ATC140715: Report of the Portfolio Committee on Trade and Industry on Budget Vote 36: Trade and Industry, dated 11 July 2014
Report of the Portfolio Committee
on Trade and Industry on Budget Vote 36: Trade and Industry, dated 11 July 2014
The Portfolio Committee on Trade and
Industry, having considered Budget Vote 36: Trade and Industry, reports as
Twenty years of democratic transition calls
for bold and decisive steps to place the economy on a qualitatively different
path that eliminates poverty and unemployment, creates sustainable livelihoods,
and substantially reduces inequality. It also calls for radical economic
transformation. The Department of Trade and Industry (DTI) budget reveals a
fresh commitment to ramp
up industrialisation and harness
strategic trade policy to support this expansion. This, the committee believes
can recapture policy space to implement a radical transformation of the
Given this position then it is imperative
that the following objectives are pursued:
Accelerate economic growth along an inclusive and sustainable path.
Achieve significantly higher levels of employment creation and decent
Reduce inequality substantially.
Ensure meaningful black participation in the ownership, control and
management of the economy.
Roll back monopoly practices and uncompetitive behaviour and advance
in this context that the R9.8 billion Budget Vote 36 of the DTI seeks to expand
manufacturing to create jobs through the development of the productive sectors.
It also contributes toovercoming the structural challenges of the economy and
through its appropriation address primary and secondary challenges which are
constraining growth. Measures are being put in place to deal with the primary
and secondary challenges.
budget is informed by the urgency of sustainable and skilled job creation,the fight
against poverty, and the need to accelerate broad-based black economic
empowerment with sharper incentives to grow a more diversified and productive
economy centred in the main on the productive sectors of our economy. The R9.8
billion DTI budget reveals a fresh commitment to ramp up industrialisation and
harnessing strategic trade that underpins industrial development. This, the committee
believes, is its greatest contribution towards recapturing policy space in
implementing a radical transformation of the economy.
The State of the Nation Address (SONA) raises
three key issues that relate directly to the DTIs mandate, namely
private sector investment to support industrial development;
participation, especially by black South African, women and youth in the
the countrys economic and investment ties with other regions and specifically
African countries through regional integration.
In line with the priorities expressed during
the SONA, the DTI is implementing the Industrial Policy Action Plan (IPAP II),
with the 6th iteration seen as a vehicle to accelerate economic transformation
through the re-industrialisation of the South African economy. The IPAP II
recognised the achievements of the past, but has acknowledged that the results
have been uneven and much remains to be done to develop greater traction around
many IPAP interventions
deliberate set of policy interventions, such as government procurement and
beneficiation of mineral resources, is needed to unlock the economic potential
of all sectors in support of industrialisation. The committee agreed with this
but noted that serious challenges remain around co-ordination among the
national departments and between the three spheres of government,as well as an
active commitment from all national departmentsto localisation in procurement.
Furthermore, the decentralisation of
productive activities which builds local economiesshould be accelerated and
expanded. Examples in the previous financial year include the establishment of
small maize mills, such as the Kuvusa Small Maize Mill and the IsigayoCompact
Mill, and work has begun with the South African Poultry Association (SAPA) to
facilitate the entry of broad-based black economic empowerment (BBBEE) entities
in the poultry broiler industry. Future decentralised projects include further
development of the Exotic Hides Cluster, up-scaling of small-scale sawmillers,
support for Creative and Craft industries and the processing of the essential
oils happens close to the farming area in the Amathole District.
However, decentralisation must be accompanied
by appropriate infrastructure support.
The use of R4.4 billion (45 per cent of the
total DTI budget allocation) as incentives to promote industrialisation should
be strategically employed to ensure that allocated financial resources support
sustainable and productive economic development; while
incentives of R2.3 billion
cent of the total DTI budget allocation)
is allocated to support
broadening participation programmes.
The following industrial development
support private sector
investment in the manufacturing sector to maintain and create jobs as well as
upstream and downstream linkages:
Automotive Incentive Scheme
Business Process Services
Film and Television.
12I tax rebate.
Competitiveness Enhancement Programme (MCEP).
However, the committee
believes the challenges facing the manufacturing sector, including the cost and
reliable supply of energy and high administrative prices, particularly in the
transport sector, may disincentivise value-addition activities being promoted
within the economy. However the allocation in the outer years of the medium term
expenditure framework (MTEF)period should be reviewed.
The DTI indicated
that mineral beneficiation is an important vehicle to diversify the economy. Government
recognises the importance of beneficiation; therefore, it has introduced tools
such as the special economic zones and the Minerals and Petroleum Resources
Development Act (No. 28 of 2002); incentives relating to beneficiation will be
developed in this regard. Current legislative instruments available to the
state are not being implemented or utilised effectively yet are essential but
not a sufficientcatalyst to guide local beneficiation and industrialisation of
The DTI is continuing to advance trade and
economic integration into Africa. This is informed by South Africas
developmental trade policies that seek to align trade measures and tariffs to
our industrial policy objectives. Negotiations around the Southern African Development
Community (SADC)-European Union (EU) Economic Partnership Agreements (EPA)
have been concluded which allows for greater harmonisation with the South
African Customs Union (SACU)
and an improvement on the Trade and Development Co-operation Agreement (TDCA)
between South Africa and the EU. South Africa is championing regional
integration through the SACU and the SADC, as well as the Tripartite Free Trade
Area which includes SADC, the Common Market for Eastern and Southern Africa
(COMESA), and the East African Community (EAC). The budget allocation reflects
the expenditure on negotiations which in the committees opinion is paving the
way to regional integration which underpins intra-African trade. In the current
financial year, the budget allocation may not be sufficient.
