ATC141028: Report of the Portfolio Committee on Trade and Industry on the implementation of the Industrial Policy Action Plan with specific reference to the state of the manufacturing sector, dated 28 October 2014.
Report of the Portfolio Committee on Trade and Industry on the
implementation of the Industrial Policy Action Plan with specific reference to
the state of the manufacturing sector, dated 28 October 2014.
The Portfolio Committee on Trade and Industry having considered the Report
of the Portfolio Committee of Trade and Industry on the implementation of the
Industrial Policy Action Plan with specific reference to the state of the
manufacturing sector and recognising the work done by the committee in the
Fourth Parliament, reports as follows:
The promotion of a
more labour-absorbing industrial strategy with the emphasis on traceable labour
absorbing goods and services and economic linkages to promote job creation is
the cornerstone of the
National Industrial Policy Framework (NIPF).
Government recognised that a revised Industrial Policy Action Plan (IPAP2)
could be the catalyst that would set the country on a new path of
industrialisation. The IPAP2 reflects governments objectives of stimulating
long-term industrialisation and industrial diversification beyond the current
reliance on commodities and non-tradable services. The focus has been on
addressing overarching areas, as well as targeting specific productive sectors
in the economy, particularly those with high employment and/or economic growth
potential that could promote the local manufacturing of value-added products
for both domestic and export markets.
Africa has a
with some subsectors being
more developed than others
. This includes subsectors ranging from the
food, beverages and tobacco;
clothing and textiles; petroleum, chemicals, rubber and
plastic products; metals, metal products,
machinery and equipment; and transport equipment among others.
This sector contributes greatly to international trade in terms of
exports of both finished and semi-finished products.
The manufacturing sector is the countrys priority sector.
It is the
second largest sector contributing approximately 15% to South Africas total
GDP and 12.7% to employment during the fourth quarter of 2012.
manufacturing sector is also critical as it creates upstream and downstream
linkages. On the one hand, it requires a number of inputs and services to
produce goods; while, on the other hand, its goods may feed into other
manufacturing processes and/or be consumed locally or be exported. It may also
lead to the demand for other related services. These linkages are also known as
the multiplier effect.
purpose of this report is for the Portfolio Committee on Trade and Industry to
highlight its findings and make recommendations regarding its:
Consideration of the progress report on the
implementation of the 2011/12 IPAP2,
Public hearings conducted in November 2012 on
the challenges and constraints experienced by the manufacturing sector,
Colloquium which was held on 6 March 2013,
which focused on the impact of the continual increases in administered prices
on the manufacturing sector and the measures to mitigate against its impact on
the countrys manufacturing sector, and
Subsequent engagements with the National
Cleaner Production Centre and BHP Billiton.
line with its oversight responsibility, the Committee has received regular
updates on the implementation of IPAP since August 2009. Each year, the
Committee focussed on different IPAP-related issues, beginning with the cost of
steel as an essential input to industrialisation then infrastructure broadly. In
2012, the Committee focussed on the constraints posed by high and rising
electricity, ports and other administered prices on the manufacturing sector
and IPAP2, as well as the critical need for beneficiation. This included a
consideration of current measures that had not been implemented and measures
that may require legislative action.
invited the following economists to engage it on matters related to the
manufacturing sector and IPAP2 during its public hearings:
Dr Simon Roberts on the state of the economy
and the impact of electricity on manufacturing, and
Professor Ben Turok (MP) on beneficiation.
following public institutions were also invited to comment on the impact of
administered prices on the manufacturing sector:
The Department of Trade and Industry (DTI),
The Department of Public Enterprises (DPE),
The South African Local Government
The National Electricity Regulator of South
The Transnet National Ports Authority (TNPA),
The Ports Regulator.
