Report of the Portfolio Committee on Trade and Industry on their oversight visit to Gauteng, the Eastern Cape, and the Western Cape from 27 January to 5 February 2015, dated 11 March 2015
Report of the Portfolio Committee on Trade and Industry on their oversight visit to Gauteng, the Eastern Cape, and the Western Cape from 27 January to 5 February 2015, dated 11 March 2015
The Portfolio Committee on Trade and Industry having visited entities reporting to the Department of Trade and Industry to assess their service delivery performance, and the Coega and Saldanha Bay Industrial Development Zones to assess the progress in developing them, as well as their readiness to implement the Special Economic Zones legislation, reports as follows:
In terms of section 42(3) of the Constitution of the Republic of South Africa, the National Assembly, among others, scrutinize and oversee executive action. The National Assembly through the Portfolio Committee on Trade and Industry oversees the work of the Department of Trade and Industry (DTI) and its entities to ensure that national priorities such as the creation of decent employment are met. The DTI’s mandate, among others, is to facilitate the creation of an environment conducive to industrialisation and regional economic development that enables economic transformation. Its range of functions should therefore support the achievement of this mandate.
Oversight visits provide the committee with the opportunity to ascertain whether reporting by the DTI and its entities are a true reflection of its service delivery on the ground. The committee undertook a two part oversight visit. It visited ten of the 14 DTI’s entities, as well as the Coega and Saldanha Bay Industrial Development Zones (IDZs).
It terms of the entities, the committee focused on the four technical infrastructure institutions, namely the South African Bureau of Standards (SABS), the National Metrology Institute of South Africa (NMISA), the National Regulator for Compulsory Specification (NRCS), and the South African National Accreditation System (SANAS). The oversight visit highlighted the importance of these institutions as critical behind-the-scenes institutions that ensure that the Industrial Policy Action Plan (IPAP) is implemented effectively. As a collective, they enable South African businesses to compete nationally and globally and protect consumers from unsafe products and services and unscrupulous business practices.
In addition, the committee conducted oversight visits to the following regulatory institutions: the Companies and Intellectual Property Commission (CIPC), the National Consumer Commission (NCC), the National Credit Regulator (NCR), the National Lotteries Board (NLB), and the National Gambling Board (NGB). It also visited the National Empowerment Fund (NEF), a development finance institution mandated to empower black individuals.
Furthermore, the oversight visit focused on industrialisation and regional economic development in relation to special economic zones (SEZs), which include IDZs. The new Special Economic Zones Act (No. 16 of 2014) is yet to be promulgated and existing IDZ operators will need to transition their business to comply with the new legislation. The committee selected the Coega IDZ and the new Saldanha Bay IDZ as part of this visit. It also visited Aspen Pharmacare in Port Elizabeth.
1.1. Purpose of the visit
The committee requested that the identified entities demonstrate their critical processes related to their core functions. The intention was that Members have a clearer, practical understanding of how the core functions of these entities are performed and have an opportunity to engage with staff performing these functions. It also addressed certain pertinent challenges experienced by some of the entities.
With respect to visit to the Eastern Cape, the committee engaged companies located within the Coega IDZ and Aspen Pharmacare on their experiences related to the incentives they had received from the DTI. This was to assist the committee to assess the DTI’s service delivery in terms of certain incentives offered and to determine areas which should be monitored. In this regard, the committee visited DCD Wind Towers, Coega Dairy and Agni Steel, which are located within the Coega IDZ. Furthermore, the committee met with the Coega Development Corporation to discuss the development of the IDZ and its readiness to change its operational, funding and service delivery models to meet the new legislative requirements. It had a similar meeting with the operator of the new Saldanha Bay IDZ.
The table below indicates which Members of Parliament and the Secretariat participated during the different legs of the oversight visit:
Visit to entities
1.2. Purpose of the report
This report captures the substantive discussions the committee had during the oversight visit. The Committee Secretaries can be contacted for the detailed presentations.
The report is set out in three parts. Part A provides the mandate for each entity visited and provides substantive discussions had with these entities. Part B provides an overview of the two IDZs and the companies visited and an outline of the key issues raised during the visit to the Eastern Cape and Western Cape provinces. Part C sets out the committee’s concluding remarks, acknowledgements and recommendations to the Minister of Trade and Industry.
Part A: Visit to the DTI’s entities
2. Technical Infrastructure Institutions
The technical infrastructure framework includes four institutions that together ensure that products and services conform to national standards and/or compulsory specifications. The purpose of this framework is that it can enable trade both domestically and internationally, while protecting consumers in terms of their health and safety, as well as from unfair practices such as being sold packaged goods which are underweight. Furthermore, the framework plays a role in the protection of the environment in terms of plant and animal health.
The four technical infrastructure institutions, namely the NMISA, NRCS, SABS and SANAS, play complementary and supporting roles to one another to achieve their mandates. These roles, as well as the inter-linkages between these institutions, are described below:
The NRCS administers technical regulations, which include compulsory specifications. This involves inspecting goods, such as vehicles and foodstuffs, to ensure that these meet the health and safety requirements. In the case of a passenger vehicle, this would include windshields, brakes and safety belts. The applicable compulsory specifications would have been elevated from national standards, which SABS develops, as those aspects are deemed to be critical for the safety of consumers. The NRCS relies on testing laboratories to provide test results against the applicable compulsory specifications, which it then inspects for compliance. These testing laboratories, as well as the NRCS’ inspectors, would have been accredited by SANAS. SANAS ensures that these agencies and/or agents have the necessary competence to test against specific standards, which may include international standards, in a particular industry.
Furthermore, an industry may volunteer to set and meet national standards (South African National Standards (SANS)), which they would develop with the SABS. The SANS are often based on international standards that can be adjusted to suit any particular domestic conditions such as the climate and technical capabilities. When an industry player wishes to meet the relevant SANS, its product or service would undergo testing against the SANS. This testing can be conducted by SABS or private testing laboratories or certification bodies, who should also be SANAS accredited.
Currently, SANAS also ensures that trade metrology standards are met, such as weight, volumes and distances are equal. In other words, a consumer will receive the same quantity of goods in one part of the country as another. Once the Legal Metrology Act (No. 9 of 2014) is promulgated, this will expand to other aspects of measurement, such as pressure and temperature. NMISA is the custodian of these metrology standards, which underpins all trade activity and various health and safety aspects. It plays a foundational role within the technical infrastructure framework, as it provides the international baseline that all of the other technical infrastructure institutions use.
A more detailed description of each institution and the key issues raised are provided in their sub-sections below.
2.1. South African National Accreditation System (SANAS)
SANAS is recognised as the only national body responsible for accrediting institutions and individuals in respect of their capabilities to perform conformity assessments, which includes accreditation of calibration, testing and verification laboratories; certification bodies; inspection bodies; Broad-based Black Economic Empowerment (B-BBEE) rating agencies; and any other type of body that may be added to SANAS’ scope of activity. SANAS is recognised as the national body to monitor good laboratory practice (GLP) compliance with the Organisation for Economic Co-operation and Development (OECD) principles for GLP facilities.
Mr R Josias, Executive Director, briefed the committee on the status of SANAS, its structure, its functions, and its international and regional obligations. The committee in its engagement with SANAS highlighted the following issues:
· Staff establishment to ensure SANAS is able to implement its mandate: SANAS informed the committee that in 2010 it embarked on “Project Breakthrough” to identify gaps within the organisation. The project identified that SANAS should ideally have a staff complement of 80 employees. Currently, SANAS only employs 71 individuals but assured the committee that it had the capability to perform its mandate notwithstanding the vacancies. SANAS further informed the committee that it also made use of the services of around 300 external, expert assessors registered in the SANAS database. One of the factors limiting SANAS’ ability to employ more staff was inadequate office space. The committee noted that SANAS was already using its office space beyond its intended capacity. The committee requested that SANAS inform it once they have identified appropriate offices and should indicate the cost implications associated with the new offices.
· Turnaround time for accreditation: SANAS informed the committee that it has a service delivery charter that guides its accreditation process. Notwithstanding the agreed service delivery timeframe, accreditation is dependent on the readiness of the organisation and the availability of information before accreditation can be issued. Accreditation can take between three to 12 months if the necessary information is available and the organisation is ready. Parts of these processes have been automated which could contribute to a faster accreditation process.
· The status of funding for SANAS and its outreach work in the region and in Africa: The committee enquired about the funding requirements of the SANAS to perform its role within Africa. SANAS informed the committee that all countries require the existence of a national accreditation body to facilitate the ease of access of goods and services in and out of their economy; thereby contributing to economic growth and ensuring the health and safety of its citizens and the protection of its environment. SANAS informed the committee that 43 per cent of its income is funded through the DTI and its accreditation activities are self-funded. However, the DTI funding has been reduced in the outer years of the Medium-Term Expenditure Framework (MTEF).