The consideration of the budget vote offers
the committee an opportunity to assess how effectively the DTIs strategic plan
contributes to the outcomes expressed in the National Development Plan
(NDP).The configuration of the 2014/15 Budget Vote 36
should contribute towards the achievement of a
radical economic transformation agenda. Therefore, the consideration of the
budget provides the committee with an important opportunity to assess whether
the budget is adequate to achieve governments policy of accelerated and
inclusive industrialisation to ensure that the growth potential of the economy
The establishment of the Ministry of Small
Business Development requires the transfer of the small business and
co-operatives programmes to the newly established Ministry. The establishment
of the new Ministry will impact on the Trade and Industry budget. Funds
associated with the programmes would be allocated to the Department of Small
Business Development once the functions have been clearly outlined.
Despite the existence of these two separate
departments, the current vote has to be passed before the realigned budgets can
be developed. Therefore, Budget Vote 36 would be approved and debated by
Parliament as a single vote for this financial year.
Mandate of the Committee
Committees exercise oversight over their respective departments and agencies in
line with their Constitutional mandate set out in section 55(2) of the
Constitution (No. 108 of 1996) and section 27(4) of the Public Finance
Management Act (No. 1 of 1999). In addition, the Money Bills Amendment
Procedure and Related Matters Act (No. 9 of 2009) also requires committees to
consider and report on their department and entities strategic plans.
Portfolio committees may also advise the Standing Committee on Appropriations
in the National Assembly regarding possible amendments within a budget vote for
The purpose of this report is for the
Portfolio Committee on Trade and Industry to report on its deliberations and
consideration, which is essentially the unpacking and scrutinising of the DTIs
strategic plan and its associated budget vote (Budget Vote 36). Furthermore, to
make recommendations regarding the approval, amendment or rejection of Budget
Vote 36 and any other recommendation regarding the implementation of the DTIs
The committees consideration of Vote 36
involved a robust engagement with the Minister, Dr R Davies, and the
Director-General, Mr Lionel October, on 1 July 2014, when they provided the
context within which the DTIs Strategic Plan had been developed and presented
its Annual Performance Plan. The DTIs plans were discussed in relation to its
mandate, which covers five key intervention areas, namely
Trade, investment and exports.
Due to the recent announcement of the
establishment of a new Ministry on Small Business Development, the newly
established Portfolio Committee on Small Business Development was also in
attendance to seek clarity on which portions of DTIs work would be reallocated
to the new Ministry upon its establishment through proclamation within the
During this engagement, the budget was
unpacked against the DTIs strategic plan and the priorities of the
post-election SONA within the prevailing economic climate. This required the
committee to evaluate the alignment of incentives and other instruments of
industrial and trade policy objectives to ensure that the stated objectives are
of the SONA that relates to DTIs mandate
In his post-election SONA address, President
JacobGedleyihlekisaZuma highlighted five priorities, namely (i) education, (ii)
health, (iii) the fight against crime and corruption, (iv) rural development
and land reform, and (v) creating decent work. The DTIs mandate mainly relates
to the latter priority of creating decent work. Table 1 below provides the
linkages between highlights extracted from the post-election 2014 State of the
Nation Address and the DTIs strategic objectives under which these points will
Linkages between the State of the Nation Address and the DTIs strategic objectives
from the State of the Nation Address
Facilitate transformation of the economy to
promote industrial development, investment, competitiveness and employment
"....Promote local procurement and
increase domestic production by having the state buy 75% of goods and
services from South African producers".
"....Promote regional economic
development and industrialisation, through the creation of Special Economic
Zones around the country".
"...Provide incentives, to support the
competitiveness of the auto, clothing, leather, footwear and textile
industries, the labour intensive".
Facilitate broad-based economic
participation through targeted interventions to achieve more inclusive growth
"implementation of the amended
Broad-based Black Economic Empowerment Act ............ in order to transform
the ownership, management and control of the economy".
Build mutually beneficial regional and
global relations to advance South Africas trade, industrial policy and
economic development objectives
champion broader regional integration
through the Southern African Customs Union, SADC and the envisaged Tripartite
Free Trade Area that spans Eastern and Southern Africa
promote South-South cooperation by
utilising membership and engagements with formations and groupings of the
to deepen economic development, trade, and
investment partnerships with the BRICS through the work of the BRICS Contact
Group for Economic and Trade Issues.
Source: Madalane (2014)
The President also highlighted the low level
of private sector investment and interrupted energy supply as key constraints
to economic growth. The committee welcomes the inter-ministerial task team
established to deal with the current challenges thatthe current energy supply
poses to economic growth.
The DTI is committed to the development of an
enabling environment to create decent work. Therefore, the DTI has identified a
number of policy tools such as promoting local procurement, attracting
investment through incentive-based programmes such as the Special Economic
Zones, and providing incentives for domestic production in specific labour-absorbing
the Department of Trade and Industry
The Minister of Trade and Industry provided
the strategic overview of DTIs priorities within the context of the NDP with
the core focus being to contribute to overcoming the triple challenges of
poverty, inequality and unemployment. In this regard, the New Growth Path
(NGP), the IPAP, and the National Infrastructure Programme are key programmes
that would seek to give effect to this aspect of the NDP.
The NDP in its
quest to achieve these objectives takes a broader view of the targets to be
achieved including employment creation, trade facilitation, broadening
participation, and fostering relationships with countries in the African
continent. Therefore, the work of the Department needs to contribute to this
bigger vision of the NDP.