South African Maritime Safety Authority specifically commented on the potential
and opportunities for the maritime industry in relation to industrial
development with specific focus on the boat-building industry.
other stakeholders and companies that were sensitive to changes in electricity
tariffs were invited to the public hearings, including:
The Manufacturing Circle,
The Energy Intensive User Group of Southern
Free State Gold Fields Chamber of Commerce
The National Foundry Technology Network
The Apparel Manufacturers of South Africa
The Eastern Cape Socio Economic Consultative
The National Association of Automobile
Manufacturers of South Africa (
The National Association of Automobile
Component and Allied Manufacturers (
The Ford Motor Company of South Africa, and
to the public hearings, the Committee decided to schedule a colloquium on the
impact of administered prices on the manufacturing sector, with specific
reference to high electricity prices and port tariffs on 6 March 2013. The
following key stakeholders were invited to engage the Committee on possible
short and medium term solutions:
The Department of Energy,
engagements were scheduled to address the challenges relating to the promotion
of energy efficiency as an instrument to foster industrial efficiency and
competitiveness, the pricing arrangements with suppliers of electricity, as
well as on beneficiation and the challenges associated with it. The following
stakeholders were invited in this regard:
The National Cleaner Production Centre,
from the German Embassy,
BHP Billiton South
global recession of 2008 had a negative impact on the manufacturing sector
which led to massive job losses in the sector. The recent Purchasing Managers
Index registered a three year low indicating declining business confidence and
a contraction in the manufacturing sector. Furthermore, recent data indicates a
sharp rise in imports which is at the expense of jobs with exports moving on a
administered prices, such as electricity tariffs and port charges, have further
contributed to South Africas relative lack of competitiveness and have led to
the loss of many small entrepreneurial businesses, especially in the
manufacturing sector, which resulted in the
retrenchment of thousands of workers
. While some of South Africas
trading partners have reportedly reduced their industrial electricity rates,
South Africa has been increasing its electricity tariffs.
South Africas growth remains driven by credit-fuelled non-tradable sectors
while the tradable export sectors are languishing.
This combination of events, as well as other
domestic inefficiencies, represent a real threat to the manufacturing sector
and have exacerbated the expansion of the import market which has created an
entrenched external imbalance reflected in the large current account deficit.
South Africas continued exports of its mineral resources with minimal
beneficiation will further undermine the manufacturing sector. Currently, raw
ore is exported with no or limited local processing. This results in developmental
linkages and broader manufacturing capabilities, such as research and training,
primary sector can play a lead role in enabling South Africas comparative
advantage. In this regard, the conversion of South Africas mineral endowment
through beneficiation has been purported to facilitate socio-economic
development. The development of local beneficiation capabilities would be
supported through incentives. This use of South Africas natural resources and
the supporting incentives offered should assist in the domestic industrys
global competitiveness and can lead to increased job creation and retention.
In addition, the IPAP2 emphasises the need to
attract investment into the manufacturing sector to reverse the declining trend
in the sector and to ensure an increase in employment creation. Value-adding
sectors which create the highest opportunities for employment are being
the public hearings
was an overall concern regarding the South African manufacturing sectors
ability to maintain its competitiveness. There was a perception that there were
general challenges to attract future investment, from especially
multinationals, as South Africa was facing several administered price hikes as
well as skills shortages, low productivity levels and the perceived restrictive
labour environment made it relatively uncompetitive compared to other
particular, the following issues emerged from the public hearings held in
number of issues arose in relation to electricity tariffs, namely that:
There was a perceived negative impact due to Eskoms
transition to a cost-reflective pricing regime on the economy despite Eskoms
efforts to increase tariffs at a lower rate than initially indicated.
The lack of infrastructure investment in
prior years has led to aged infrastructure, which if not adequately maintained
and replaced, could lead to energy supply constraints in the near future.
There were other production factors, including
the cost of coal which has been increasing significantly above inflation, which
has been increasing the cost of producing electricity.
The widening differential between Eskom and
municipal electricity tariffs was a concern for industrial users who were
unable to select their service provider.
The current and future municipal tariffs could
threaten the viability of the manufacturing sector, particularly for energy-intensive
There was a need for all energy consumers to
shift towards more energy efficient usage.
Whether the negotiated pricing agreement existing
between BHP Billiton and Eskom is available to other stakeholders in the
following issues were raised in relation to port tariffs:
According to the TNPA, the lack of
infrastructure investment contributed to the deterioration of port facilities.
Therefore, port infrastructure required to be upgraded, which would be
partially funded through higher port tariffs.
High port tariffs have increased the costs of
transporting both exports and imports which could contribute to the decline in
the competitiveness of the manufacturing sector.
