ATC191205: Report of the Portfolio Committee on Trade and Industry on the Departments of Trade and Industry and of Economic Development’s Second Quarter Financial and Non-financial Performance for the 2019/20 Financial Year, dated 3 December 2019

Trade and Industry

Report of the Portfolio Committee on Trade and Industry on the Departments of Trade and Industry and of Economic Development’s Second Quarter Financial and Non-financial Performance for the 2019/20 Financial Year, dated 3 December 2019

The Portfolio Committee on Trade and Industry, having assessed the service delivery performance of the Departments of Trade and Industry (DTI) and of Economic Development (EDD), against its mandate and allocated resources, in particular the financial resources for the period 1 July to 30 September 2019, on 12 November 2019, reports as follows:

 

1.     Introduction

The DTI and the EDD play an important role in contributing towards South Africa’s national imperatives of addressing inequality, unemployment and poverty by facilitating an environment that is conducive to inclusive economic growth. The two departments have been operating in an environment of slow economic growth, which has dampened the impact of their initiatives on the economy. However, this reemphasises the need for the departments to deepen their efforts to counteract the slow economic growth trend. Despite this economic environment, the departments have achieved most of their targets and continue to improve in areas where there targets have not been met.

 

1.1.         Mandate of the Committee

Section 5 of the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) requires the National Assembly, through its committees, to annually assess the performance of each national department over an 18 month period. This culminates in a committee submitting a report of this assessment known as a Budget Review and Recommendation (BRR) Report. The overarching purpose of the BRR Report is for the committee to make recommendations on the forward use of resources to address the implementation of policy priorities and services, as the relevant department may require additional, reduced or re-configured resources to achieve these priorities and services. This Act gives effect to Parliament’s constitutional powers to amend the budget in line with the fiscal framework.

 

The current process forms part of ongoing oversight of the DTI’s financial and non-financial performance. This will inform the next BRR process. Furthermore, Parliament’s Annual Performance Plans (APPs) require submission of departments’ quarterly reports.

 

 

1.2.         Purpose of the Report

The purpose of this report is to monitor the financial and non-financial performance of the DTI and the EDD against their predetermined objectives and quarterly milestones as part of the Committee’s ongoing oversight. This report assesses the non-financial performance for the second quarter of the 2019/20 financial year, namely from 1 July to 30 September 2019; and financial performance up to the second quarter of the 2019/20 financial year, namely from 1 April to 30 September 2019.

 

1.3.         Method

The Committee was briefed by the DTI and the EDD on their second quarter performance reports for the 2019/20 financial year on 12 November 2019.

 

1.4.         Outline of the contents of the Report

Section 1 of the report provides an introduction to the report including its purpose, and method. Section 2 outlines the EDD’s strategic objectives, assess its financial and non-financial performance against its APP for the 2019/20 financial year from 1 April to 30 September 2019 and outlines the key issues raised by the Committee during deliberations.  Section 3 outlines the DTI’s strategic objectives, assess its financial and non-financial performance against its APP for the 2019/20 financial year from 1 April to 30 September 2019 and outlines the key issues raised by the Committee during deliberations. Section 4 provides the Committee’s concluding remarks followed by a note of appreciation in Section 5. The report then closes with the Committee’s recommendations for the National Assembly’s approval in Section 6.

 

 

2.     ECONOMIC DEVELOPMENT DEPARTMENT

 

2.1.         Strategic Objectives

The EDD’s strategic objectives are as follows[1]:

·         Promoting productive investment, industrial financing and entrepreneurship for jobs and inclusive growth;

·         Co-ordinating jobs drivers and the implementation of the New Growth Path economic strategy in support of the National Development Plan;

·         Facilitating social dialogue and the implementation of social accords;

·         Coordinating infrastructure development and strengthening its positive impact on the economy and citizens; and

·         Ensuring good governance in the administration of the Department.

 

2.2.         Overview and assessment of the financial and non-financial performance for the period 1 April to 30 September 2019

This section provides a comparison between the EDD’s second quarter milestones outlined in its APP against its second quarter report for the 2019/20 financial year, namely its non-financial performance, and outlines its financial performance. Lastly, it highlights the key issues related to the EDD’s performance raised during the Committee’s deliberations.