SANAS involvement in the region is through the Southern African Development Community Cooperation in Accreditation (SADCA) and is responsible for establishing and maintaining the SADCA accreditation system. This led to the establishment of the continental body called the African Accreditation Cooperation (AFRAC) that has the responsibility of ensuring that all goods and services entering African countries are accredited and meet standards. South Africa holds the chairpersonship of AFRAC and through agreements provided the necessary assistance such as training and advice to regional accreditation bodies. SANAS informed the committee that the Pan African Quality Infrastructure (PAQI) was established in 2013 comprising the AFRAC, the Intra-Africa Metrology System (AFRIMETS), the African Electrotechnical Standardisation Commission (AFSEC) and the African Organisation for Standardisation (ARSO). They have formalized their cooperation as members of the PAQI by signing a Memorandum of Understanding.
· SANAS’ footprint in rural areas: SANAS informed the committee that decentralisation of its offices has been under discussion but it would not be cost–effective given the current financial constraints. Given the nature of its work, it is not required to have a wider footprint. SANAS is required to provide its services at the location of the certification bodies. SANAS also provides the necessary guidance to inspection and accreditation bodies on what is required before accreditation. Through a Memorandum of Understanding with the Small Enterprise Development Agency (SEDA) it has developed a toolkit to assist small organisations and new applicants.
· The skill levels for nuclear facility inspectors: SANAS informed the committee that the basic skill levels exist among inspectors to be able to inspect nuclear facilities to ensure adequate capabilities exist in the industry for the government’s nuclear build programme. Discussions are currently underway within the industry on the process to recognise and train inspectors to become nuclear inspectors in future that are adequately conversant with the associated standards that must be met for the selected nuclear plant system.
· Delays in opening blood alcohol centres and SANAS’ role: SANAS informed the committee that it was not responsible for the delay in the opening of blood alcohol centres. Organisations usually want to be accredited when this is prescribed through legislation or when accreditation could give them a competitive advantage and they want to ensure they comply with best practices in the market.
2.2. National Regulator for Compulsory Specification (NRCS)
The NRCS administers the National Regulator for Compulsory Specifications (No. 5 of 2008), the Trade Metrology (No. 77 of 1973) and the National Building Regulations and Building Standards Acts (No. 103 of 1977), as well as other regulations that fall under other departments as far as they relate to compulsory specifications to protect human health and safety, and the environment; and to ensure fair trade, in accordance with government policies and guidelines.
Mr A Moodley, the Chief Operating Officer, briefed the committee on the industries the NRCS regulates, its core processes and its strategic focus. The committee in its engagement with the NRCS highlighted the following issues:
· The certification of imported vehicles: The committee raised a concern with respect to the Datsun Go vehicle that received a safety rating of zero in India. The committee enquired what the role of the NRCS was in ensuring that vehicles sold in the South African market were compliant with safety requirements. The NRCS informed the committee that all passenger vehicles should comply with the compulsory specifications as set out for the M1 category vehicle (VC8022). All test reports submitted for this vehicle complied with the requirements as set out in the compulsory specification for the M1 category vehicle hence it being granted approval in the local market. The NRCS is obligated to verify that tests were conducted by an appropriate and capable testing centre and if this is the case it would recognise the test results to be accurate. According to the NRCS, in terms of the VC8022, a full frontal impact analysis is required although there is no obligation that airbags are fitted. The NRCS confirmed that a full frontal impact assessment was conducted and that the Datsun Go complied with the South African requirements.
· Testing of fire-gel by the NRCS: The NRCS informed the committee that fire-gel is not currently regulated. However, the research and development unit is investigating the matter and intends developing a compulsory specification in this regard.
· Regulation of portable alternating current (AC) generators: The NRCS informed the committee that currently generators are not subject to compulsory specifications. Although the South African Bureau of Standards (SABS) has adopted the international safety standards, these have not been converted into technical regulations/compulsory specifications. In its response to the committee in a letter dated 6 February 2015, the NRCS has undertaken to do the following:
- It will undertake a comparative survey on the standards used by countries regulating AC Generators.
- The SABS would be contacted formally to indicate its readiness to obtain accreditation to test AC Generators and also to agree to the standards to be used and referenced to technical regulations/compulsory specifications.
- A compulsory specification will be formally registered as a high priority project which will obviate the need to do a risk assessment.
The NRCS further informed the committee that the estimated timeline for the completion of this compulsory specification if a suitable standard is available, will be approximately nine months.
· Issuing of Letters of Authority (LOAs). The committee raised a concern regarding the delay in the issuing of LOAs, which can have a negative economic impact and should be urgently addressed. The committee welcomed the efforts made to reduce the backlog but this still remains too high. The NRCS acknowledged the challenge associated with the issuing of LOAs in a timely manner and informed the committee that the matter is receiving the urgent attention it requires. The NRCS reminded the committee about a pilot project currently underway with major retailers that only stock products that are compliant with the necessary health and safety regulations. These retailers would then qualify to have LOAs fast-tracked. If the project proves to be successful, it could assist with the delays in the issuing of LOAs.
2.3. South African Bureau of Standards (SABS)
SABS is a statutory body that was initially established in terms of the Standards Act (No. 24 of 1945). Subsequently, there have been a number of legislative reforms and is now governed by the Standards Act (No. 8 of 2008). SABS as the national standardisation institution in South Africa, is mandated to:
· Develop, promote and maintain South African National Standards (SANS) to promote access to markets; and advance the socio-economic well-being of South Africa in a global economy.
· Promote quality in connection with commodities, products and services, such as in the localisation of production in support of government’s Industrial Policy Action Plan (IPAP) and enabling trade.
· Render conformity assessment services and assist in matters connected with facilitating access to markets for South African industries by improving their competitiveness in the global environment.
Dr B Mehlomakulu, the Chief Executive Officer, briefed the committee on the SABS’ mandate; on the development, promotion and the maintenance of national standards; its certification processes; testing capabilities; and work done by the Design Institute.
· Design Institute: The SABS informed the committee that its Design Institute has been in the forefront of ensuring that new designers and inventors are given the necessary platforms and opportunities to turn their ideas into innovations that are marketable. The Design Institute has the capacity to respond to current socio-economic demands by assisting young and emerging entrepreneurs to commercialise their ideas. The Design Institute informed the committee that it is one of the vehicle to place new ideas and innovation on a path of sustainable economic opportunities to create new businesses, and develop and enhance the culture of design and innovation in South Africa.
The committee welcomed the initiatives of the Design Institute. The Institute for the last 18 months has mentored a number of young and rural entrepreneurs assisting them with the development and packaging of their inventions to enable them to compete in the marketplace. Some of these products are already being sold on the international market. The Institute offer in-house design and packaging services which are developed by a group of industrial design graduates that are also being mentored.
· Relationship between the SABS and the World Trade Organisation (WTO) and other countries: The committee was concerned that certain countries were introducing new requirements for their standards without any scientific basis which may negatively impact on domestic exports. It enquired about the role of the SABS in counteracting the imposition of such standards. The SABS informed the committee that as South Africa is a member of the WTO it must abide by the Technical Barriers to Trade Agreement (TBTA) but may also bring such matters for dispute.
If a country develops national standards to promote the globalisation of its trade, it should use existing international standards as a point of reference to avoid hindering its trade opportunities. The SABS informed the committee that if a country has technical challenges in directly implementing existing international standards, it may adapt these standards to suit its domestic requirements. Notification of new international technical regulations developed by other countries is disseminated by the SABS to stakeholders. If stakeholders are of the view that the new standards present a technical barrier to trade, it is brought to the SABS’ attention. The SABS would subsequently inform the DTI, which is responsible for negotiating and implementing international trade agreements.
2.4. National Metrology Institute of South Africa (NMISA)
NMISA maintains primary scientific standards of physical quantities, certifies reference materials and performs “referee analysis” in cases of measurement disputes to ensure accurate measurement in South Africa. It also provides internationally recognised measurement standards and measurement services, which provide for the local use of measurement and derived units of the International System of Units (SI).
Mr N Mukhufhi, the Chief Executive Officer, briefed the committee on the role of NMISA with respect to technical infrastructure, its process maps, and its role in meeting South Africa’s needs. The committee in its engagement with NMISA highlighted the following issues:
· Risks to NMISA’s ability to successfully fulfil its mandate: NMISA informed the committee that the maintenance of national measurement standards and other standards are challenged by aging equipment which impacts negatively on its ability to fulfil its mandate. This results in the following challenges:
o The inability to perform measurements at the required accuracy and measurement uncertainty level: NMISA informed the committee that technology advances allow industry to improve their measurements which requires the organisation to have measurements of higher order or accuracy than industry to ensure that it can provide traceability.
o Lack of support by suppliers: Suppliers will support equipment for five years after which they consider the technology to be outdated. This responsibility then falls on NMISA which significantly reduces the time available for research and development. Furthermore, sourcing parts for outdated equipment has become expensive which has placed an additional financial burden on the organisation.
o Longer calibration and service delivery times: NMISA informed the committee that aging equipment requires a longer time to do calibration or analysis.
o Information technology compatibility issues: Failure to regularly update software platforms could lead to incompatibility in future.
o The ability of NMISA to retain its accreditation in a number of parameters: NMISA informed the committee that its aging infrastructure severely compromises the ability to maintain its accreditation in a number of parameters. These challenges relate to air-conditioning, clean air and clean rooms and vibration as these environmental factors impact on its ability to maintain and keep national standards to ensure that industry remains globally competitive.