Status of local procurement
raised the following concerns in relation to local procurement:
Investment by local suppliers was limited due
to uncertainty regarding future, particularly long-term, local procurement
Local investors were reluctant to obtain the
necessary international quality assurance certification to qualify to be
included in multinationals global value chains because of the time and effort
required to achieve certification.
Where the promotion of black suppliers is
imperative, the DPE and other stakeholders had raised the need for ongoing
direct support as a constraint to ensuring the delivery of quality products
that are delivered on time.
terms of beneficiation, the key issues emerging were that:
If South Africa continues to export its
mineral resources and import the final,
beneficiated products, it could further undermine the manufacturing sector. This
trend would result in the loss or decline of other developmental linkages and
broader manufacturing capabilities, such as research and training.
The promotion of an interface which benefits
the national interest is essential. This should include (i) pricing
arrangements between the mining and manufacturing sectors, (ii) limited
protectionist arrangements, (iii) skills development,
procurement measures that favour domestic industry and (v) clear taxation
policies that would encourage localisation.
The implementation of the provision in the Minerals
and Petroleum Resources Development Act, namely section 26(3), that requires
any person who intends to beneficiate any mineral mined in the Republic of
South Africa outside the Republic may only do so after written notice and in
consultation with the Minister could assist in facilitating local beneficiation.
The necessary skills required to successfully
implement a beneficiation strategy, which would result in job creation and the
re-industrialisation of South Africa.
availability of competitively priced electricity, for the production of
beneficiated goods is paramount. In the 1990s, Eskom had extensive excess
generating capacity. This led to contracts being signed with high industrial
energy users to ensure that excess capacity was utilised for economic
development rather than wasted.
the Committee was concerned about the rationale behind entering into new
contracts in 2003/4, while it was known that future supply of electricity would
be constrained. The Committee was of the view that failure to supply
electricity at a rate that supported industrialisation could derail the
productive capacity of the economy and that government had a responsibility to
secure the supply of energy.
concurred that the supply of electricity underpins industrialisation. The
supply of energy should be cost effective to ensure South Africas
competiveness, particularly for beneficiation of minerals which is energy
intensive. The Committee was of the view that the supply of energy should be at
a developmental price to benefit all stakeholders.
4. Colloquium on the
impact of administered prices on the manufacturing sector in South Africa
DTI had identified high electricity tariffs and port tariffs as the key factors
that impact negatively on competitiveness and the viability of the
manufacturing sector. The DTI asserted that South Africa has amongst the
highest port tariffs in the world. The cost of transport is further compounded
by significant port inefficiencies. This represents a significant constraint to
the export of value-added tradable manufactured goods and the import of inputs.
an economy with a growing demand for affordable electricity and an increasingly
costly supply of electricity, finding alternatives to better mitigate the
impact of increasing prices particularly on the manufacturing sector is
critical. However, there is minimal flexibility in factors determining the cost
of electricity, whose prices are also tending to increase.
colloquium therefore was an attempt to find short-term solutions to stem the further
decline of the manufacturing sector by seeking alternative measures to
against the impact of increasing electricity and port
4.1.1 Department of
The energy sectors
objectives as outlined in the White Paper published in 1998 require that the
provision of electricity should (i) be equitable taking into account the needs
of the lower income group, (ii) be effective and competitive in the provision
of reasonable priced power to all sectors of the economy, and (iii) facilitate
participation of the private sector in power generation. These are the factors
that should be taken account of when developing an electricity pricing
The Department of
Energy acknowledged that the energy sector was facing a number of challenges in
that the current electricity production capacity should expand by two thirds,
and Eskoms infrastructure backlog should be addressed. Although there was no
disagreement that Eskoms infrastructure build programme must be funded, there
is a concern regarding whether this should be through tariff increases or
The current approach
of using tariffs to address these challenges comes at a significant cost to
consumers. However, a balance must be found to ensure the acceleration of
development within the energy sector, maintain the competitiveness of the industry,
and achieve a reasonable tariff. One of the factors that could lower the
pressure on Eskom is the efficient use of electricity. Inefficient electricity
usage would have a negative impact on price and could lead to load shedding.
Three main areas of
concerns remain, namely the cost of the Eskom build programme and how it will
be funded, the efficient use of energy and where energy should be sourced from.