 

2.2.1.     Non-Financial Performance[2]

The EDD had 16 annual key performance indicators (KPIs) for the 2019/20 financial year, of which 15 had targets for the second quarter, that was expected to result in 43 products being delivered. While the EDD had delivered 46 products, three of the KPIs had not been achieved. The three KPIs that had not been achieved were:

·         KPI 5: The targeted report on black women and youth with access to employment and entrepreneurship opportunities had not been submitted.

·         KPI 6: The targeted report on support provided to provinces had not been submitted.

·         KPI 11: The targeted report on coordination actions to drive implementation of Strategic Integrated Project 5 of the National Infrastructure Plan had not been submitted.

 

However, it is expected that these would be delivered during the third quarter.

 

2.2.2.     Financial Performance[3]

The EDD’s budget for the 2019/20 financial year is R1,1 billion. In the second quarter of the 2019/20 financial year, the EDD had spent R549,8 million or 52,6% of the annual budget. The largest proportion (87,7%) was spent on transfers and subsidies; while 7,7% was spent on compensation of employees and 4,5% on goods and services.

 

In terms of programmes, the Investment, Competition and Trade Programme spent the largest amount (R482,1 million or 87,8% of the second quarter expenditure). This is mainly due to it managing the transfers to the Competition Commission and the Competition Tribunal, the International Trade Administration Commission of South Africa (ITAC) and the Industrial Development Corporation (IDC), as well as the Small Enterprise Finance Agency, a subsidiary of the IDC.

 

The table below shows the EDD’s expenditure for the second quarter by programme.

 

Table 1: Financial Performance by Programme as at 30 September 2019

Programme

(Rands)

2019/20 Budget

Year-to-date Expenditure

% Budget available

Administration

90 334

46 081

51,01%

Growth Path and Social Dialogue

37 009

15 897

42,95%

Investment, Competition and Trade including Transfers and Subsidies

918 050

482 102

52,51%

Total

1 045 393

549 802

52,05%

Source: EDD (2019b)

 

2.3.         Issues raised during the deliberations

The following concerns were raised related to the performance of the EDD during the Committee’s deliberations:

·         Expenditure for legal services: The Committee noted the sharp increase in the expenditure for legal services. The Committee enquired that the EDD provides the reasons for this sharp increase and whether there is any link to a specific service provider. The EDD reported that the increase in legal fees was due to the following: (i) the increase in a number of mergers which the EDD had participated in due to public interest; (ii) the implementation of the Competition Amendment Act including the drafting of the regulations; and (iii) the forensic investigation with respect to the Competition Commission as requested by National Treasury.

 

·         Continued contraction on economic growth: The Committee noted with concern the contraction in economic growth in the 2nd quarter of 2019/20 financial year particularly in relation to the agricultural, construction and transport sectors. This was particularly concerning given these sectors’ more labour-intensive nature and the impact on the unemployment rate. The Committee requested the EDD to provide an analysis for this contraction and whether it is considering measures to support and revitalise these sectors.

 

The EDD provided the table below that illustrates the annual real growth rate by industry over the last five years. The table assists in distinguishing shorter-term volatilities from longer term trends. Whilst the performance of transport has tracked the Gross Domestic Product (GDP) over time, agriculture and construction have lagged the weakening GDP growth.

 

Table 2: Annual Average Growth in Real GDP by Industry over the last five years (%)

 Industry

Qtr 2 2019

Past 12 months

Past 2 years

Past 5 years

Agriculture, forestry and fishing

-4,2

-0,6

-2,7

-1,5

Mining and quarrying

14,4

-2,7

-0,9

0,4

Manufacturing

2,1

1,1

0,8

0,4

Electricity, gas and water

3,2

-0,9

-0,5

-0,7

Construction

-1,6

-1,5

-1,3

0,1

Trade, catering and accommodation

3,9

0,7

0,6

0,9

Transport, storage and communication

-0,3

2,3

1,2

1,3

Finance, real estate and business services

4,1

2,5

2,0

2,1

General government services

3,4

1,8

1,7

0,9

Personal services

0,8

1,1

1,0

1,2

GDP

3,1

1,0

0,8

1,0

 

The performance of the agricultural sector has been impacted by drought in recent years and the real value of the agricultural sector has remained vulnerable. The stagnation in agricultural value-add was also reflected in agricultural jobs created. The sector had fewer jobs towards the end of 2019 than at the beginning of 2015. The agricultural sector has also had lower rates of capital spend, signifying deindustrialization since the mid 1980s. A dynamic agricultural sector, and a larger agro-processing sector, would only be realised by increasing capital spend and ensuring broader agricultural participation. Furthermore, it was also important to identify and nurture new agricultural exports in order to enhance agricultural dynamism and diversification. For example, South African macadamia nuts exports have increased from nothing to about R300 million in 2012 and R1,6 billion in 2018, with Hong Kong, Vietnam and mainland China being the main markets.