The implementation of the IPAP underpins the
radical socio-economic transformation programme
The Minister informed the committee that IPAP remains the principal programme
of the DTIs work which requires the acceleration of industrialisation through
various policy interventions such as government procurement and beneficiation.
This would unlock the economic potential of both the private and the public
sector in support of industrialisation.
In his presentation, the Minister highlighted
the importance of industrial development to strengthen the economy which would
require policy trade-offs. Rather it is the policy priorities based on the
balance of evidence that informs favouring the productive sectors of the
This was premised on the argument that the manufacturing sector has the
highest economic and employment multipliers
of any sector
Furthermore, higher levels of value-addition and moving up the value chain are
expected to generate higher income levels and wealth. He informed the committee
that in a recent report by KPMG African Risen
it supports the decision of an industrialised African continent.
Currently, Africa is producing and exporting
primary products with the majority of the value chain captured in the developed
economies and importing finished goods. The Minister argued that jobs are
currently being created in the developed economies based on the primary
resources of developing economies, such as South Africa. The Minister
acknowledged that while many jobs are not created within the manufacturing
sector, this sector had strong upstream and downstream multipliers. Therefore,
South Africa must move up the value chain to create more jobs and generate more
inclusive growth opportunities.
The Minister acknowledged that South Africa
is not yet decisively placed on a new growth path driven by the productive
sectors of the economy. His view was that the next phase of industrial
development must see more radical measures to advance job creation, reduction
in poverty and inequality
He called for an up-scaled and accelerated re-industrialisation of the economy
using infrastructure investment, localisation, and beneficiation as key
instruments. However, he acknowledged that the current hostile global economic
environment could contribute to a delay in achieving higher value addition and
continued industrial development. In addition, the countrys energy constraints
were a key impediment in the up-scaling of industrial policy and work was being
prioritised to meet the manufacturing sectors need for an adequate supply of
reasonably priced electricity.
A further aspect of the up-scaling of
industrial policy according to the Minister is through regional integration of
the continent, specifically the development of regional industries or value
chains. In this regard, South Africa supports the extension of a free trade
area across the Continent that is accompanied by co-operative infrastructure
development and promotes regional industrial development. However, South Africa
is not supportive of establishing a customs union in the SADC.
The Minister informed the committee that with
regard to trade policy, the negotiations on the SADC-EU EPA have been concluded
with an improvement on the existing TDCA between South Africa and the EU
In addition, South Africas move from
the TDCA to the EPA will re-establish a common platform within the SACU
regarding trade relations with the EU. South African trade with the EU has
moved from a surplus in 2008 to a deficit in 2012.
A number of pieces
of legislation have recently been assented to but have not yet come into effect
as the Department is finalising regulations. There is a need to factor in the
expanded mandate as well the establishment of new entities and councils in the
budget over the MTEF period.
The Minister informed the committee that the sectionsdealing
with small business and cooperatives would be transferred to the newly
established Ministry of Small Business Development.
While the Broad-Based Black Economic Empowerment
aspectsand Broad-Based Black Economic Empowerment Advisory Council, focusing on
promoting black industrialists, would remain with the DTI.
To ensure alignment of the DTIs programmes
to government-wide priorities and outcomes, the Department has identified key
strategic outcome-orientated goals. These are to
Facilitate transformation of the economy to
promote industrial development, investment, competitiveness and employment
Build mutually beneficial regional and global
relations to advance South Africas Trade, industrial Policy and economic
Facilitate broad-based economic participation
through targeted interventions to achieve more inclusive growth.
Create a fair regulatory environment that
enables investment, trade and enterprise development in an equitable and
socially responsible manner.
Promote a professional, ethical, dynamic,
competitive and customer-focused working environment that ensures effective and
efficient service delivery.
of the Departments
2014/15 Budget Allocation
Departments budget has increased from R9.51 billion in the 2013/14 financial
year to R9.83 billion in the 2014/15 financial year, an increase of R319.5
million. However, in real terms, the budget for 2014/15 has decreased by 2.68
per cent from the previous financial years budget. Figure 1 provides an
overview of the budget allocation for the previous financial year and the MTEF.
However, it should be noted that the allocations from the 2014/15 to 2016/17
financial years include part of the budget allocation for the new Ministry and/or
Department of Small Business Development and will be reduced in the following
2014/15 financial year, the Department of Trade and Industrys programmes
remain similar to the previous financial year. Its budget is divided among
these seven programmes:
Trade and Economic Development.
Development and Incentive Administration.
Investment South Africa.
decrease in the Departments budget for the 2014/15 financial year is mainly a
result of real decreases in the
Administration Programme (8.3 percent), the
Broadening Participation Programme (6.26 percent), the
Development and Administration Programme (4.16 percent), and the
International Trade and Economic Development Programme (2.1 percent).
Trade and Investment South Africa
Industrial Development programme
and Corporate Regulation
budget increased by 5.4 per cent, 4.68 percent and 1.92 per cent respectively See
Figure 1: Overview of the Budget Allocation: 2013/14 2016/17
Data Source: National Treasury (2014)
Over the mediumterm, the budget is expected to
increase to reach R10.1 billion by the 2016/17 financial year. At a programme
level, the increase in the medium term (2014/15 to 2016/17) will primarily be
due to the increase in funds allocated to the incentive programmes as well as
industrial development programme as they comprise the largest share of the
Table 2: Summary of Budget Vote 36
International Trade and Economic Development
Consumer and Corporate Regulation
Incentive Development and Administration
Trade and Investment South Africa
Data Source: National Treasury (2014a)
share of the budget is for the
Incentive Development and Administration
Programme (R5.5 billion). This is followed by the
Programme (R1.8 billion), the
billion), the Administration Programme (R
Trade and Investment South Africa
Programme (R360.7 million),
Consumer and Corporate Regulation
(R277.3 million) and
International Trade and Economic Development
Figure 2: Share of the Budget Allocation for the 2014/15 Financial
Data Source: National
In terms of
the economic classification, the majority of the DTIs budget (84.1 per cent)
consists of transfers mainly through incentives to businesses or to its
entities, compared to 83.5 per cent in the 2013/14 financial year. The DTIs
transfers declined in real terms by 2 per cent since 2013/14. Payments on goods
and services declined in real terms by 17.8 per cent since 2013/14.