The DOE was of the view that various supply options should be considered in
order to achieve the best economic outcome as well as an affordable price for
the supplier and the consumer. The burden to the fiscus should be limited which
makes the financial viability of the electricity sector paramount.
4.1.2 Department of
Trade and Industry
within our manufacturing sector is critical for the development of the South
African economy. According to the DTI, the IPAP has improved competitiveness
within the automotive sector, as the KPMG survey
rated South Africa
as the fifth best destination globally for automotive production. This placed
South Africa ahead of some developed and emerging economies which illustrate
our ability to become globally competitive. This competitiveness is being negated
by our micro environment (electricity and port tariffs) and our macro
environment (interest rates and an overvalued currency).
Therefore, administered prices are a critical
element that could either stimulate or impede the development of the
The protracted global
recession has led to decreased demand from our traditional trading partners and
together with the escalating administered prices contributed to the contraction
within the manufacturing sector. The result thereof is a decline in job
creation, exports and investment in the productive sector of the economy.
Industrial policy requires
inter-departmental coordination and cooperation with sector specific policies
and interventions to have a significant impact. Therefore, despite the DTIs
rigorous implementation of sector specific policies and interventions that fall
within its mandate, the industrial policy can be adversely affected by other
line departments policies and interventions due to a lack of understanding of
their impact on the re-industrialisation of South Africa. Electricity and port
tariff setting and regulation are neither functions nor core competencies of
the DTI but these policy decisions have a profound impact on industrial
The supply of
affordable electricity to the manufacturing sector is essential for the re-industrialisation
of the South African economy.
as well as the Committee, is of the view that the significant electricity
tariffs disparities existing between Eskom and especially among municipalities
contribute to the decline of the manufacturing sector. The Committee is concerned
that the impact of high electricity tariffs could lead to further job losses
and increasing poverty which contradicts governments national objectives.
in its presentation, informed the Committee that empirical studies have shown
that sectors likely to suffer from a price increase are mining and
manufacturing. Although this may be the case, Eskom is of the view that there
is considerable variation in the vulnerability of different sub-industries and
firms within this very diverse sector. According to Eskom, industry is more
concerned with securing a steady supply of electricity rather than the price. The
manufacturing sector is too diverse to make generalisations about the
vulnerability of the sector to rising electricity prices. This perception
raised serious concerns with the Committee as inputs from stakeholders during
the public hearings held in 2012 suggested that the continuous rise in
electricity tariffs has a severe impact on the viability of their operations.
is significant scope for energy efficiency gains especially in the non-metallic
mines, mining and quarrying, agriculture, paper and basic metals sectors. If
South Africa were to remain competitive relative to its OECD counterparts
improvements in energy efficiency is critical.
4.1.4 National Energy
Regulator of South Africa
is the official energy regulator of South Africa, established in terms of the
National Energy Regulator Act (No 40 of 2004). In its mandate, NERSA is guided
by the following legislation, the Electricity Regulation Act (No 4 of 2006),
the Gas Act (No 48 of 2001) and the Petroleum Principles Act (No 60 of 2003). In
terms of electricity, NERSA is guided by the Electricity Pricing Policy (EPP)
and the Electricity Regulations on New Generation Capacity.
is responsible for issuing licences to electricity suppliers, setting tariffs, determining
conditions of supply and demand, monitoring compliance with licence conditions,
investigating complaints, and acquiring and safeguarding industry information. NERSA
reported that Eskom had applied for a 16% increase in electricity tariffs for
the next five years from 2013. However, after careful consideration of public
comments from the public hearings on Eskoms application, NERSA decided to
recommend an 8% increase rather than the 16% increase request. NERSA cited
to the public, as its reason for declining
the 16% tariff increase request.
South African Local Government Association
SALGA informed the Committee
that an important principle around electricity tariff design is ensuring that
tariffs are adequately priced to ensure total cost recovery of the utility.
Currently, there are 189 utilities with unique electricity tariff designs. This
was in terms of the financial requirement relating to their cost structure,
sale volumes and types, and cost of networks of distributors, and the varying
socio-economic requirements of a particular area of distribution.
municipalities purchase electricity from Eskom transmission at prices
comparable to what Eskom offers its direct customers with similar user patterns.