 

In the case of construction, the weaker growth and contraction had been partly driven by the moderation in public infrastructure spend in the face of weak fiscal circumstances combined with fairly weak private sector construction spend. For example, investment in economic infrastructure by the public corporations had decreased quite significantly from 2015 onward. In 2018, about R20 billion less was spent in this area than in 2015. As a result, construction jobs have also stagnated. Construction jobs had been growing fast from 2013 to 2016 partly due to the public infrastructure drive. However, total construction jobs in 2019 were at a similar level to that of 2016, namely, there had been little, if any, net job creation. A key element of industrial growth in the case of construction would be regaining confidence over the medium-term coupled with policy certainty, clear communication from government, and effective partnerships.

 

Although general industrial support would be available to all sectors, South Africa has identified seven national priority sectors in the re-imagined industrial strategy, namely: (i) Industrial sectors; (ii) Agriculture and agro-processing; (iii) Mining; (iv) Tourism; (v) High technology/Knowledge economies; (vi) the Creative sector; and (vii) the Oceans economy. In all these endeavours, the EDD has indicated that it is committed to a collaborative approach based on Masterplans for each priority sector. Its interventions have far more impact where industry and other stakeholders are involved from an early stage, as has been seen in sectors like automotives, tourism, business process outsourcing, and clothing and textiles. To date, some important lessons have been learnt about what works well and would be deployed throughout the Masterplans, namely ensuring policy predictability, using incentives smartly, employing multiple levers, scaling up programmes, and using collaborative approaches with industry and other stakeholders.

 

·         Participation in and awareness of the Temporary Employer/Employee Relief Scheme (TERS): The Committee noted that, with respect to the TERS, only certain provinces have applied to participate. The Committee enquired whether the EDD had embarked on an awareness campaign to educate provinces on the benefits of the scheme. If it had not, has the failure to do so contributed to the low uptake. The EDD explained that it had communicated with provincial departments in the current financial year to refer companies facing retrenchments to TERS and was working on engaging the Commission for Conciliation, Mediation and Arbitration to share with provinces the list of companies that have issued retrenchment notices so that they could be introduced to the TERS. The EDD, through the National Economic Development and Labour Council (NEDLAC) process, was working with organised labour and the private sector to inform their respective members to utilise the TERS as a first port of call or an alternative to retrenchments. The TERS was also monitored through the NEDLAC’s Joint Technical Committee, as one of the Jobs Summit commitments which reported monthly to the Presidential Coordinating Committee chaired by the President. The EDD would continue to engage provinces on the availability of the scheme.

 

·         Illicit trade: The Committee welcomed the work done by the Inter-Agency Work Group on Illicit Trade. Notwithstanding this, the Committee enquired what measures were being considered to address illicit trade. The EDD explained that the Inter-Agency Working Group on Illicit Trade included the South African Revenue Services (SARS), the DTI, the EDD, the National Treasury, the ITAC and the Companies and Intellectual Property Commission (CIPC). The Working Group aimed to implement a ‘whole-of-government’ approach towards the eradication of illicit trade by focusing on better coordination between the different efforts being implemented in government, including the training of officials to identify various products inland and at the ports of entry. Other activities of the Group include:

o      Coordination of high-profile raids at hotspots where illicit trade activity occurs;

o      Modernisation of the customs machinery within SARS;

o      Interaction with the National Joint Operational and Intelligence Structure, as well as bodies such as the South African Diamond and Precious Metals Regulator, labour and business structures, on information sharing, policy-making recommendations as well as implementation support;

o      Building regional and international partnerships.

 

Furthermore, the DTI, the EDD, the ITAC and the National Treasury were working towards the introduction of an export tax on scrap metal, which had been announced by the Minister of Finance during his 2019 Budget Speech.