Compensation to employees increased by 5.5 per cent in real terms to R916.9
million in 2014/15. The Minister of Finance has issued a directive for
Departments to implement cost-cutting measures. Therefore, the real budget
across most expenditure types has been reduced. However, compensation of
employees is increasing as a result of the filling of 290 posts to support the
development and administration of special economic zones and for the MCEP as
well as the annual cost of living increase.
Budget allocation and share as per economic classification
Source: Own calculations based on National
An overview of the budget allocated to each
programme is provided below:
Administration programme is responsible for providing strategic support and
management to the Department and its entities. The programme also ensures
successful implementation of the Departments mandate.
the 2014/15 financial year, the Administration programme share of the budget
amounts to R706.9
7.2 per cent of the Departments total budget)
. The budget decreased by R19.0
million (2.62 percent in real terms) from R725.9 million in the previous
financial year. The decrease in the programme is mainly as a result of
cost-cutting measures that the Department will implement in order to decrease
spending on goods and services such as advertising and printing services.
International Trade and Economic Development (ITED)
ITED programme provides direction on national trade policy to promote economic
development; build an equitable multilateral trading system; strengthen trade
and investment relationships; and promote African development. The work of the
programme links directly to one of the Departments priorities, namely regional
integration and global relations as stated in the Departments strategic plan
and reiterated by the President during the 2014 post-election State of the
programme has the smallest budget allocation of all the Departments
programmes. With a budget of R147.2 million, the programme accounts for 1.5 per
cent of the Departments total budget. The programmes budget has increased
from R141.6 million in the 2013/14 financial year to R147.2 million for the
2014/15 financial year. However, in real terms, the budget has decreased by
2.11 per cent.
programme has two sub-programmes, namely the International Trade Development
and African Economic Development. The International Trade Development
sub-programme deals with issues of negotiations at an international level, such
as the SADC-EU Economic Partnership Agreement. In the 2014/15 financial year,
accounts for 61.9 per cent while
the African Economic Development sub-programme accounts for 38.1 per centof the
total programme budget.
programme is aimed at developing policies and strategies to create an enabling
environment for small, medium and micro enterprises, and improve the
competitiveness of local and provincial economies to achieve equity, growth and
job creation. This programme is responsible for the implementation of the
Departments priorities and one of the strategic objectives is to facilitate
broad-based economic participation through targeted interventions to achieve
more inclusive growth.
Participation Programme is the third largest programme of the Departments
budget with a 10.2 per cent share. The programmes budget for the 2014/15
financial year is R1 billion. The Broadening Participation Programme has three
sub-programmes which are: the Enterprise
Development, Equity and
Empowerment, and Regional Economic Development
. For the 2014/15
financial year, the
sub-programme accounts for the largest share
of appropriation in the programme with 89.7 per cent of the total Broadening
Participation Programme budget.
It should be noted that the bulk of the allocation
to the Ministry/Department of Small Business Development will be transferred
from this programme by the 2015/16 financial year.
The Industrial Development Programme is
responsible for the design and implementation of policies, strategies and
programmes to develop the manufacturing and related sectors of the economy with
the aim of contributing to the creation of decent jobs, adding value to
manufactured products and enhancing competitiveness in the domestic and export
markets. Industrial development is also at the core of the Departments work as
outlined in its strategic objectives.
One of the main programmes of the Department,
the Industrial Development Programme takes up the second largest share of the
Departments budget despite having just two sub-programmes: the
Industrial Competitiveness and
the Customised Sector Programmes.
The programmes budget has increased from
R1.6 billion in the 2013/14 financial year to R1.8 billion in the 2014/15
financial year, an increase of 4.6 per cent in real terms. In the 2013/14
financial year, an amount of R60 million was transferred by the Department to
the National Metrology Institute of South Africa (NMISA) for capital
expenditure, for the 2014/15 financial year this amount has increased to R111
million. In 2012, the committee had raised the concern that NMISA required
extensive capital injections to ensure that it maintained state of the art
equipment, as it played a critical role in ensuring South Africas
Furthermore, the new Legal Metrology Act (No.
9 of 2014) places additional responsibility on the National Regulator for
Compulsory Specifications(NRCS) by expanding its mandate from enforcing trade
metrology, measurements of quantity affecting commercial transactions, to legal
metrology also covering measurements affecting health, safety and the
environment such as temperature and blood pressure. Once this Act becomes
effective, it will require further capacitation of the NRCS. Currently, the
NRCS has received a 0.29 per cent increase in its real terms since the 2013/14
will contribute R723.4 million to the clothing and textile production incentive
which is aimed at reviving the countrys clothing and textiles sector. As a key
labour-absorbing sector, the clothing and textiles sector had been earmarked by
the Department through the Industrial Policy Action Plan to be supported to
increase its competitiveness; thus, maintaining a number of jobs amongst the
more economically-vulnerable segment of the population. In 2013, the sector had
contributed approximately R12.4 billion to the countrys GDP and had provided
employment to approximately 108 000 workers (or 9.1 per cent of the
non-agricultural employment rate).