This occurs despite the fact that Eskom operates under separate distributing
licensing conditions. This current practice necessitates that municipalitys
electricity tariffs will always be higher than what Eskoms direct customers receive.
According to SALGA, municipalities
funding partly comes from services, with consumers supplied by municipalities
contributing to socio-economic development by contributing to the general electricity
grid account. Consumers supplied by Eskom do not contribute to socio-economic
development and consumers supplied by municipalities cross-subsidise low income
households also in areas supplied by Eskom. .
It appears that municipalities are reliant
on electricity income therefore no incentive exists to promote energy
efficiency, as this would impact negatively on its revenue. Submissions by
stakeholders concur with this view that municipal electricity tariffs are a
contributing factor to the decline in the manufacturing sector, but that
discussion on the funding model for municipalities is essential.
All role-players must work together to
against the effect of rising prices on consumers,
especially manufacturers. The current unemployment rate is of great concern to
the Committee and this is being exacerbated by a decline in the manufacturing
sector which is a major contributor to employment.
A further concern for the Committee, as
well as the DTI, is that more cost increases by municipalities would jeopardise
the re-industrialisation initiative. The current monopolies, like Eskom and the
municipalities, in the absence of competition, must be regulated and keep
prices below inflation.
Cleaner Production Centre
IPAP2 sets out
governments industrial policy and implementation plans to create critical
platforms that are used as a basis for scaling up key strategic sectors. The
improvement of the resource efficiency of existing industries by building their
productive capacity in partnership with stakeholders is critical for industrial
development, especially when faced with resource scarcity and consequent,
rising prices. One of the mandates of the National Cleaner Production Centre
(NCPC), located within the DTI, is to promote energy efficiency as an
instrument to foster industrial efficiency and competitiveness. The NCPC
informed the Committee that in collaboration with the CSIR it is developing
mechanisms to ensure that industry focuses on energy and resource efficiency as
well as on cleaner production.
The NCPCs current
focus is on energy efficiency, waste management, water efficiency and on industrys
response to the challenge of climate change. The NCPC adopted the Resource
Efficiency and Cleaner Production (RECP) programme to enhance the manufacturing
industrys competitiveness through the use of renewable energy; and water,
materials and energy efficiency mechanisms. This contributes to industrial
development, localisation, economic growth and job creation. The RECP attempts
to mitigate against the decline in the manufacturing sector specifically in IPAP2
aligned priority sectors, such as clothing and textile, agro-processing,
chemicals, automotives, pulp and paper, metals and engineering, tourism and
hospitality, the built environment and mining sectors.
benefits to industry are the reduction in cost of doing business through
reduced wastage of energy, water and materials among other things. This
contributes to a competitive manufacturing industry which is resource
efficient, increases market access, growth and sustainability of businesses, as
well job retention and creation.
The Industrial Energy
Efficiency (IEE) Improvement Project was introduced in 2010 to increase
efficiency in the targeted industrial sector. This was expected to alleviate
the countrys acute power shortage while simultaneously improving productivity,
competitiveness and reducing CO
omissions. The IEE project is a
collaborative initiative between the South African Government (represented by
the DTI and the Department of Energy), the Government of Switzerland, and the
United Kingdom Department for International Development. The IEE project runs
for four years and will contribute to the sustainable transformation of
industrial energy usage. This will be achieved through the support for local
industries such as automotive, agro-processing, chemicals and liquid fuels,
metals and engineering, and mining sectors in their efforts to reduce cost,
increase profitability and minimise their carbon footprint through the
introduction of sustainable energy management practices. At the completion of
the four year period, the IEE project will be integrated with the NCPC to
ensure the continuation of its output.
The NCPC informed the
Committee that the IEE project objective is to stimulate the demand for energy
efficiency service within the current policy framework for implementing and
monitoring industrial energy efficiency in South Africa. This could be achieved
through increased public awareness, energy audits and demonstration
The NCPC also informed the Committee
that the National Energy Efficiency Strategy (NEES) gazetted in November 2012
will undergo a second review process. This will guide energy efficiency practices
in South Africa.
The project also aims
to improve local capacity through training in energy management systems (
) implementation as energy efficiency can be achieved at
minimal costs through changes in energy management. South Africa adopted the
international energy standards in 2011 as SANS/ISO5001. This provides a system
which enables organisations to take a systematic approach towards achieving
continual improvement of energy performance, energy efficiency and energy conservation.