· Human capital development challenges: NMISA informed the committee that in order to fulfil its mandate it requires a competent and skilled workforce. As a knowledge-based organisation, it relies on intellectual capital growth and must ensure on-going training/skills development opportunities for staff to ensure it meets its future demands. The committee shared the concern of NMISA regarding the current negative trajectory for the emergence of trained metrologists. This requires intervention at tertiary level to secure an adequate supply of future metrologists.
3. Regulatory entities
The DTI oversees seven regulatory entities under the auspices of its Consumer and Corporate Regulation Division. These include regulators for consumer protection, namely the NCC and the NCR; and for gambling, namely the NGB and the NLB; and the CIPC, which acts as a registrar for a number of institutions and intellectual property and regulates companies, closed corporations and cooperatives. It also oversees the tribunals for companies and consumer protection. The current oversight visit excluded the two tribunals. The mandates and discussions for the five regulatory entities are presented below.
3.1. Companies and Intellectual Property Commission (CIPC)
The Commission’s mandate can be broadly defined as the administration and performance of all the powers and functions assigned to it by the Companies Act (No. 71 of 2008). It also administers all or parts of 15 pieces of legislation referred to in Schedule 4 of the Act. According to Sections 185 (2) (d) and 187(1) of the Companies Act, the CIPC’s functions are to:
· Register companies, business rescue practitioners and corporate names, maintain data, regulate governance of and disclosure by companies, and accredit dispute resolution agents;
· Educate and inform the public about all laws, non-binding opinions and circulars, policy and legislative advice;
· Maintain data, and regulate governance of and disclosure by close corporations;
· Regulate conduct and disclosure by share block schemes;
· Register co-operatives, maintain data, and regulate governance of and disclosure by co-operatives;
· Register patents, maintain data, publish patent journal, and administer the Court of the Commissioner of Patents;
· Provide for functioning of the CIPC as the receiving, designated and elected office in terms of the Patent Cooperation Treaty (PCT);
· Register trademarks, maintain data, resolve disputes, and provide non-binding advice to the public;
· Register films, and maintain data in this regard;
· Accredit copyright collecting societies, and regulate their governance, conduct and disclosure;
· Record and co-ordinate search and seizure operations, and oversee depots; and
· Prevent and enforce the unauthorised use of state emblems.
The purpose of the engagement with the CIPC was to develop an understanding of its core functions and processes related to the registration of companies, of co-operatives, of business names; of patents and/or trademarks. Also the committee wanted to engage on the issue of public accessibility to the institution, particularly in terms of query resolution, and its impact on the broader economy.
Ms A Ludin, the Commissioner, briefed the committee on its processes, the challenges and opportunities facing the CIPC. The committee in its engagement with the CIPC raised the following concerns:
· Access to the CIPC: The committee is of the view that one of the biggest challenges within the CIPC remains its inability to effectively deal with the large volume of queries received. Prior to the “Swedish Model”, the CIPC had a call centre, which had been ineffective in answering the volumes of calls and resolving queries. At the time, there had been numerous complaints from the public that calls were not being answered and the CIPC had reported low call answering rates. The CIPC informed the committee that the rationale for the introduction of the “Swedish Model” was to improve customer service, as queries would be transferred to staff working in the particular area related to the query and no longer to a call centre. The intention was to increase the number of staff who will be taking calls and resolving queries at the source. After an initial improvement in performance where calls were answered by volunteers from the different sections, the query resolution function was delegated to all staff. This led to a decline in the call answering rate due to a number of challenges such as work pressures, the impact of processing targets and the dissatisfaction of staff regarding the inclusion of call resolution as part of their new job descriptions.
The CIPC also informed the committee that following a request from the Minister it would reinstitute its traditional call centre but this would be dependent on volunteers within the organisation to operate the call centre. The CIPC informed the committee that the call centre would be operational by the end of March 2015. The CIPC and NEHAWU have agreed on implementing a moratorium on recruitment until labour matters serving before the Commission for Conciliation, Mediation and Arbitration (CCMA) are resolved.
· Turnaround time with respect to company registration: A major concern for the committee is the slow turnaround time for company registration. The CIPC acknowledged the challenges especially in relation to company registration. They informed the committee that currently the turnaround time is around 22 days and that it has been reduced on a daily basis. The CIPC informed the committee that it is expected to have a turnaround time of one day for electronic applications by the end of February 2015.
· Self-service terminals (SSTs) as a tool to improve the ease of doing business: The committee welcomed the introduction of SSTs to improve the ease of doing business but enquired whether the CIPC had a strategy to roll-out SSTs in all provinces. The CIPC informed the committee that it had a roll-out strategy to reach all provinces within the next three years. Through the SSTs, the CIPC services would become more accessible to the rural communities. Staff would be deployed to assist the public at the terminals with their applications. However, the ability to obtain and ensure secure access to the Department of Home Affairs’ biometric databases could be a limiting factor to this roll-out.
· The lack of clear communication from the CIPC on service delivery standards and on updates being implemented on its website: The committee raised concerns about the lack of clear communication with the public around service delivery standards. There is currently no live update (stream) on changes with respect to certain processes on the CIPC’s website. The committee is of the view that open and transparent communication with the public is critical to mitigate against the poor public perception of the CIPC. Most of the complaints received by members relate to the public’s inability to receive updates on their respective application process. The committee expressed a view that the CIPC should be transparent with the public on the challenges it is experiencing relating to query resolution and the impact of backlogs in dealing with specific types of applications on service delivery. Turnaround time for applications should be clearly communicated. The CIPC acknowledged the challenges it faces with respect to timeous communication and has committed to addressing this. A number of initiatives are being implemented with partner institutions such as the South African Institute of Professional Accountants (SAIPA); the South African Institute for Chartered Accountants (SAICA) and the National African Chamber of Commerce and Industry (NAFCOC) to share information regarding the CIPC’s systems, processes and any changes. The committee welcomed the establishment of these initiatives/partnerships.
· Role of intermediaries: The CIPC highlighted that a number of end-users preferred to use intermediaries. It found that generally intermediaries tended to submit more complete applications. However, it wanted to refrain from differentiating between applications received directly versus those from intermediaries. There was a need for the CIPC to strengthen its communication to intermediaries to ensure that they understand the new systems and use them effectively.
· The role of “runners” as official agents and as an intermediary for the CIPC and how such activities are curtailed: The committee raised concerns around the role of “runners” as it appeared that they have direct access within the CIPC to fast-track applications through illegal financial incentives. This raised additional concerns about the security of information kept by the CIPC. The CIPC informed the committee that it has no official agents or intermediaries that could fast-track the registration of companies. These individuals are not recognised by the CIPC and members of the public should refrain from using their services. The CIPC informed the committee that investigations in conjunction with the South African Revenue Service are underway to investigate the illegal activities of “runners”. Any CIPC officials found guilty of colluding with “runners” would face disciplinary action.
3.2. National Consumer Commission (NCC)
The NCC was established in terms of Section 85 of the Consumer Protection Act (No. 68 of 2008) with jurisdiction throughout the Republic of South Africa. The Act seeks to promote a fair, accessible and sustainable marketplace for consumer products and services and, for that purpose, to establish national norms and standards relating to consumer protection. It further seeks to provide for improved standards of consumer information, to prohibit certain unfair marketing and business practices, to promote responsible consumer behaviour and to promote a consistent legislative and enforcement framework relating to consumer transactions and agreements.
The NCC does not conciliate or adjudicate on disputes between consumers and suppliers. Instead, it investigates complaints where there are widespread challenges in an industry and accredits consumer protection bodies to deal with individual cases. Consumers are required to first attempt resolution of their disputes with suppliers. In the event the dispute is not resolved with the supplier, the NCC recommends that the consumer approach the Provincial Consumer Protection Authority in their respective provinces or the relevant industry ombudsman before approaching the NCC. The NCC is currently focusing on expanding alternate dispute resolution (ADR) mechanisms with the support of industries, sectors and sub-sectors throughout the country so as to ensure that consumers are able to obtain speedy settlement of their disputes with suppliers.
Mr E Mohamed, the Commissioner, briefed the committee on the entity’s role, and its alignment to the DTI strategic goals. The committee in its engagement with the NCC highlighted the following issues:
· Role of the NCC with respect to consumer protection: The NCC informed the committee that section 99 of the Act clearly defines its role in that it should promote informal resolution of any dispute arising in terms of the Act, but it is not responsible to intervene in or directly adjudicate on the matter. It is therefore important for the NCC to promote the development of industry codes of conduct so that the industry can directly deal with the complaints. The NCC should investigate prohibited conduct and not deal with individual complaints hence the referral of complaints to ADR.
· The role of ADR in complaints handling: The committee raised a concern that information regarding the contact details of these agencies are not easily accessible. There was also a perception that complaints sent for ADR were not being responded to. The NCC should consider publishing the contact details of the ADR agents especially those in operation on its website. The NCC welcomed the committee’s suggestion of placing the contact details of ADR agents on its website. The NCC informed the committee that it co-exists with its provincial counterparts and other industry sector ombudsman’s some of which are not located within the DTI. The NCC recognised the importance of closer relations with all agencies dealing with consumer matters and will set aside a week for a joint campaign on consumer related matters. This week will be utilised to profile the different agencies and their specific roles in addressing consumer complaints.