Consumer and Corporate Regulation
Consumer and Corporate Regulation Programme is aimed at increasing
opportunities for previously disadvantaged South Africans by attracting both
domestic and foreign investment; increasing investor confidence through
developing world class regulatory frameworks for monitoring, compliance and
enforcement; and creating competitive, fair and efficient markets by having
effective financial, economic, governance and related regulatory institutions.
It has three sub-programmes, namely Policy and Legislative Development,
Enforcement and Compliance, Regulatory Services.
The programmes budget has increased by 1.9
per cent in real terms for the 2014/15 financial year to R277.3 million. At a
sub-programme level, expenditure for the
Legislative Development sub-programmes budget decreased by 1.8 per cent; the
Enforcement and Compliance sub-programme increased by 4.3 percent; and the
Regulatory Services sub-programme budget decreased by 2.3 per cent
in real terms for the 2014/15 financial year
following the same trend from the 2013/14 financial year.
The Regulatory Services
sub-programmes budget of R222.6 million includes transfers to regulatory
agencies including the
National Credit Regulator, National Gambling
Board, National Consumer Tribunal, National Consumer Commission, and the
Companies Tribunal. The transfers form 90.1 per cent of the sub-programmes
budget in the 2014/15 financial year compared to 84.6 per cent in the 2013/14
financial year. The largest increases received were for the Companies Tribunal
(a real increase of 21.6 per cent since the 2013/14 financial year) and the
National Consumer Commission (a real increase of 13 per cent since the 2013/14
Development and Administration
Incentive Development and Administration
Programme is responsible for designing and implementing incentives and
programmes that support investment, competitiveness, employment creation and equity.
This programme encapsulates the core mandate of the Department and plays a
critical role in furthering the objectives of the Industrial Policy Action
Plan; this is evident in the significant share of the budget that is allocated
to the programme.
the 2014/15 budget, the
Development and Administration
Programme is the largest expenditure
programme accounting for 56.3 per cent of the Departments total budget with a
value of R
billion. The programmes budget was the second fastest growing programme budget
during the 2013/14 financial years due to the introduction of the Manufacturing
Competitiveness Enhancement Programme. However, for the 2014/15 period, it is
among the programmes that registered a significant decline with the budget
being 4.1 per cent lower in real terms that in the previous financial year.
At a sub-programme level, the
Incentives sub-programme take up the largest share of the programme budget and
has the largest sub-programme budget increase. The Manufacturing Investment
Incentives budget increased from R3.3 billion in the 2013/14 financial year to
R3.6 billion for the 2014/15 financial year, an increase of 4.2 per cent in
real terms. The Infrastructure Development Support sub-programme takes up the
second largest share of the budget with R853.8 million, showing a decline of
3.7 per cent from the previous financial years budget.
of the programmes core budget drivers will be the implementation of the new
Special Economic Zones Act (No. 16 of 2014), which will require resources for
enabling infrastructure and manufacturing incentives. The DTI is projecting the
establishment of new special economic zones to be developed across provinces.
However, the allocation of resources should take into account the time lags in
establishing new special economic zones due to the need for feasibility studies
to be completed and the appropriate approvals to be granted.
the programme has allocated R450 million for capital investment incentives in
special economic zones for the 2014/15 financial year. This will increase to
R1.13 billion and R1.68 billion in the 2015/16 and 2016/17 financial year
respectively. The investment incentives for special economic zones replace the
incentives for industrial development zones, which were allocated R438.2
million in the 2013/14 financial year for three industrial development zones.
addition, the DTI has allocated R200 million, R70 million and R50 million over
the MTEF for current expenses for prefeasibility and feasibility studies for
identified special economic zones to be designated.
3: Budget share of the Incentive Development and AdministrationProgramme as per
the economic classification
National Treasury (2014a)
Investment South Africa
programme is aimed at increasing the quality and quantity of domestic and
foreign direct investment; promoting South African products in high growth
markets; facilitating markets for South African manufactured products and
services; and enhancing the ongoing promotion of exports and investment.
With a programme budget of R360.7 million for
the 2014/15 financial year, the
and Investment South Africa
Programme accounts for 3.7 per cent of the
Departments total budget.
There have been changes in this programmes
sub-programmes. In the 2013/14 financial year, there were three sub-programmes.
With the introduction of the National Exporter Development Plan, the Export
Development and Support sub-programme was established with the purpose of managing
the National Exporter Development Plan which the Department introduced in April
At a sub-programme level, the Export Promotion and
Marketing takes up the largest share of the budget with 44.4 per cent of the
total budget. The Export Development and Support Programme accounts for 7.7
percent of the total programme budget.
The International Operations sub-programmes
allocation appears to have been decreased by 6.3 per cent in real terms. The
DTI informed the committee that the 2013/14 allocation was adjusted upwards
during that financial year
to accommodate exchange rate fluctuations to funds
transferred to foreign mission accounts. This exchange rate increase is not
automatically carried forward to the 2014/15 allocation augmented through
virements/shifting of funds during the financial year. However, this budget
allocation does not allow for additional capacity to foreign missions or the
establishment of additional foreign missions as previously raised by the
raised by the committee during its deliberations
The committee raised a number of concerns
during its deliberations, including:
Impact of industrial action on the economy:
Africa has been experiencing a number of lengthy strikes, with the NUMSA strike
being the latest example, which are impacting negatively on the economy. The
committee enquired about the DTIs role in ensuring limiting the potentially
negative impact on the economy.The Minister acknowledged that industrial action
does have an economic impact and that shorter periods of industrial action
would limit the negative impact on the industrial economy. In response to the
role of the DTI in this regard, the Minister informed the committee that the
DTI has not been requested to intervene and that it falls within the mandate of
the Department of Labour. However, some companies have managed to claw back
lost production by for instance entering into an agreement with labour to
extend working hours.
