on year indication of the output growth, but a snapshot of the trends in the last financial quarter. It did not indicate the long term trends.

Ms Mohammed asked for  the specific details of the resolution mechanisms to the challenges indicated in the presentation, for example the tightening of the Competition Act.

Ms Mohammed asked why the Information Technology (IT) sector was not mentioned in the action plan.

Ms Mohammed asked why the employment in the Paper and Paper products was declining, as indicated on slide 18.

Ms Mohammed referred to Industrial policy opportunities or responses to the electricity crisis indicated on slide 30, and asked how dti intended to fast track the initiatives, including the roll-out of solar water heating and other efficiency devices in the context of the capacity and skills shortages.

Ms Mohammed asked why the employment growth had been declining in the basic chemicals sector.

Mr Zalk replied that the employment growth in the Chemical and Pharmaceuticals sector, and also in the Forestry, Paper and Pulp sector had declined due to the sector becoming more capital intensive, casualisation and outsourcing.

Professor B Turok (ANC) commended the progress report. He asked to know how the policy action plan related to the dti strategic plan.

Professor Turok commented that the textiles sector was a crucial industry and had historical significance to the Cape Town society. He added that too much focus on global competitiveness could destroy the social fabric of Cape Town, which was cemented on the textiles sector, and thus the historical significance of the sector needed to be taken into cognisance in the industry development initiatives of the dti.

Professor Turok commented that there was a trade-off between opting for cheap goods for the consumers, and employment creation. Opting for cheap goods would destroy jobs. It was impossible to achieve both and to deal with this in merely general terms.

Mr Zalk commented that raising productivity in the Clothing and Textiles sector did not mean changing the industry into becoming more capital intensive, thereby losing jobs. He added that the dti did not intend to ensure the provision of cheap goods by cutting down labour costs. Rather it would prefer to address the matter by increasing production. It would not necessarily make the industry more capital intensive.

Professor Turok commented that the fiscal discipline indicated by National Treasury on 20 May was too low. He added that South Africa showed the lowest in fiscal discipline amongst the London economies.

Professor Turok referred to the comment that more funding could facilitate better work by the dti, and commented that he was not convinced that the dti could handle more money. He added that other departments had failed to appropriately use the funds allocated to them by National Treasury.

Professor Turok referred to the indication made in the presentation that some of the requests for funds by the dti from National Treasury  were continuously declined because their criteria for granting requests for funding was not clear. He commented that this issue had been previously raised before and had been taken up.

Mr Zalk commented that the dti was certainly able to utilise more funding if agreement was reached on a business by business case financing.

Mr D Dlali (ANC) disagreed with the comments made by Dr Rabie that the bio-fuels industry needed to be developed faster for the sake of employment creation. He commented that the bio-fuels industry would not help the plight of the small farmers. Food prices had escalated in part due to the constraints being placed by the bio fuels industry, and it was thus imperative to reconsider further development of the industry. It was also untrue that the industry had the potential for employment creation.

Mr Dlali commented that the intergovernmental coordination challenges indicated in the presentation, included those relating to clusters, were a serious impediment to the resolution of problems.

Mr Dlali referred to the public procurement issues, citing in particular those relating to anti-retrovirals and digital set top boxes. He aired his concern over the announcement that the roll out of these initiatives had commenced. The advantages and disadvantages were not adequately considered before the decision and the announcement, and a proper situational analysis was not conducted.

Mr Dlali commented that there were clearly more Chinese goods and imports in South African than South African goods in China.

Mr S Rasmeni (ANC) commended the presentation, in particular the consideration of job creation on the action plan initiatives. He added that this was imperative to the South African economy, in particular in view of the current crises being faced, and hoped that the National Treasury would provide the necessary support.

Mr Rasmeni, in relation to slide 16 of the presentation on expansion of the furniture industry, commended the dti for moving beyond strategic plans and implementing them.

Mr Rasmeni referred to the objective to formulate an empowerment plan for the Automotives and Components sector and asked ow this linked to previous work done on empowerment.

Mr Zalk replied that industries were looking into the BEE codes with an view to balancing them out.

Mr Rasmeni referred to the outstanding issue of securing sufficient land as part of the Fluor-chemical expansion initiative. He commented that securing land was a contentious issue and asked how the dti was going to manage the issue.

Mr Rasmeni referred to the challenges in securing preference for domestic manufacturers in the tender process, indicated under the initiative to leverage public procurement to promote domestic manufacturing for ARVs. He commented that the public procurement process had always been a problematic issue in South Africa. There had previously been comments that  public servants manipulated the tender process. The process was currently not transparent.

Mr Rasmeni referred to the Monyetla Work Readiness Programme on slide 24 and asked which department was responsible for the programme.

Mr Rasmeni commented that the inter-governmental coordination challenge was linked to capacity. He asked if the dti had the capacity to implement the action plan.

Mr Rasmeni concurred with Dr Rabie’s sentiments that there were social issues inherent in the Textiles sector that needed to be considered in the dti's strategic and action plans.

Professor E Chang (IFP) aired her concern over the capacity of the dti to upgrade. She further commented that the working hours in the sector needed to be standardised.