With regard to the success rate of ADR, the NCC informed the committee that although the NCC is viewed as the custodian for consumer protection it empowers other agencies to also deal with consumer matters. Currently, the NCC does not have the necessary statistics on the success rate of complaints resolution but in future will put mechanisms in place among all role-players to capture the level of success regarding the resolution of consumer disputes.
· Compliance notices and its impact in resolving consumer complaints: The NCC informed the committee that in the past it focused on the conciliation of complaints and the issuing of compliance notices. Although it was not the only tool at the NCC’s disposal to enforce compliance with legislation, it had been widely used to deal with consumer complaints. Business had challenged the issuing of compliance notices on the basis of procedure and had been successful in all the cases brought against the NCC. This had impacted negatively on the financial resources of the NCC. For the last two years, the NCC has not issued any compliance notices and has rather gone the route of ensuring that certain conduct/practices are declared prohibited conduct. Only after completion of this process would the NCC consider issuing new compliance notices.
· Accessibility of the NCC’s service to underprivileged communities: The NCC informed the committee that its services are available to all consumers. The recent recalls of certain products from the market required the NCC to ensure that recalled products did not find their way to small spaza shops in the remote areas of the country. Although the NCC has limited inspection capacity, it does random checks to ensure compliance.
· The NCC’s role in the R699 car scheme scam: The NCC informed the committee that it is only responsible for goods, and that in the case of the R699 car scheme, the only role it can play is where there are any defects on the vehicle. The National Credit Regulator (NCR) would be responsible for the credit aspect and whether proper background checks were conducted before credit was granted.
3.3. National Credit Regulator (NCR)
The NCR was established under the National Credit Act (No. 34 of 2005) and is responsible for the regulation of the South African credit industry. It is tasked with carrying out consumer credit education and public awareness campaigns, research, policy development, registration of industry participants, investigation of complaints, and ensuring the enforcement of the Act.
The Act requires the NCR to promote the development of an accessible credit market, particularly to address the needs of historically disadvantaged persons, low income persons, and rural communities. The NCR is also tasked with the registration of credit providers, credit bureaux and debt counsellors; and with the enforcement of compliance with the Act.
Ms N Motshegare, the Chief Executive Officer, briefed the committee on the entity’s processes with respect to registration, complaints and call centre resolution, and investigation and enforcement. The committee in its engagement with the NCR highlighted the following issues:
· Status of the affordability assessment draft regulations and on Credit Life Insurance: The committee raised the issue of continued reckless lending practices among credit providers to consumers that are already in arrears. The committee is aware that consumers at times understate their expenses but it is a matter that is being addressed through legislation or regulations. The committee enquired about the status of the draft regulations with respect to affordability assessment as well as on credit life insurance. The NCR informed the committee that the draft proposals on both have been submitted to the DTI. The draft Affordability Assessment Regulations were published in August 2014 with the regulations on Credit Life Insurance still awaiting publication for comment.
· Status of the investigation into small lender, U-Bank: The committee specifically enquired about the practices by the small lender, U-Bank, who is also believed to be involved in the practice of reckless lending and has failed to disclose the interest rates accrued on credit agreements to consumers. The NCR informed the committee that it has referred the matter related to U-bank to the National Consumer Tribunal (NCT) as it has contravened provisions in the Act. The NCR informed the committee that it has requested the imposition of administrative penalties and for the NCT to provide redress to the affected parties. It still awaits the ruling of the NCT on the matter.
· Shortfalls arising from the sales of repossessed motor vehicles and houses: The committee enquired what the NCR’s position was on any shortfalls arising from sales of repossessed motor vehicles and houses as it leaves the consumer in a perpetual state of debt. The committee was of the view that the sale of repossessed vehicles and houses should be at a reasonably determined price that does not leave the consumer in debt after the auction sale. The current practice places all the risk associated with the repossession process on the consumer with credit providers carrying no risk. The NCR informed the committee that it has requested credit providers to provide the necessary information as part of an investigation commissioned by it regarding shortfalls arising from sales of consumers’ repossessed vehicles and houses. This is to ensure that credit providers sell consumers’ repossessed vehicles and houses at for the best price reasonably obtainable to reduce shortfalls that consumers may be liable to pay.
· Legal assistance to over-indebted consumers: The committee raised a concern around legal assistance offered to consumers to deal with the issue of over-indebtedness. The NCR informed the committee that it has explored relationships with various bodies to provide legal assistance to consumers in need. Relationships have been established with the Legal Aid Board, the Legal Resource Council and the various Law Societies that can provide pro bono assistance to consumers.
· Provision of loans against consumers’ pension fund and retirement savings: The committee raised a concern with regard to certain practices, especially by Sanlam and ABSA, whereby credit providers encourage the provision of credit against consumers’ pension fund and retirement savings and whether such practices are legal. The NCR informed the committee that it would investigate the matter relating to Sanlam as it does not have a definitive position in this regard. With regard to ABSA, the NCR informed the committee that nothing prohibits ABSA of such practices as long as it is approved by the Pension Fund Administrator, and is solely used for mortgage purposes. The National Credit Act also does not prohibit such action so long as the necessary affordability assessment has been conducted.
· Review of the total cost of credit: The NCR informed the committee that a study is being conducted and that the analysis on the review of interest rates and fees should be concluded by April 2015. The committee welcomed the progress made regarding the review of the maximum interest rate formula as it discriminates against the poor.
3.4. National Lotteries Board (NLB)
The National Lotteries Board (NLB) was established in terms of the Lotteries Act (No. 57 of 1997) to regulate the National Lottery as well as other lotteries, including society lotteries for fundraising and promotional competitions.
Section 10 of the Lotteries Act specifies that the NLB shall fulfil the functions listed below in a manner that is open and transparent:
· Advise the Minister on the issuing of the licence to conduct the National Lottery;
· Ensure that the National Lottery and Sports Pools are conducted with all due propriety;
· Ensure that the interests of every participant in the National Lottery are adequately protected;
· Ensure that the net proceeds of the National Lottery are as large as possible;
· Administer the National Lottery Distribution Trust Fund (NLDTF) and hold it in trust;
· Monitor, regulate and police lotteries incidental to exempt entertainment, private lotteries, society lotteries and any promotional competition contemplated in section 54 of the Act;
· Advise the Minister on the percentage of money to be allocated per category from the NLDTF;
· Advise the Minister on the efficacy of legislation pertaining to lotteries and ancillary matters;
· Advise the Minister on establishing and implementing a social responsibility program in respect of lotteries;
· Administer and invest the money paid into the NLDTF in accordance with the Lotteries Act;
· Perform such additional duties in respect of lotteries as the Minister may assign to the board;
· Make such arrangements as may be specified in the licence for the protection of prize monies and sums for distribution; and
· Advise the Minister on any matter relating to the National Lottery and other lotteries or any other matter on which the Minister requires the advice of the Board.
Prof A Nevhutanda, the Chairperson, proceeded to take the committee through the high-level process leading up to adjudication and payments of funds from the NLDTF.
The process begins with national calls being made for applications per category in consultation with the respective Distributing Agencies (DAs) and in alignment with legislation and national priorities. Currently, the legislation allows for five categories, of which four have been active, namely the (i) sport and recreation, (ii) charities, (iii) art, culture, and the national historical, natural, cultural and architectural heritage and (iv) miscellaneous purposes categories. Three DAs have been created to deal with the adjudication of sports, charities, and arts and culture applications. Once applications are received, the following process unfolds:
The NLB informed the committee that this is the initial process upon the receipt of applications. No adjudication is done during this process with the main purpose being uploading the application on the Grant Management System. Documents are generated and placed in the specific sectors based on the call. All documents in an application are barcoded with a pack created for archiving. The manual documents are scanned into the Grant Management System and archived. The Grant Management System automatically generates an acknowledgement letter and a SMS is sent to the applicant. This process is followed by an indexing process.
Assistance to applicants: A major concern for the committee is whether the NLB assists applicants with the application process as many applications are dismissed due to non-compliance with statutory requirements. In response, the NLB informed the committee that whenever a call for funding is placed the NLB helpdesks are available to provide assistance to applicants before the closing date. However, certain onerous legislative requirements, especially for smaller and rural organisations, remain until the amended legislation is promulgated. These legislative amendments should improve the ability of these organisations to submit eligible applications.
- Assessment of applications
Documents placed on the Grant Management System are received and indexed. Applications are allocated to the relevant team members for processing. It is during this process that actual verification takes place to see if the application meets all the mandatory requirements. The second leg of the assessment process is the verification of financial statements such as checking the registration of the accounting officer or the auditor and whether they were responsible for verifying and signing off the financial statements. It is also during this process that additional information may be requested where applicable and applications are either recommended for rejection (if they do not meet the basic requirements) or for funding approval.
Process when application is incomplete: The committee raised a concern that some deserving organisations are denied funding due to incomplete applications. The NLB informed the committee that applications must comply with the necessary statutory requirements. The Grant Management System is designed to identify which applications do not comply. The NLB informed the committee that it is not always a blanket rejection and applicants may be requested to provide additional or outstanding information. A recommendation is then submitted to the relevant Distributing Agency for consideration. The DAs may also request applicants to make further oral submissions in support of their applications.