 

·         Best practices to support small farmer development: The Committee noted the significant decline within the agricultural sector. It enquired whether the EDD had considered certain best practices for small farmer development in the Eastern Cape using partnership/mentorship arrangements with more experienced farmers. The EDD noted that the Department of Agriculture, Land Reform and Rural Development leads agricultural development. However, the EDD had had some experience with small farmer development from two large mergers where the support and development of emerging farmers were key commitments agreed to by the post-merger company.

 

·         Implementation of the funds administered by the IDC: The Committee requested the EDD to provide further detail on the Agro-processing Competitive and Downstream Steel Industry Competitiveness Funds in terms of how the Funds are implemented, the beneficiaries, and its impact on the respective sectors. The EDD explained that, in July 2012, government had made R250 million available to the IDC to manage the Agro-Processing Competitiveness Fund (APCF) at a zero interest rate. This had to be extended as loan funding to support non-dominant players in the agro-processing sector, with a view to increasing their competition, growth, job creation and the development of the agro-processing sector. Between 1 April 2011 to 31 March 2018, R292,8 million had been approved for 42 projects and had created 2 849 jobs. The IDC had co-invested R260,6 million and the average size per investment had been R6,97 million. The original fund had all been allocated to projects and repayments continued to flow into the IDC, which at the end of March 2019 had been estimated at R143 million.

 

In August 2019, Mr E Patel, Minister of Trade and Industry, had directed the IDC to only use the APCF for projects that would otherwise not meet the criteria of the available suite of IDC funding. The revised parameters of the funds were as follows: (i) the maximum investment size should be reduced from R50 million to R15 million; (ii) pricing per investee should be revised from 0% per annum to a fixed rate of 5% per annum for debt and 2% Real After Tax Internal Rate of Return per annum for quasi equity; (iii) only enterprises that create new jobs would be considered; (iv) funding would be made available to enterprises that would not have otherwise obtained normal IDC funding; and (v) Ministerial Directives may be issued on specific agro-processed or markets, which would be prioritised. When reporting on the use of the funds, the IDC had to show the additionality of the fund as it related to the expansion of industrial output and job creation.

 

In terms of Downstream Steel Industry Competitiveness Fund (DSICF), in June 2017, the IDC and EDD entered into an agreement to manage the DSICF capitalised at R95 million to be made available over three years. The objective of the Fund was to provide an interest subsidy to qualifying companies in the downstream steel industry. The interest discount was to be provided at 2% for small companies with a turnover of less than R123,5 million and 1,5% for large companies with turnover above R123,5 million, below IDC risk pricing. At the end of October 2019, a total of 17 investments have been approved since the inception of the Fund totalling R432 million of which R208,7 million has been disbursed. The total indicative interest subsidy for the transactions was approximately R19 million.

 

 

3.     DEPARTMENT OF TRADE AND INDUSTRY

 

3.1.         Strategic Goals

The DTI’s performance is in line with its strategic objectives, which guide its work and is aligned to its programmes. The strategic goals are as follows[4]:

·         Facilitating transformation of the economy to promote industrial development, investment, competitiveness and employment creation.

·         Building mutually beneficial regional and global relations to advance South Africa’s trade, industrial policy and economic development objectives.

·         Facilitating broad-based economic participation through targeted interventions to achieve more inclusive growth.

·         Creating a fair regulatory environment that enables investment, trade and enterprise development in an equitable and socially responsible manner.

·         Promoting a professional, ethical, dynamic, competitive and customer-focused working environment that ensures effective and efficient service delivery.

 

3.2.         Overview and assessment of the financial and non-financial performance for the period 1 April to 30 September 2019

 

This section provides a comparison between the DTI’s second quarter milestones outlined in its APP against its second quarter report for the 2019/20 financial year, namely its non-financial performance, and outlines its financial performance. Lastly, it highlights the key issues related to the DTI’s performance raised during the Committee’s deliberations.

 

3.2.1.     Non-Financial Performance[5]

For the 2019/20 financial year, the DTI had 24 annual performance targets according to its APP. Of the 23 quarterly targets that the DTI reported on, 18 targets were achieved. In addition, one of the annual targets that did not have a second quarter milestone had been exceeded by the end of September 2019. The additional achievement had been for the number of special economic zones (SEZs) submitted to the Minister for designation. The DTI reported that SEZ Expansion Applications had been approved by the SEZ Advisory Board and were both on a 30 day Public Comment process. This translates to an achievement of 78,3% of its targets.