Furthermore, the project objectives include the creation of a cadre of
qualified industrial energy management systems and systems optimisation (ESO)
experts to provide the necessary resources to industry and the country. The
NCPC informed the Committee that as a result of the training programme offered
the first group of seven South African-based large industrial companies started
and ESO implementation which includes
companies such as Toyota,
4.1.7 Engagement with
The impact of administered prices on the
productive sectors of the economy, its potential impediment to the promotion of
industrialisation and beneficiation, as well as the creation of jobs, are
critical factors for the Committees consideration. BHP Billiton, as a major
player within the platinum group metals (PMG) sector producing aluminium among
other products, had been invited to engage the Committee
on the impact of administered prices on
beneficiation and the strategic importance of industrialisation, as aluminium
was an important input into the manufacturing sector
Committee expressed a strong opinion that it did not intend to comment on the
recent decision by the Supreme Court of Appeal regarding the negotiated pricing
agreement with Eskom but would focus on the impact of administered prices on
BHP Billitons operations and their contribution to downstream economic
activity. The Committee was of the view that companies enjoying a competitive
price advantage must also utilise this to contribute to the strategic
objectives of job creation, skills development and economic growth.
Billiton informed the Committee that, since the early 1970s, it had responded
to investment incentives and encouragement by Government to promote development
of the economy and contribute to the industrialisation of South Africa leading to
job creation. Furthermore, it constructed the Hillside aluminium smelter in
1996 and expanded the
aluminium smelter at Richards Bay in 2003 with the provision of excess
electricity by Eskom.
In addition, it supports governments
beneficiation strategy through the investment of R1 billion to build the M14
manganese furnace, which has been designed to reduce emissions. This is the
largest new investment in the manganese industry and supports governments
initiative of proliferating beneficiation in South Africa. BHP Billiton
informed the Committee that it actively contributes towards the beneficiation
strategy of the government.
The Committee welcomed the investments as the
export of raw minerals undermines governments industrialisation objectives.
The Committee was of the view that the IPAP calls for a shift in mineral
development towards investment to maximise long-term growth beneficiation projects,
enhancing the value of exports, increasing local content and the creation of
sustainable jobs. The Committee also welcomed BHP Billitons focus on more
energy efficient production processes but were of the opinion that the mining
industry should contribute more to job creation and the development of the
necessary skills required by the economy.
The Committee enquired whether BHP Billiton
contributed to institutions of higher learning, especially the historical
disadvantage institutions, financially to ensure that the requisite skills were
maintained and developed. This would assist in preventing a skills shortage at
a critical phase of the countrys industrial development or the loss of
existing skills, as the current group of engineers near retirement. The
Committee probed whether BHP Billiton had a plan to address the skills shortage
and to ensure skills transfer. Furthermore, the Committee enquired whether they
have a similar arrangement with the Ports Authority to ensure the export of
beneficiated goods at a competitive price.
4.1.8 Proposals in
against the impact of high administered prices
order to address the dual challenge of high electricity and port tariffs,
stakeholders put forward short-term policy options for consideration to mitigate
the impact of high administered prices on the manufacturing sector. These
proposals are captured below.
The DTI proposed
The Manufacturing and Competiveness
Enhancement Programme (MCEP) should be strengthened through an increase in the
cap for energy efficiency projects and/or an
increase in the matching grant formula with the DTIs contribution increasing.
There should be increased support offered to
the NCPC in both energy audit implementation under the MCEP and in training
private sector energy auditors.
An amendment to the 12i incentive should be
made to upscale support for cleaner production and energy-efficient project
development and implementation.
There was a need for an appropriate strategic
approach and institutional location to scale up and expedite implementation of
Eskoms Integrated Demand Management (IDM) with an explicit prioritisation of
the most vulnerable and strategic industrial sectors.