- Pre-Adjudication (Quality assurance)
During this process, the NLB ensures that all the necessary due diligence has been adhered to by the grant funding officials through the following:
o Reviewing of projects proposed for withdrawals and deviations.
o Reviewing of voluntary withdrawals and appeals.
o Reviewing of verification reports.
o Making recommendations to the relevant DAs for adjudication.
o Printing of Executive Board pack (meeting pack).
The adjudication process is as follows:
o The DAs review the project’s assessments submitted by grant funding officials for consideration.
o The DAs make the necessary funding decision for each application, be it approval, rejection or suspension.
o The DAs determine the number of tranches in which payments will be made to approve organisations.
o Where required, the DAs may add special terms or conditions to funding granted to organisations.
o Where grants over R1 million are approved, the DA Chairperson’s motivation must be submitted for consideration by the board of the NLB.
Furthermore, the committee raised a concern about the proposed draft lottery regulations which reduced the allocation to the art, culture, and the national historical, natural, cultural and architectural heritage category from 28 per cent to 20 per cent. However, the Minister informed the committee that the final regulations have adjusted the allocation to 23 per cent. The committee is of the view that for many organisations in this sector it is their main source of income and may have a negative impact on socio-economic environments served by these organisations. The NLB and the art, culture, and the national historical, natural, cultural and architectural heritage category DA informed the committee that they have similar concerns around its impact. The NLB requested that it together with the DAs formally brief the committee on their position on the regulations. As regulations are secondary legislation, the committee has an obligation to ensure that the regulations are aligned with the spirit of the principal Act.
3.5. National Gambling Board (NGB)
The NGB is responsible for upholding the integrity, viability and sustainability of the gambling industry by overseeing the regulation of the industry and promoting uniform norms and standards across provinces. It is established in terms of the National Gambling Act (No. 7 of 2004). The Act also mandates it to monitor, evaluate and investigate the issuing of national licenses by provincial licensing authorities when necessary; and requires it to establish and maintain national registers regarding various gambling activities.
The co-administrators of the NGB, Mr T Baleni and Ms C Kongwa, briefed the committee on the role of the NGB, its alignment to the DTI strategic goals. The committee in its engagement with the NGB highlighted the following issues:
· Matters relating to the suspension of the board of the NGB: The committee enquired to the status of the investigation relating to the suspension of the board of the NGB. The co-administrators informed the committee that the investigation is still underway and near completion and that a report would be submitted to committee once it is finalised.
· The relationship between the Provincial Gambling Boards (PGBs) and the NGB: The committee raised its concern regarding the lack of harmonisation between the provincial and national boards especially around limited pay-out machine (LPM) licences. The co-administrators expressed a view that there should be no discrepancies around the issuing of LPM licences as the regulation clearly states that upon application by an operator to the PGB to consider and grant approval for the operation of in excess of five and not more than 40 LPMs machines, the PGB should apply to the NGB before approval is granted to the applicant. Where non-compliance of statutory requirements and of regulations occur, the NGB would communicate with the relevant PGBs.
· LPMs becoming the primary business: The committee raised a concern that LPMs are not incidental to the primary business as per the legislative requirement. The co-administrators acknowledged that LPMs have become primary businesses in a number of cases and will address the matter in the appropriate forum. With regard to the LPM machines the co-administrators informed the committee that any machine or device must be tested by an accredited gambling test laboratory.
· The role of the Chief Executive Officers’ forum: The co-administrators informed the committee that this structure does not have any decision-making power. It was created to establish regular dialogue between CEOs of the gambling boards and not to take any policy decisions which remains the function of the National Gambling Policy Council.
· The relationship with the bookmaker associations: The co-administrators informed the committee that the bookmaker associations are voluntary associations. None of these voluntary organisations has legal standing and they cannot issue licences.
· The NGB’s role in combating money laundering: The NGB forms part of the Financial Intelligence/Anti-Money Laundering Structure and has the responsibility to ensure that licensees act within the prescripts of the law. The PGBs conduct regular inspection of sites under its jurisdiction in accordance with the relevant legislation.
· Pronouncement of DTI’s position of online gambling: The pronouncement of the DTI’s position not to consider legalising online gambling was concerning to certain members of the committee. The committee inquired whether the NGB was consulted before the pronouncement was made and whether a proper cost-benefit analysis was conducted on banning versus regulating online gambling. The co-administrators informed the committee that the NGB provided input on the matter but that the policy issue should be referred to the DTI.
4. National Empowerment Fund (NEF)
Established by the National Empowerment Fund Act (No. 105 of 1998), the NEF is a driver and thought-leader in promoting and facilitating black economic participation by providing financial and non-financial support to black empowered businesses, and by promoting a culture of savings and investment among black people. The operations of the NEF are governed by the Public Finance Management Act (No. 1 of 1999) (PFMA), including the National Treasury Regulations, the King III Report on Governance for South Africa and the Protocol on Corporate Governance in the Public Sector, 2002.
Ms P Mthethwa, the Chief Executive Officer, briefed the committee on NEF’s investment process. The committee in its engagement with the NGB highlighted the following issues:
· NEF’s role in facilitating black economic participation: The committee expressed a view that the drive for the emergence of more black economic participation should intensify. The NEF and other development finance institutions should continue to provide financial support to viable black-owned business to promote industrialisation. A concern for the committee is that financial support is linked to labour absorption potential, which may compromise the issue of local content. The committee enquired about the number of black industrialists to date. The NEF informed the committee that it had contributed to the emergence of 14 industrialists and that assistance to a further 14 emerging black industrialists is in the pipeline. Although the committee welcomed the developments, it remained concerned about the slow pace of economic transformation and emergence of black industrialists.
· Role of the Strategic Projects Fund (SPF): The committee enquired about the role of the SPF and whether it is aligned to government’s socio-economic development and industrialisation drive. The committee is concerned that investment in these projects do not necessarily lead to job creation which should be a key objective of investment by the NEF in black businesses. The NEF informed the committee that currently there are twenty industrial projects which should be fully commercialised and operational within the next five years. This would positively contribute to socio-economic development and the creation of additional black industrialists. It is projected that these projects have the potential to create a minimum of 80 000 jobs.
· The number of companies in distress supported by the NEF: A major concern for the committee was the support provided by the NEF for companies in distress. The NEF informed the committee that of the 429 businesses that have been funded, 58 have been handed over to the legal division for collection. The Turnaround, Workouts and Restructures (TWR) Unit provides support to companies in distress to optimise the recovery of funding from the NEF. To date, the TWR has assisted 13 companies and successfully assisted seven companies.
· The global competiveness of companies funded by the NEF: The committee enquired about the global competitiveness of companies supported by the NEF. The NEF informed the committee that its Post Investment Unit (PIU) has the responsibility of identifying investment opportunities in global trade. A number of NEF initiatives are being monitored by the PIU to increase its global competitiveness.
· The NEF’s reach in poor communities: The committee enquired about the reach of the NEF in poor areas of the country. The NEF informed the committee that it has its footprint in all provinces except the Northern Cape in which it is currently in the process of identifying premises. Through various initiatives with national and provincial departments, traditional leaders, and the South African Institute of Chartered Accountants, the NEF has gained access in the rural areas. Through this process, it has successfully funded various business ventures through its Rural and Community Development Fund.
· Cooperation amongst companies receiving support from the NEF to contribute to socio-economic development: The committee enquired about whether the NEF encourages recipients receiving financial support to work together and possibly create economically viable value chains to maximise profits as well as to contribute to addressing the socio-economic challenges facing the country. The NEF informed the committee that it actively promotes trade among investees to promote support for collective growth and socio-economic development. The NEF encourages the procurement of goods and service not only among investees but also with all black business.
· NEF’s contribution to the localisation drive: A major concern for the committee was whether the companies receiving support from the NEF are supporting the local content drive. The NEF informed the committee that its mandate has been broader than this and its priority was to specifically support black entrepreneurs. However, it has made efforts to align itself more closely to government’s macro-economic policies relating to more investments in the productive sectors of the economy.
Part B: Visit to the Eastern Cape and Western Cape Provinces
- Coega Industrial Development Zone
The committee visited the Coega IDZ on 3 and 4 February 2015. It was taken on a brief tour of the active zones within the IDZ, which included a tour of the Port of Ngqura and more formal meetings with:
· Coega Development Corporation
· DCD Wind Towers
· COEGA Dairy
· Agni Steel
The committee was also given an opportunity to engage with the management team at DEDISA Peaking Power Plant, which was currently under construction. The DEDISA Peaking Power Plant was an example of a medium-term project that could assist in alleviating the pressure on the national electricity grid and ensure that the manufacturing sector had a more secure supply of energy.
5.1. Coega Development Corporation (CDC)
5.1.1. Overview of CDC
The Coega IDZ has been operational for more than ten years and is operated by the Coega Development Corporation (Pty) Ltd (CDC). To date, the IDZ has been operating in accordance with the Industrial Development Zones (IDZs) regulations under the Manufacturing Development Act (No. 187 of 1993). However, the legislative environment within which IDZs have operated will be changing once the Special Economic Zones Act (No. 16 of 2014) is promulgated. Existing IDZs will have three years to align themselves with these new legislative requirements.