of affordable electricity to the manufacturing sector:
of affordable and cheap electricity had been a competitive advantage within the
manufacturing sector for many years. However, with increasing electricity
tariffs and unreliable electricity supply due to a lack of energy infrastructure
development, electricity supply has become increasingly costly and unstable and
lead to several manufacturers closing down and/or becoming increasingly
uncompetitive. Recently, Eskoms requested tariff increase of above 8 percent
was approved by the National Energy Regulator of South Africa, which
potentially could continue to contribute to the uncompetitiveness of the
manufacturing sector. The committee enquired what the DTIs view on this tariff
increase is and whether they have engaged with the relevant department and
authority as high electricity cost could undermine the implementation of the
Industrial Policy Action Plan. The Minister identified two problems associated
with the electricity crisis, namely the need for maintenance of existing electricity
infrastructure and the development of new infrastructure to meet increasing
demands, as well as the inadequate use of energy efficient technologies, and
the tariff increase to cover the associated cost of investment and municipal
loading. He informed the committee that solutions must be found to insulate
poor households and to ensure minimal disruption to local industries involved
President J.G. Zuma
in his post-election State of the Nation Address emphasised the need to solve
the electricity problem and has proposed several interventions to do so. The
Minister informed the committee that the DTI was actively involved in promoting
energy efficient usage and technologies, especially in the manufacturing sector
through the National Cleaner Production Centre. The Minister reiterated that
municipal electricity charges are one of the major constraints to manufacturing
development, and that the promotion of industrialisation decentralisation could
contribute to the alleviation of the electricity crisis but requires support
Challenges are still being experienced in registering
businesses which could contribute to job creation. It would appear that the new
Companies and Intellectual Property Commission (CIPC) are not yet delivering an
optimal service to businesses due to their lack of accessibility. The committee
enquired what steps the CIPC is taking to address these concerns and to improve
on its efficiency of delivering a service to businesses. The Minister informed
the committee that the CIPC had undergone a massive transformation from its
predecessor, the Companies and Intellectual Property Registration Office
(CIPRO), which had faced a number of inefficiencies including challenges with
corruption. With respect to the registration of companies, the CIPC has been
facilitating increased accessibility in partnership with First National Bank.
It is now possible to register a company at a First National Bank branch and be
able to begin operations almost immediately, which substantially reduce delays
in company registration. This project is intended to be rolled out to other
banks as well.
development: Technology and Human Resources for Industry Programme (THRIP):
previous financial year, the target to support students under THRIP was not
met. The committee enquired how the DTI intended to meet this target given the
historical failure to do so
informed the committee that the programme had been administered by the National
Research Fund (NRF) but going forward it will be administered by the DTI. The
DTI will ensure that the programme runs more effectively and efficiently and
that it is more aligned to industrial research in future.
Economic Zones (SEZs):
The committee acknowledged the importance of
SEZs to the economy but recognised that basic infrastructure, such as rail and
road, is needed to ensure the success of the SEZs. The committee enquired
whether the DTI has made provision in its budget for infrastructure support to SEZs.The
Minister informed the committee that there has been a substantial increase in
the DTI budget associated with the infrastructure development for SEZs from
R450 million in the 2014/15 financial year to R1.68 billion in the 2016/17
A view was expressed that in certain
countries small business centres are providing free advice, both business and
legal to small enterprises. The committee enquired whether government is
considering establishing small business centres across the country, similar to
Canada, which can provide free services in relation to establishing a business.
Furthermore, the committee enquired to what divisions of the DTI would be
transferred to the newly established Ministry of Small Business Development.
Minister acknowledged that government should actively promote small business
development and although the DTI has had programmes for small business, it had
not produced the desired results. To improve the outcome of support to small
business, the DTI identified programmes that may have improve the
sustainability of productive entrepreneurs. An example of this is the incubator
support programme which contributes to real change in the manner the business
environment operates. The Minister also argued that the real opportunity for
small business is creating a symbiotic relationship with big business around
Minister informed the committee that some small business functions, such as
Small, Medium and Micro Enterprises and Co-operative Development, would be
transferred to the newly established Ministry of Small Business Development,
along with the Small Enterprise Development Agency (SEDA) and the SEDA
Technology Programme. The DTI will remain with the Broad-Based Black Economic
Empowerment Advisory Council focusing on the promotion of black industrialists.
The emergence and development of black
industrialists are critical to the radical economic transformation of the
economy. The committee enquired whether the DTI has a strategy in place to
promote black industrialists, and if the existing legislation facilitates their
emergence. The Minister informed the committee that under the auspices of the
Deputy Minister of Trade and Industry a task team would be established to
develop a framework for the promotion of black industrialists.
of the Ministry of Small Business Development:
After the 2014
election, President J.G. Zuma, announced the establishment of a new Ministry of
Small Business Development. The committee enquired as to what programmes and
entities of the DTI would be transferred to the new Ministry once it has been
proclaimed in the Government Gazette. The Minister informed the committee that
the small business and cooperatives aspects and the associated entities would
be transferred to the newly established Ministry. The DTI would retain
responsibility for Black Economic Empowerment.
policy is essential to any form of development. The current discussion with the
Department of Mineral Resources with regard to essential mineral input costs
would not assist as the current status quo within the mining sector would not
facilitate industrial development. The mining sector is involved in transfer
as well as imposing import parity pricing to domestic producers. The essential
inputs to industrial development will not be available at a reduced price that
would contribute to industrial development. The committee enquired whether
government should not follow a more aggressive industrial policy linked to
existing state-owned mining companies to ensure the availability of critical
industrial inputs at a developmental price to promote mineral beneficiation and
industrial development. The Minister informed the committee that government has
launched the State Intervention in the Mining Sector programme with the focus
on value-addition. The current priority is to use the instruments at the
disposal of government to ensure the creation of a competitive advantage based
on its rich mineral resources. The Mineral and Petroleum Resources Development
Act (No. 28 of 2002) also has a set of tools to ensure that South Africa can
receive a discounted price on platinum. The committee welcomed this progress.