Rolling out and localisation of Smart Grid
and Smart Metering technology was an urgent priority, with conditional
localisation components through designation to improve efficiency and billing
SALGA; Metros and Municipalities with
significant numbers of vulnerable and strategic sectors should be engaged to
encourage a coordinated approach to assist these sectors and to encourage
moderation of municipal tariff increases under the current circumstances.
proposed that an inter-governmental task team should be established to:
Identify and develop measures to protect
specific sectors of the economy in line with the National Development Plan and
IPAP. The sectors identified should include sectors where South Africa already
have a competitive and strategic advantage; for example, the platinum,
ferrochrome and ferromanganese sectors.
Develop measures that would align municipal
tariffs and Eskom tariffs that would level the playing field in the
manufacturing sector. This should be done by ensuring that there is sufficient
fiscal support for the municipalities to maintain infrastructure and to support
other social services.
Develop a national cross-subsidy framework in
line with Governments economic policy. The policy must include the funding of
subsidies and criteria for subsidisation of municipal services.
articulated concerns regarding the price of electricity and its adverse impact
on the industry as well as on households. In this regard, NERSA proposed that a
new funding model for municipalities needs to be developed, as the current
model places increasing reliance on revenue generated from electricity.
price of municipal provided electricity comprises of two components, namely the
price from Eskom (actual electricity price) and the additional amount added by
municipalities (service charge). The electricity that is being provided by
Eskom is provided on a cost reflective basis; while service charges are the costs
of providing electricity to the final consumers, such as wages and maintenance
of the infrastructure. The Eskom component is too rigid for municipalities and
forms the bulk of the cost. However, the municipal service costs vary from
municipality to municipality as a result of factors such as:
The location of the electricity consumer in
relation to the location of a power station. The larger the distance between a
consumer and a power station or between one consumer and another, the higher
the cost of providing electricity to those consumers.
The periods in which electricity is used
(peak periods are more costly than other periods), using electricity at certain
times requires more resources than would have been the case at other times when
there is less pressure on the infrastructure that is used to provide
The size of demand, as higher demand services
are tailored to the needs of the individual therefore are more expensive.
4.2 Port tariffs
the tariffs for the import of bulk commodities, primary commodities and of
manufactured goods are priced below those required for exports of tradable goods.
This contradicts government policies which support the export of manufactured
goods for greater economic benefits. These policies require that these
manufactured goods should be price competitive. Therefore, other policies, such
as those related to port tariffs, should facilitate trade by promoting the
price competitiveness of more highly beneficiated exports rather than exports
of raw materials.
to Transnet, the strategy that has been used to determine port tariffs was
formulated in 2002. This strategy was outdated and stakeholders had voiced
their concerns with regard to this strategy. Among the concerns from the ports
regulator, the DPE, cargo owners, shipping lines and terminal operators were that:
The tariffs were subjective, unjustified, and
do not promote efficient operation of ports,
The port tariffs were not aligned to their
influence in the South Africa economy and there was a lack of transparency in port
Given the services provided, the port tariffs
were too high, and
The lease agreements were not being enforced
by the port authority.
to Transnet, a new strategy has been developed to address the concerns of the
stakeholders. This strategy is aimed at ensuring that:
There are set rules that will allow efficient
regulation and oversight of the ports,
Cargo charges are in favour of highly
manufactured South African exports,
Cargo charges are reduced to support South
Africas global competitiveness, and
Transnet becomes a reliable business partner
in doing business with the leases; this will result in longer term investment
Committee, as well as the DTI, welcomed Transnets proposals with respect to
tariff restructuring as well as its Beneficiation Promotion Strategy.
In engagements with the TNPA with regards to port
tariffs, Transnet acknowledged that some of the stakeholders had concerns,
among which the high port tariffs was the most prominent. Currently, Transnets
tariff structure is shared between shipping lines, cargo owners and tenants on
a 20%, 61% and 19% basis respectively. In its proposed alternative strategy, Transnet
is set to restructure tariffs. The new proposed tariff structure will be shared
between shipping lines, cargo owners and tenants on a 21%, 46% and 33% basis
respectively. The proposal is aimed at ensuring that tariffs are aligned to
international standards and increasing South Africas competitiveness with
other international markets.
also proposed the Beneficiation Promotion Programme. It seeks to promote
increased beneficiation of goods, labour-intensive sectors, economic growth, and
improvements in the competitiveness of South Africas metals sector and attract
investments instead of the exportation of raw materials. This programme has been
formulated in line with the IPAP, the National Development Plan, the
Beneficiation Strategy for the Mineral Industry and the Department of Trade and
Industrys Metals Sector Strategy.
this programme, Transnet proposes that cargo charges for labour-intensive products
and value-added products are reduced according to the various stages of
beneficiation. The most beneficiated products would therefore pay the lowest
cargo charge. This will promote local beneficiation.
the Committee welcomed the proposals presented by TNPA regarding the reduction
of port charges, it was concerned that it appears that the cost was being
The proposal with respect to
the beneficiation programme, although still under discussion, where imports
would cross-subsidise exports, with potentially up to 80% discount for vehicle
exports was also welcomed.