The Coega IDZ is South Africa’s premier location for new industrial investments covering 11 000 hectares of land, which is located adjacent to the Deepwater Port of Ngqura. It has been designed based on a cluster model, which strives to link related industries and their supply chains in close proximity to one another to maximise efficiency and minimise turnaround times. The IDZ accommodates the following clusters:
• Commercial and logistics
• Automotive and auto components
• Light industry
• Metals and metallurgy
• Agro-processing (aquaculture, food packaging and food processing)
• Mariculture (marine aquaculture) and coastal
The CDC briefed the committee on its historical performance, investor pipeline, the relationship with the Port of Ngqura, the one-stop shop model including its skills development approach, its transitioning plan in relation to the SEZ legislation, and funding for development and maintenance of the IDZ. The following key issues were raised:
- Operational losses: The CDC receives grant funding from the DTI to enable infrastructure development, and funding from the Eastern Cape government for its operations, as well as 10 per cent of its infrastructure spend, while the Nelson Mandela Bay Municipality funds the development of bulk infrastructure. Since its inception, the CDC received R5.7 billion from the national and provincial government, of which 70 to 80 per cent was spent on capital expenditure. According to the CDC, the IDZ is operating at a loss, mainly due to the Eastern Cape government discontinuing its operational expenditure grant. It has mitigated some of this loss by outsourcing its business development services and by opening the Coega Village to the general public as a bed and breakfast facility. The DTI has communicated with the provincial and local government to reinstitute funding for operational expenditure as well as to meet the 10 per cent requirement for capital projects approved by the DTI. At the time of the engagement, the CDC estimated its shortfall for the operation of the IDZ for the 2014/15 financial year to be R126.5 million.
- Realisation of the investment pipeline: The committee was concerned that the time lags between an investor showing interest in the IDZ, signing an agreement with the CDC and actual operation was hindering certain investors from establishing operations in the IDZs. An example referred to was the manganese smelter. The CDC informed the committee that once all necessary agreements were in place and all legislative requirements were met, it took seven months to construct the facilities. Investors that seek quick solutions tend to invest elsewhere. In the case of the manganese smelter, the land agreement had been signed but the commercial agreement is still outstanding. Furthermore, the smelter requires a secure rail line from the mine in the Northern Cape, which is not under the CDC’s control. The CDC concurred that there was a risk that investors could withdraw their proposed investment based on the time it takes from signing to establishing their facilities.
5.2. DCD Wind Towers
5.2.1. Overview of DCD Wind Towers
Currently, DCD Wind Towers manufactures tubular steel wind towers of between 80 and 120 meters high in the Eastern Cape based on successful bids by external developers for the Renewable Energy Independent Power Procurement Programme (REIPPP). Their scope to expand their business is influenced by the cost of production and transport due to the weight of the sections of the wind towers. At this stage, manufacturing has been limited to the wind towers, due to intellectual property concerns related to the manufacturing of blades and thus no investment having been made in this regard yet.
DCD manufactures and assembles about 110 wind towers each year according to either European or international standards depending on the original equipment manufacturers (OEM) requirements. However, a recent investment of R10 million will increase the annual production capacity to 140 towers per year. It takes on average 31 days to manufacture a tower. The local content of each wind tower is determined by the OEM’s specifications, where certain clients specify that all steel be imported as a result of the availability and price of certain grades of steel required in South Africa.
DCD employs about 115 permanent employees but requires an additional 32 skilled employees. On an ad hoc basis, there is also a need to temporarily employ 10 to 15 people for three to four months for short projects. In terms of women, DCD noted that they rarely employ women in their plant because of the type of work that they do.
DCD Wind Towers was awarded grant funding to the value of R21.5 million through the Enterprise Investment Programme (EIP).
During the deliberations with the committee, the following key issues were raised:
- Supply of electricity: The committee enquired about the impact of load shedding on DCD. DCD assured the committee that load shedding does not affect the IDZ, as there is a joint memorandum of understanding between the CDC and the Nelson Mandela Bay Municipality to restrict load shedding to the area unless it was absolutely essential. Furthermore, DCD was confident that the construction of the DEDISA Peaking Power Plant, which should be operational in September 2015, would provide additional electricity when demand reaches its peak.
- Availability of adequate skills in the surrounding areas: Certain scarce skills are being sourced from the Gauteng region with the intention that skills would be transferred to local people. About 15 per cent of the employees were from Gauteng. Currently, there was no relationship with local institutions of higher learning to promote the local development of the requisite skills. DCD was dependent on the CDC, who has a link with these institutions of higher learning, to supply them with the required skills. The CDC provides training to local people in these scarce skills required by the industries within the IDZ. However, the lag between training and uptake by the industry poses a challenge as these skills often migrate to where job opportunities are immediately available.
- Policy certainty pertaining to REIPPP: DCD emphasised the need for policy certainty and a possible review of the REIPPP process to support the localisation drive. Currently, the roll-out of the REIPPP was driving demand for the establishment of the local industry to manufacture parts for wind turbines. There was limited interest for additional investment to manufacture wind towers locally due to risks faced in securing access to Eskom’s national grid and the economic viability of manufacturing parts locally.
- Availability of local steel: The committee was concerned about the use of imported steel rather than increasing the local content by sourcing the steel locally as well. DCD responded that certain grades of steel were not available in South Africa.
- Cost of local steel: DCD noted that in certain cases where the steel grade is available in South Africa the price can be very high. Therefore, importing finished steel products is often cheaper than purchasing the local material to manufacture the part from ArcelorMittal South Africa. In those cases where the cost of steel in the country is high, DCD imports steel mainly from China.
5.3. Coega Dairy
Coega Dairy (Pty) Ltd consists of an ultra-high temperature (UHT) processing plant that produces UHT milk and butter, which is sold mainly to the domestic retail and wholesale markets, as well as within the southern African region. Recently, it has established Coega Cheese (Pty) Ltd, in partnership with Famous Brands, and is responsible for operating it. At this initial stage, Coega Cheese produces mozzarella to service Famous Brands’ Debonairs franchise nationally and internationally.
The Coega Dairy business concept was initiated by 12 farmers in the region and allows these farmers, as well as 10 other dairy farmers, to add value to their primary produce. The business is structured as follows:
- Coega Dairy Milk Producers’ Organisation consisting of 12 dairy farmers has a 61.8 per cent share in Coega Dairy.
- The remaining 38.2 per cent is owned by the Coega Empowerment Trust, which is funded by the Industrial Development Corporation (IDC). This Trust is held on behalf of:
- A Black Economic Empowerment Project (54.6 per cent),
- Factory workers (18.2 per cent), and
- Coega Dairy farm workers (27.3 per cent).
- The Coega Dairy Milk Producers’ Organisation and the Coega Empowerment Trust have similar shares in Coega Dairy Holding, which holds a 49 per cent share in Coega Cheese (Pty) Ltd; with Famous Brands holding the other 51 per cent.
- Coega Dairy has an agreement to manage Coega Cheese on behalf of Coega Dairy Holding and Famous Brands.
Coega Dairy boasts state of the art technology that has a low carbon footprint and is environmentally friendly compared to other dairies in South Africa. It has created 168 direct jobs with Coega Cheese providing an additional 57 direct jobs and more than 750 indirect jobs. Furthermore, Coega Dairy has provided an opportunity for small dairy farmers to add value to their raw produce and the milk intake from small farmers has grown from 15 per cent to 20 per cent. Coega Dairy won the 2012 Shoprite Supplier of the Year and the Eastern Cape Upcoming Supplier Awards. The committee welcomed the Coega Dairy initiative.
5.4. Agni Steels SA
Agni Steels has constructed a state-of-the-art steel manufacturing and smelter facility within the Coega IDZ. It is a joint venture between Agni Steels India and Afro Asia Empowerment Holdings. Agni Steels SA is held by Agni Steels India (80 per cent), the IDC (10 per cent) and the Workers’ Trust (10 per cent). The company started production of mild steel billet from ferrous scrap metal in April 2014. It has employed about 180 people producing an estimate of 10 000 tonnes of mild steel billet a month. Most of their scrap metal comes from Johannesburg and they export their product to mainly Indonesia, Mauritius, Hong Kong and India. However, the company intends to move up the value chain and produce for value-added steel products.
In terms of the workforce, most people employed come from the Eastern Cape. The 88 employees from India are here on a two year contractual basis to transfer skills to the local employees (e.g. smelting, laboratory technicians and electricians).
During the deliberations with the committee, the following key issues were raised:
- Support during establishment: Agni Steels SA claimed that its project has been marred with challenges which fall beyond their control such as:
- The timely provision of basic services to its site, including bulk water, electricity and road infrastructure.
- Delays in the environmental impact assessment and licensing processes due to its complexities.
These challenges have led to the company losing more than R50 million because of the delays in commencing operations and the lack of quality scrap metal supply, even with the scrap metal regulations. Even at present, the company is also continually running into losses and facing challenges in sourcing the required raw material due to ineffective legislation. Furthermore, some of these challenges have limited its ability to proceed to its other planned phases which involve the manufacturing of higher value-added steel products and the associated employment benefits.