Professor Chang commented that an important challenge facing the country was the high unemployment rate. She expressed her discontent over the lack of adequate attention to employment creation in the presentation. Unemployment was particularly crucial for the rural population, and needed to be a serious consideration in the dti's strategy, policies and action plan.

Professor Chang commented that the quota system needed to be assessed properly  in conjunction with all the relevant stakeholders, in particular all the Southern African Development Community (SADC) countries and international countries central to the system.

Professor Chang commented that shipping agents needed to be considered in the import initiatives conducted by the dti. The privatisation of State Owned Enterprises (SOEs) needed to be done very carefully as some of the SOEs did not need to be privatised at all. The strategic and action plan for the industries also needed to take into consideration that outputs from one industry were inputs for other industries, as well as Black Economic Empowerment.

Mr Zalk commented that he concurred with Professor Chang’s comment that discussions and planning on the quota system needed to involve SADC and other relevant International stakeholders.

Mr J Maake (ANC) commented  that the dti needed to thoroughly interact with relevant State stakeholders in all their initiatives to ensure efficiency. Other portfolio committees, municipalities and government departments needed to be brought on board in the dti strategic action planning activities.

Mr Maake, referring to slide 7, commented that the Minister of Trade and Industry had indicated in his budget speech the need to invest more in the transport industry. However, the  Industrial Policy Action Plan had no indication of this need for investment.

Mr Maake referred to the Wood, Paper and Pulp, and Furniture policy action plans, and commented that it appeared that only the Eastern Cape had benefited from the initiatives. He asked if there were plans to spread the initiatives to other provinces and sub-sectors.

Mr Maake asked for an update on the Black Economic Empowerment (BEE) initiatives in the Wood, Paper and Pulp, and Furniture policy sector.

Mr Maake commented that slide 9, indicating sectoral employment in the Metal Fabrication, Capital and Transport sector, appeared to show a very dim picture. He asked whether this was the case.

Mr Maake referred to the comments on the way forward, in respect of the Clothing and Textiles Sector, and asked the extent of the involvement of Small Medium and Micro Enterprises (SMMEs) in the inter-departmental task team that would be set-up to tackle illegal imports.

Mr Maake asked how much investment by public and private enterprises had been put into the planned up-scaling of skills in the Clothing and Textiles sector, and whether the initiative would involve the Department of Labour.

Mr Maake commended the dti for their commitment to train 30 000 learners in the Monyetla Work Readiness-Programme over four years. He nonetheless asked to know why only 30 000 learners had been targeted for the four year period.

Mr Zalk replied that the number of targeted learners would be increased when the intervention had been proven successful and support structures had been put into place

Mr Maake commented that the national and international concerns on the bio-fuels sector should be considered by the dti in its industrial sector initiatives.

Mr Zalk replied that the concerns over the bio-fuels sector were legitimate, although this did not mean that the development of the industry should be stopped. Preferably, South Africa needed to learn from other countries' experiences and failures, in their own development of the industry. He added that the concerns over food security could be mitigated, for example by putting into place mechanisms to ensure that subsidies for food crops could not be redirected to crops for bio-fuels.

Mr Maake referred to the intra-governmental coordination challenges and commented that the rationale of the Cabinet was to facilitate such co-ordination; it was thus surprising to hear of the challenges. He added that the functioning of support systems and schemes, which were  indicated as a challenge, alluded to the role and mandate of the Cabinet and the Presidency.

Mr Maake commented that the dti was at the epicentre of the economic cluster, which should have facilitated intra-governmental coordination. He asked to know to what extent there was common vision amongst the members of the Cluster.

Mr Zalk replied that co-ordination had improved through the Cluster system, although this was not yet fully up to scratch. The different departments in the Cluster did have differing opinions on issues, although no department was above other departments, except for the special position of National Treasury. The process was not decisive.

Mr Zalk commented that the intra-governmental coordination challenges also included coordination of government policies. He added that the dti policy was drafted and completed after other government policies, including the BEE, and this was problematic since it was supposed to guide other government policies.

Mr Maake referred to the challenge of monopolistic pricing of inputs, and asked whether a consolidated body had been convened to assess and determine the costs of doing business.

Mr Zalk replied that the Competitive Supplier Development Programme (CSDP) of the DPE was set up with good intentions. Dti had not been given the leadership role on the programme, possibly due to lack of experience. This filtered down to the other areas such as the Wood and Pulp sectors. This sector's supply chain was controlled by three large companies, and this resulted in the stifling of small companies who consequently struggled to receive inputs. A possible solution would be to increase forest plantations, but this would need water licenses issued by the Department of Water Affairs and Forestry. It would be necessary to have effective coordination with this Department to ensure sufficient progress. At present there were impediments, due to the contradiction between dti's and other governmental policies, as indicated earlier. The challenge in the biofuels sector was similar.

Mr Maake made reference to the export tax on scrap as one of the intra-governmental challenges and commented that the tax alluded to the trade policy. He asked if there was direct linkage between the challenge and the trade policy on exports. 

The meeting was adjourned.

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