SONA, President J.G. Zuma stated that government would promote local
procurement and increase domestic production by having the state buy 75 per
cent of goods and services from South African producers
date, a number of products has already been designated for local procurement
including canned/processed vegetables, certain pharmaceutical products,
furniture products, the textile, clothing, leather and footwear sector, solar
water heaters, school and office furniture, and electrical and
telecommunication cables. Enforcement of the procurement of these designated
products is a challenge. The committee will undertake oversight in this area
during the course of the financial year.
There is a need to
expand the types of products that would contribute to the development of small
producers that would contribute to broadening participation in terms of
employment and black ownership. The products listed below could be considered:
Glass, Cups, Plates, Spoons, etc.
Tiles and Building Materials.
Light-bulbs and Decorations.
Washing products and soaps.
The committee is of
the view that localisation should be interpreted to include local supply chains,
encouraging procurement for small businesses, particularly in townships,
peri-urban and rural areas. Currently, these small businesses are often crowded
out by large established production. The committee enquired whether the
government should not require the state to only purchase food products produced
locally. With respect to world trade agreements, South Africa has not signed
Agreement on Government Procurement
a plurilateral agreement among members of the World Trade Organisation,as it
would have provided all signatories equal access to government procurement
which would have fundamentally undermined South Africas industrial drive.
The Minister informed
the committee that so long as South Africa is not a signatory it would be able
to determine local public procurement requirements and make sector designations
in this regard. The other constraint facing South Africa in this regard isthe
Agreement onTrade-Related Investment
which relates to the private sector. This would prohibit South
Africa to require the private sector to buy locally produced products. If South
Africa does do that it would be in violation of its WTO obligations and could
be taken to the WTO dispute mechanism and ultimately face sanctions.
Trade agreements and tariffs:
government is bound by a number of trade and tariff agreements. The committee
enquired to the status of these agreements and whether South Africas trade
policy is aligned to promote industrialisation. The Minister informed the
committee that under the TDCA South Africa could not impose export taxes, but
has clawed back some policy space in this regard under the SADC-EU EPA.
Co-ordination of industrial policy
Although IPAP is the
responsibility of the DTI, it consists of a number of government department
initiatives in support of industrial development. Therefore coordination among
these departments is essential for the successful implementation of IPAP. Other
departmental and entities programmes not explicitly mentioned in IPAP may also
impact on its implementation. The committee has raised a number of concerns
with regard to inter- and intra-governmental coordination challenges associated
with the implementation of IPAP. An example of such a programme is the
Recycling and Economic Development Initiative of South Africa (REDISA) that can
play a significant role in support of industrial development.
supporting policy changes
The committee needs
to be presented with the necessary research information that informs DTIs policy
positions, legislation and subordinate legislation.
Having considered the
information shared and reports from the DTI with respect to their strategic and
annual performance plans, the committee has reached the following conclusions:
The acceleration of industrialisation through
the promotion of value-added products that can compete in the export market and
against imports in the domestic market is necessary. The Minister should ensure
that this industrialisation is inclusive, supporting black industrialists and
black ownership within the productive sectors.
The allocation in the MTEF for the
development of SEZs and the designation of two new Industrial Development Zones
in the Western Cape (Zaldanha Bay) and KwaZulu-Natal (Dube Trade Port) and the
designated SEZ in Harrysmith is welcomed. The committee encourages the
promotion of the development of SEZ across provinces.
The decentralisation of productive activities
should be encouraged and expanded to allow for greater impact in support of
local economic development. This should be facilitated through effective
coordination with the newly established Ministry of Small Business Development
as well as the Economic Development Department.
Beneficiation of minerals remains the major
untapped opportunity for South Africa to use its mineral wealth to move up the
value chain. The committee concurs with the Ministers assertion that moving up
the value chain can contribute to unlocking the productive capabilities of this
economy which would assist in balancing the current account. In this regard:
of the Minerals and Petroleum Resources Development Act could contribute to
secure concessional access to mineral feed stocks to regain the competitive
advantage in this sector.
The committee is of the view thatstrategic minerals should be made
available at a developmental price to help grow our manufacturing industry. The
acceleration and expansion of industrialisation is also directly linked to the
retention of a percentage of extracted mineral resources.
Compliance with the existing public
procurement measures among all spheres of government remains a concern to the
committee. Governments administrative capacity to identify suppliers that meet
localisation requirements and to provide adequate notification of its intention
to procure specific products locally should be enhanced.
Unreliable electricity supply, the high
municipal electricity surcharges
industrial action are key constraints in the manufacturing sector. The
resolution of these constraints requires effective intra- and
inter-governmental coordination in particular the relevant departments including
the Department of Energy, the Department of Labour and Department of
Cooperative Governance to ensure cohesive policies in support of
industrialisation to ensure cohesive policies in support and expansion of
Furthermore, the committee encourages the
Minister to strengthen coordination efforts with the departments and public
entities responsible for implementing the IPAP.