- Lack of enforcement of the scrap metal regulations: Agni Steels SA have experienced numerous challenges in terms of the implementation of the scrap metal regulations, as they asserted that the customs officials and the International Trade Administration Commission of South Africa (ITAC) were not enforcing the regulations and allowing the illegal export of scrap metal. It claimed that it was forced to be actively involved in ‘policing’ and reporting these illegal practices, while authorities were not following up on the matters. An example of these illegal practices were the shipping of containers of scrap metal without the necessary documentation or with expired documentation required by the regulations on scrap metal issued by the Minister of Economic Development. It also claimed that some of the biggest scrap metal producers, such as Transnet, failed to implement the price preference system and deliberately sold their scrap at international prices to known exporters rather than to local producers. It suggested that a total ban of the export of scrap metal was necessary.
- Lack of coordination: Lack of coordination between government departments continues to impede the challenges arising from the export of scrap metal from being addressed. Furthermore, Agni Steels SA noted that the resources that ITAC has to police illegal exports were inadequate. They recommended that a task force including the customs division of the South African Revenue Service, the ITAC and the South African Police Service should be established to deal with the illegal export of scrap metal.
- Support for skills development: Agni Steels SA informed the committee that it had requested assistance from the CDC, the DTI, the Departments of Labour and of Home Affairs for airfare tickets for Agni Steels SA to fly local employees to India for on-the-job training but assistance was denied in all cases. In this regard, Agni Steels has opted to employ 88 experts from India to work in the country on a two-year contractual basis to transfer skills to the local employees.
- Facilities for expatriates: Agni Steels SA raised concerns that the CDC had not provided sufficient accommodation for expatriates within the Coega Village, which negatively impacted on the company’s expenses during its establishment and initial operational phases. The Coega Village had been revamped into a bed and breakfast and therefore additional accommodation for Agni Steels SA’s expatriates was limited or priced significantly higher than the accommodation that had been initially agreed to. The CDC countered that due to delays in establishing new companies within the IDZ, it had been running at a loss and used a portion of the Village as bed and breakfast accommodation. This income partially assisted in covering operational losses. Furthermore, they purported that they had honoured the agreement with Agni Steels SA, which had subsequently increased the number of expatriates.
5.5. DEDISA Peaking Power Plant
The DEDISA Peaking Power Plant is a privately-owned Open Cycle Gas Turbine, which is currently under construction within the Coega IDZ. The electricity produced at the 335 MW plant will feed into the national grid during peak times of the day. This should contribute to alleviating some of the pressure on Eskom. It is expected to become operational in September 2015. The main risk to the operation is continuous access to a reliable gas source and to the national electricity grid.
The committee welcomes these types of developments as it will contribute to the continuous development and sustainability of the manufacturing sector.
6. Aspen Pharmacare facilities in Port Elizabeth
The Industrial Policy Action Plan (IPAP) has identified the pharmaceutical sector as a key contributor to South Africa’s developmental objectives. It highlights the need for collaboration among the private and public sector to achieve the objectives of IPAP. Aspen Pharmacare is an example of such a relationship. It is an international company that manufactures generic pharmaceutical products and infant milk formula in South Africa for the domestic and export markets.
The committee had the opportunity to be orientated and taken on a factory tour before it had introductory remarks by Mr S Saad via video conference as well as a presentation on the implementation of the IPAP and its strategic industrial project by Mr S Nicolaou.
During the deliberations with the committee, the following key issues were raised:
- Promotion of local procurement: According to Aspen, the designation of the pharmaceutical industry has not been effective. Local procurement is not being effectively leveraged to promote local manufacturing of pharmaceuticals and only a few local companies benefit from government tenders. The Department of Health appears to fail to understand the net benefit of purchasing from local companies even when there is a slightly higher price differential.
- Implementation of National Industrial Participation Programme (NIPP): Aspen raised a concern whether the NIPP commitments emanating from tenders were being implemented, especially by multinationals and/or foreign-owned companies in the industry. Failure to ensure this places local companies on an uneven playing field with foreign competitors.
- Government support through flexible incentives: Incentives granted by the government were considered too rigid in its application and did not allow for sector-specific nuances. In particular, Aspen noted the tax incentives on capital expenditure (namely the section 12i incentive). A more flexible incentive regime would be welcomed, as well as the consideration to broaden the special economic zones policy to include companies in strategic industries that are located outside of the SEZs (sector development zone or Export Oriented Units (EOU)). However, the CDC countered this proposal as case studies of single site SEZs have not proved that these are successful, as they may lose economies of scale or possible synergies created by the cluster model and logistics savings such as transport cost. It could also entrench monopolies and reduce competitiveness in the domestic market.
- Government support through the imposition of import duties: Aspen was of the view that the industry receives limited support from government compared to its competitors in India and other developing countries. Part of the support it seeks includes the use of its bound tariff rates on imports. South Africa may apply a tariff rate up to 20 per cent but tends to apply an average of 0.3 per cent of the value of pharmaceutical products; whereas South African exports attract much higher tariff rates in competitor markets. Furthermore, Aspen requested that government rationalise the import duty on milk solids used to produce infant milk formula versus the import duty on imported formula.
7. Saldanha Bay Industrial Development Zone
The Saldanha Bay IDZ (SBIDZ) was designated on 31 October 2013 and is currently in its development phase. It is being operated by the Saldanha Bay Industrial Development Zone Licensing Company (Pty) Ltd (SBIDZ LICO). This IDZ has been designated as an oil and gas, marine repair, engineering, and logistics services complex. The IDZ is located on approximately 330 hectares of land which spans IDC (164 hectares) and Transnet National Ports Authority (TNPA) (166 hectares) owned land. The intention is to create a single, continuous customs controlled area, which will have direct access to the port.
The SBIDZ LICO briefed the committee on its governance and reporting structures, its mandate, the joint vision for the Port of Saldanha Bay, local community platforms in support of the SBIDZ’s development, the expected value to be derived from the IDZ and its infrastructure programme.
During deliberations with the committee, the following key issues were raised:
- Structuring of finances: The Saldanha Bay Industrial Development Zone Licensing Company (SBIDZ LICO) obtains operational funding from the Western Cape Government, infrastructure funding from the DTI via the SEZ Fund. No financial assistance is received from the local Saldanha Bay Municipality, with the municipality providing capacity and support for the IDZ’s programmes and initiatives, in relation to its authority. Operational expenditure is estimated at about R30 million per annum until the 2016/17 financial year. The SBIDZ LICO has received funding towards skills development from the SEZ Fund, and the SBIDZ LICO will seek similar funding support for skills development programmes to enable it to proactively prepare the community for the opportunities from the IDZ.
- Securing TNPA land and infrastructure: The agreement for the use of the land belonging to the TNPA has not been concluded as yet, which delayed plans to develop this portion of the IDZ. Furthermore, there is a need for the TNPA to invest in infrastructure to enable rig repairs and maintenance, and gas storage. There had been some resistance as the TNPA’s business model is focused on loading and off-loading cargo, particularly iron ore, and had been using the space designated for rigs for this purpose as well. However, these upgrades will fall under the Operation Phakisa intervention and the SBIDZ LICO is confident that the project will move forward.
- Ensuring that local communities benefit from development: As a result of past experience related to development in Saldanha Bay, which excluded local communities, the SBIDZ LICO has emphasised community consultation and involvement. Consequently, a business forum consisting of local business organisations has been established and joint decisions are made as far as possible.
Upskilling individuals living in and around Saldanha to meet the skills requirement: Although SBIDZ LICO has emphasised its commitment to ensure that local residents directly benefit from job opportunities created by the IDZ, it has raised the concern that the average skills levels of most residents are too low to involve them directly into the type of skills development required by the targeted industries. This has created a challenge in sourcing individuals in and around Saldanha that can be trained with the requisite skills. To manage this challenge, the SBIDZ LICO has embarked on a partnership with the Department of Labour to promote its Job Seekers System, which aims to link job seekers with potential employers or training programmes. To date more than 14 000 local residents have been registered on the system. Furthermore, the SBIDZ LICO also has had to adapt its skills development programme to address the semi-skilled to skilled majority, versus the skilled to highly-skilled minority.
The funding approved from the DTI’s SEZ Fund will begin to address the need for entry level skills programmes, but more funding is required to address a holistic, ambitious skills development programme.
- Local content: The SBIDZ LICO, as a provincial public entity, has adopted the novel approach of focusing on sourcing local content firstly in and around the Saldanha Bay Municipality, next from the District Municipality, then from the Western Cape, and finally from the rest of South Africa. As far as possible construction materials should be procured locally. However, once the IDZ is developed, local content will mainly be due to the labour contribution. The Business Forum is being consulted on the local content protocols. The intention is to include these requirements in future investors’ lease agreements.
One of the key lessons to ensure readiness to implement future special economic zones is that the necessary infrastructure and skills development is delivered simultaneously to avoid delays in the SEZ becoming operational. Furthermore, all affected stakeholders should be consulted during the planning phases to ensure their buy-in and the requisite policy decisions are co-ordinated upfront; so that economic development and job creation can be achieved speedily. Adherence to timelines in relation to establishment of IDZ to ensure that the oil and gas industry can be established promptly
- Environmental impact of red dust from iron ore exports: The committee noted the possible environmental and health impacts caused by the red dust being blown in the Saldanha Bay area while the iron ore awaits being loaded for export. It was particularly concerned that this may affect other industries being developed within the Saldanha Bay IDZ, which may be sensitive to dust and its corrosive effects.