Committee welcomed the support for local manufacturing and beneficiation
through the lowering of port tariffs.
present, government is
the mining sector
through the current port tariff structure at the expense of other sectors such
as manufacturing and agriculture, sectors that have contributed the most jobs.
response to a question whether South African ports would be more efficient if
cities or regional authorities managed these, the TNPA was of the view that it
is difficult to compare South African
ports with their international counterparts,
as Transnet is not subsidised by provincial or national government. This was
due to the different institutional arrangements used globally, where some ports
are being subsidised to lower costs.
considered the inputs from stakeholders during the public hearings in November
2012, the colloquium held on 6 March 2013 and subsequent meetings, the
Committee has reached the following conclusions:
IPAP is intended as an instrument to align
the line departments in support of the countrys accelerated industrial
objective. In spite of existing
co-ordination among these line departments, it appears that a disjuncture in
policy alignment and coordination among these different departments and state
owned entities associated with administered prices remains, contributing to the
uncertainty and challenges faced by the manufacturing sector. Thus, negatively
impacting on governments priorities of job creation and economic growth.
High electricity and port tariffs have
contributed to the decline in the competitiveness of the manufacturing sector
therefore finding a solution to high administered prices is essential.
All factors associated with the determination
of administered prices must be investigated so as to ensure that the
determination of these prices is evidence based, and to stem the decline of the
manufacturing sector as well as reducing the negative impact on SMMEs.
The current legislative and regulatory
environment must be reviewed to curtail the power of state monopolies in the
determination of administered prices to ensure a developmental pricing regime
aligned to the strategic objectives of government.
NEDLAC as an institution should be more
effective and should consider investigating the impact of high administered
prices, skills shortages, low productivity levels and the perceived restrictive
labour environment on the manufacturing sector and the economy as a whole.
An engagement between
National Treasury and the Department of Co-operative Governance is critical to
discuss the funding of local governments, as well as the extent to which
municipalities are charging exorbitant electricity surcharges to raise revenue.
The Committee may consider holding a colloquium with the relevant stakeholders
to find a solution to this problem.
Strategic and appropriate skills are required
to grow domestic industrial capabilities; however, currently a misalignment of
skills produced by institutions of higher learning and those required by
industry exists. The committee is of the view that large manufacturing and
mining companies should, in conjunction with institutions of higher learning,
avail and expand their training facilities to smaller manufacturing enterprises
to develop these skills and close the skills gap.
The committee acknowledges that although the
focus was on administered prices, specifically electricity and port charges,
other input costs also impact negatively on the manufacturing sector.
The necessary regulatory environment and a
developmental pricing regime should be created to encourage the beneficiation
of its mineral resources and other primary products.
The Committee would like to than
k all participants
for their valuable contributions.
Committee also wishes to thank its Committee support staff in particular the
Committee Secretary, Mr A Hermans, the Content Advisor, Ms M
, and the Researcher, Ms Z
for their professional support and conscientious commitment to their work.
The Chairperson thanks all Members of the
Committee for their active participation during the process of engagement and
deliberations and their constructive recommendations made in this report. The
committee appreciate the contribution and co-operation from the DTI during this
by its deliberations, the Committee recommends that the House requests that:
7.1 The Minister of Trade
and Industry, in consultation with other Ministries, should consider the
formation of a cost reduction committee to co-ordinate efforts across
departments and state owned entities to reduce administered prices. This
committee should include the Ministers of Trade and Industry, of Public
Enterprises, of Energy, of Transport and of Finance, as well as the Chief
Executive Officers of Eskom, of Transnet and of SALGA.
to be considered.
KPMG Global Automotive Executive survey, 2013
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