The committee is supportive of the continued
focus on the implementation of a developmental trade strategy that underpins
the IPAP. In this regard, the promotion of deeper regional integration that
incorporates regional industrial development and facilitates intra-African
trade through infrastructure development and the implementation of other trade
facilitation measures is welcomed.
Furthermore, the committee is of the view
that South Africa should allow trade policy space to ensure that domestic
industries, particular developing ones, can be adequately supported within the
boundaries of its international obligations. Future trade negotiations should
take cognisance of these requirements.
The committee is encouraged by the conclusion
of the negotiations for the SADC-EU Economic Partnership Agreement. The outcome
of this agreement should provide South Africa with additional market access,
additional policy space in terms of the application of certain export taxes,
will preserve the integrity of the Southern African Customs Union and
accommodate the African regions regional integration efforts.
Given the low level of private sector
investments in the productive sectors, the factors that inhibit private sector
investment should be identified and strategies implemented to address these.
The committee welcomes the establishment of
the new Ministry of Small Business Development, as it recognises the important
role that small enterprises, cooperatives and the informal sector plays in the
economy. Its establishment will facilitate a more focussed approach to their
Broadening economic participation is
essential to address the triple challenge of poverty, inequality and
The committee recognises the need to supportentities
to be established through recent legislative changes. Furthermore, existing
entities with expanded mandates should be adequately resourced,in terms of human
and financial resources, to fulfil their legislative mandate.
International Operations sub-programme allocation, within the Trade and Investment
South Africa programme, needs to be reconsidered, with a view to a considerably
larger and more focused effort to increase South Africas presence in strategic
framework underpinning industrialisation should be reviewed to ensure that an
enabling environment to mineral beneficiation exists.
should inform all Departmental actions as the committee is of the view that
there should be a link between its objectives and the tools chosen to achieve
its objectives. All amended legislation submitted for consideration should include
a Regulatory Impact Assessment (RIA).
The committee would
like to thank participants from the Ministry of Trade and Industry, and the DTI
at the meeting.
The committee also wishes to thank its committee support
staff in particular the Committee Secretaries, Mr AndréHermans and Mr NkanyisoMhkize;
the Content Advisor, Ms Margot Herling; the Researcher, Ms ZokwandaMadalane,
and the Committee Assistant, Mr Denver Woodington, 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 Portfolio Committee on Trade and Industry
having, considered the 2014 proposed Budget Vote 36: Trade and Industry,
8.1. The Minister should consider additional
funding for the
Corporate Regulation Programmesallocation for its regulatory bodies to fulfil
their mandate in the outer years of the MTEF.
The Minister should
ncreasing the budget
for the Trade Investment South Africa Programme to ensure an adequate presence
in strategic foreign missions
the outer years of the MTEF
House adopts Budget Vote 36: Trade and Industry.
The Democratic Alliance abstained as it has
reservations with regard to recommendation 8.3 and certain aspects of the
The Economic Freedom Fighters voted against
the adoption of the report as it has reservations with regard to recommendation
8.3 and is of the view that the budget in its current form does not advance
industrialisation, and neither is it informed by the NDP.
The Freedom Front Plus voted against the
adoption of the report as it has reservations with regard to recommendation 8.3
and certain aspects of the report.
Report to be considered.
Davies, R. (2014)
Strategic overview of the dti priorities
. Presentation to the
Portfolio Committee on Trade and Industry, 1 July.
Department of Trade and Industry (2014a)
Department of Trade and Industry (2014b)
Annual Performance Plan
Department of Trade and Industry (2014c)
the dtis 2014/15-2016/17 Annual Performance
. Presentation to the Portfolio Committee on Trade and Industry, 1
of Trade and Industry (2014d)
Radical economic transformation is key for
economic growth, Minister Davies
. Media release 29 June.
of Trade and Industry (2014e)
Policy Action Plan
The Department of Trade and
Industrys Perspective on the 2014 State of the Nation Address
National Treasury (2014a)
Estimates of National Estimates: Budget Vote
National Treasury (2014b)
Budget Review 2014
Zuma, J. G (2014)
of the Nation Address to joint sitting of Parliament
. Parliament. Cape
Town. 17 June.
This EPA does not cover the official SADC region but only includes
Angola, Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland.
SACU consists of South Africa and Botswana, Lesotho, Namibia and
Swaziland (commonly known as the BLNS) and requires that the five countries
implement a common external tariff on all third parties. The previous regime
where South Africa was implementing a bilateral with the EU (namely the TDCA)
and the BLNS were implementing a separate regime implied that the principle of
a customs union had not been implemented consistently and the EU could trade
with SACU in a discriminatory manner to avoid paying a higher tariff.
A multiplier, in
economic terms, refers to the multiplication effect that an investment and/or
injection into the economy may have on jobs or economic growth in a broad
manner. So if an industry has an employment multiplier of 2, then for every R1
invested into that industry, 2 jobs is expected to be created in the economy.
While an economic multiplier of 2 would imply that for every R1 invested into
that industry, R2 is expected to be generated in the economy.
DTI (2014e: 18
African Risen: The
Blue Sky Continent (2014)
real percentage change or inflation-adjusted calculations are based on
an estimated 2014 Consumer Price Index of 6.2 per cent (National Treasury
The transfer price refers to
the price at which
divisions of a company transact with each other. Transactions may include the
trade of supplies or labour between departments. Transfer prices are used when
individual entities of a larger multi-entity firm are treated and measured as
separately run entities.(
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