Part C: Concluding Remarks, Acknowledgements and Recommendations
8. Concluding remarks
Based on its deliberations, the committee drew the following conclusions:
8.1 The technical infrastructure regulatory framework may require alignment to enhance the implementation of economic and industrial policy. The credibility of these technical infrastructure institutions in relation to setting standards, developing compulsory specifications, assessing conformity with standards and compulsory specifications, maintaining national measurement standards, and accrediting the competence of various role-players is of critical importance to the economy.
8.2 The promotion of new ideas, designs and innovations and support for bodies involved in this endeavour should be at the forefront in addressing socio-economic challenges. The committee welcomed the initiatives of the Design Institute under the auspices of the South African Bureau of Standards in the promotion of youth and rural entrepreneurs.
8.3 The service delivery performance of the Companies and Intellectual Property Commission (CIPC) in terms of query resolution has not been met and the accessibility of its new website was a concern. Clear communication with regard to its service delivery standards and on updates on changes to its website could improve the public opinion of the CIPC. The committee supports the roll-out of additional walk-in centres with self-service terminals to assist the move towards a paperless electronic system, and to improve turnaround times. The turnaround time to register a company remains a concern for the committee.
8.4 The committee acknowledged the labour challenges within CIPC but awaits the outcome of the Commission for Conciliation, Mediation and Arbitration (CCMA) process. The committee thereafter would engage the CIPC on the matter.
8.5 The committee supports the decision of the CIPC to link up with entities, such as South African Revenue Service and Transnet, in all provinces to create “one-stop shop facilities. It encourages the CIPC to consider the use of Thusong Service Centres and other institutions that are highly accessible to everyone and can also reduce the regulatory and administrative burden on businesses.
8.6 The final National Lotteries Regulations, which reduce the allocation to the art, culture, and the national historical, natural, cultural and architectural heritage category from 28 to 23 per cent, could severely compromise the ability of organisations working within this sector and may have a negative socio-economic outcome.
8.7 The Department should consider reviewing the National Lotteries legislation to place conditions on the funding of administrative functions for applicants from the National Lottery Distribution Trust Fund. The intention of the NLB should not be to fund administrative functions of successful applicants rather the focus should be on the promotion of developmental aspects.
8.8 The committee welcomed the improved performance of the National Consumer Commission (NCC) as it relates to governance matters, security of information and of the premises, and its continued engagement with different stakeholders to promote consumer protection.
8.9 Publication of the contact details of alternate dispute resolution (ADR) agents and consumer protection bodies is critical and should be available on the NCC’s website as this would enhance their accessibility to consumers.
8.10 The current practices of selling repossessed vehicles and houses places all the risk on the consumer as they would still need to cover any shortfalls on the sale, while credit providers have no obligation to ensure that a market-related price is achieved. This results in credit providers having no risk associated with this exercise.
8.11 The National Empowerment Fund should consider lowering the ceiling for its loans, subject to the nature of the business applying, to broaden access to finance by a larger number of applicants.
8.12 The committee welcomes the commitment of the National Regulator for Compulsory Specifications to address the backlogs regarding the issuing of letters of authority through the recently established management system, which is expected to prevent similar backlogs.
- Energy supply constraints remain a major barrier to the manufacturing sector. Government should create an enabling environment to mitigate against the negative impact of the energy constraint.
8.14 Given the commitments to using Industrial Development Zones and Special Economic Zones to drive economic development and decent work, there is a need for increased policy co-ordination between key government departments associated with issuing visas required for certain specialist industrial functions.
8.15 Coega Dairy has developed a model that managed to add value to the produce of local dairy farmers with its state of the art, low carbon footprint technology, which has created hundreds of jobs and successfully competes in the export industry with one of its cheese products.
8.16 The committee acknowledged the need for the establishment of tertiary training institutions in the Saldanha Bay area to meet the demand for skilled apprentices and interns. It has agreed to communicate this to the Portfolio Committee on Higher Education and Training to address.
8.17 The committee recognised the financial constraints in the national budget; however, it also understands the challenges facing a number of entities in fulfilling their mandates. During the Budget Review Recommendation Report process, the Committee shall consider making the necessary resource recommendations over the Medium-Term Expenditure Framework.
The committee would like to thank the entities and their management, for their cooperation and transparency during its oversight visit. Furthermore, the committee thanks the Coega Development Corporation for its willingness to host the committee and coordinate engagements with a number of businesses located in the IDZ. The committee welcomed the engagement with Aspen Pharmacare, which is an example of the positive impact of the coordination between government and the pharmaceutical industry. In addition, the committee would like to thank the Saldanha Bay Licensing Company for informing it about progress made to establish the IDZ.
The committee also wishes to thank its support staff in particular the committee secretaries, Mr A Hermans and Mr N Mkhize, the content advisor, Ms M Sheldon, the researcher, Ms Z Madalane, the committee assistant, Mr D Woodington, and the executive secretary, Ms T Macanda, for their professional support and conscientious commitment and dedication to their work. The Chairperson wishes to thank all Members of the committee for their active participation during the process of engagement and deliberations and their constructive recommendations reflected in this report.
Informed by its deliberations, the committee recommends that the House requests that the Minister of Trade and Industry should:
10.1 Review products, such as generators, in light of the new environmental and economic landscape to assess whether they should be reclassified as national compulsory specifications. This should include a review of safety requirements for critical components in motor vehicles.
10.2 Create decent work opportunities by encouraging technical innovation and design through programmes such as those at the Design Institute under the auspices of the South African Bureau of Standards.
10.3 Continue to insist on a speedy resolution of the staff issues that impacted negatively on the working environment of the Companies and Intellectual Property Commission (CIPC) so as to restore a co-operative, stable and productive entity.
10.4 Ensure that the CIPC develops and establishes adequate capacity to perform its functions in registering companies in all parts of South Africa and this should not be limited to self-service terminals. The emphasis should be on accessible support while retaining security of information.
10.5 Ensure that the National Lotteries Regulations, in respect of the allocation of grants by the distributing agencies for the art, culture, and the national historical, natural, cultural and architectural heritage category, and the sports category, prioritise and promote the development of all our people.
10.6 Consider initiating an investigation into the current procedures and practices by credit providers in the sale of repossessed goods to assess the impact of shortfalls on over-indebted consumers.
10.7 Ensure that the National Empowerment Fund (NEF) prioritises its resources in support of black businesses that use local content, have labour absorptive capacity, are involved in productive activity and/or will lead to other downstream and upstream economic activities. Further that the NEF fulfils its mandate of supporting broad-based black economic empowerment, and champions black industrialists.
10.8 In consultation with the Minister of Finance, pursue the NEF’s motivation to establish a public-private venture capital fund which it would administer to enable further start-up capital to be raised to fund applications for productive projects/activities.
10.9 Encourage other Industrial Development Zones (IDZs) and future Special Economic Zones (SEZs) to consider constructing and commissioning peaking power plants to secure energy requirements to maintain production levels and investments. Dedisa is a very good example of such an initiative.
10.10 Consider the lessons learned from the establishment of Coega Dairy and promote the establishment of similar agro-industries using this model which can impact positively on the lives of people in areas receiving low-economic returns for their produce.
10.11 Consult with the Minister of Economic Development regarding placing a moratorium on the export of all scrap metals. However, if this is not possible, then to give stronger consideration to more robust monitoring and enforcement measures of scrap metal agents.
10.12 Review the pharmaceutical industry’s designation to close loopholes and make local public procurement more effective. If necessary, a premium should be factored in to the procurement process that would promote local manufacturing and the creation and retention of jobs.
10.13 Encourage the fast-tracking of the commissioning of the oil and gas industries within the Saldanha Bay IDZ to encourage more investors.
The Democratic Alliance “dissented’’.
Report to be considered.
Department of Trade and Industry (2014) Consumer and Corporate Regulation Division. Powerpoint presentation for the Portfolio Committee on Trade and Industry. Cape Town, Parliament. 1 August.
Global NCAP (2014) Global NCAP calls for urgent withdrawal of Datsun Go. Available: http://www.globalncap.org/global-ncap-calls-for-urgent-withdrawal-of-datsun-go/.
World Trade Organisation (2015) Consolidated Tariff Schedules Database. Available: http://tariffdata.wto.org/ReportersAndProducts.aspx.
 Competence would refer to both skills, the necessary equipment and infrastructure to perform certain tasks.
 Global NCAP (2014)
 Referee analysis refers to a second analysis on the remainder of a sample to confirm that the results of the original analysis was indeed correct. This is usually done by an independent laboratory and may be necessary in case of a dispute.
 Intermediaries are middle men or agents being used by business to facilitate their applications. These may include formal institutions and informal agents.
 Runners are considered to be informal agents that are perceived to bypass the accepted application processes to fast-track applications through potentially corrupt means using the assistance of CIPC officials.
 The following allocations from the NLDTF are currently legislated: (i) sport and recreation – 22 per cent; (ii) charities – 45 per cent; (iii) art, culture, and the national historical, natural, cultural and architectural heritage – 28 per cent; and (iv) miscellaneous purposes – 5 per cent (DTI 2014).
 World Trade Organisation (2015)
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