 

The five targets that were not met were:

·         One quarterly implementation report on the Industrial Policy Action Plan should have been prepared for the Minister’s Review Meetings but had not been prepared. This was due to the Re-imagined Industrial Strategy having been approved by the Cabinet Lekgotla in June 2019, which emphasised the development of Sector Development Plans (Masterplans). The DTI is in the process of engaging industry to develop Masterplans for the Clothing, Textile, Leather and Footwear; Steel and Metal Fabrication; Poultry; and Sugar Industries. Thus, this performance indicator would be amended.

·         One designation requests should have been prepared for the Minister. This had not been achieved. However, a designation request was expected to be submitted in the third quarter. The DTI reported that research had been conducted on three designations and one was under review.

·         163 enterprises or projects had been approved for financial support across all incentives against a target of 250. Fewer applications had been received than expected; hence, fewer applications ad been approved. The DTI had reported that it would increase its incentive specific consultations to encourage enterprises to apply for financial support and ensure compliance with guidelines.

·         Export sales to the value of R1,014 billion had been generated against a target of R2,1 billion. The DTI’s traditional events that have high returns on investment had recorded relatively low export sales. Furthermore, no sales had been recorded for the Midest Show, as it is an international show for sub-contractors. The DTI would engage in a more aggressive and targeted recruitment of companies for the remainder of the year.

·         Due to the downturn in the economy, only R7,8 billion of investment projects had been facilitated against a target of R10 billion of investment projects in the pipeline.

 

3.2.2.     Financial Performance[6]

The DTI’s budget for the 2019/20 financial year is R10,1 billion. In the second quarter of the 2019/20 financial year, the DTI had projected spending of R4,44 billion; however, the DTI had spent R4,36 billion or 98% of the year to date budget. By the end of the second quarter, 56,7% of the total annual budget was available. The largest proportion of the budget (82,3%) was spent on incentive payments and other transfers; while 10,9% was spent on compensation of employees and 6,9% on goods and services.

 

In terms of programmes, the Industrial Development Programme spent the largest amount (R1,68 billion or 38,6% of the second quarter expenditure), followed by the Incentive Development and Administration Programme (R1,63 billion or 36,1% of the second quarter expenditure). Most programmes had spent within their projected budgets. However, the Special Economic Zones and Economic Transformation, and the Investment South Africa Programmes had overspent by 33,2% and 11,1% respectively.

 

The table below shows the DTI’s expenditure for the second quarter by programme.

 

Table 3: Financial Performance by Programme as at 30 September 2019

Programme

(R’000)

Adjusted Budget 2019/20

Year-to-date

% Budget available

Cash flow projections

 Expenditure

% Variance

Administration

803 545

401 280

370 385

7,70%

53,91%

International Trade and Economic Development

130 442

51 716

53 658

-3,76%

58,86%

Special Economic Zones and Economic Transformation

171 444

57 197

76 159

-33,15%

55,58%

Industrial Development

2 100 814

1 688 038

1 683 527

0,27%

19,86%

Consumer and Corporate Regulation

328 305

282 430

276 749

2,01%

15,70%

Incentive Development Administration

6 026 061

1 625 564

1 574 066

3,17%

73,88%

Trade and Investment South Africa

440 391

313 583

295 915

5,63%

32,81%

Investment South Africa

58 025

24 153

26 837

-11,11%

53,75%

Total

10 059 027

4 443 961

4 357 296

1,95%

56,68%

Source: DTI (2019b)

 

The over-spending under the Special Economic Zones and Economic Transformation Programme was due to the third quarter projected expenditure being brought forward to the second quarter to support the Broad-based Black Economic Empowerment (B-BBEE) Commission and the National Productivity Institute. In addition, the over-spending by the Investment South Africa budget was due to a greater emphasis on contributing towards the Presidential investment drive. Although the recorded expenditure for the two Programmes is more than the year to date projections, this spending is still within the allocated budget.

 

3.3.         Issues raised during the deliberations

The following concerns were raised related to the performance of the DTI during the Committee’s deliberations:

·         Mitigation of the impact of ArcelorMittal South Africa’s (AMSA) Saldanha plant closure:  The announcement by AMSA of its intention to “wind down operations in Saldanha” is of major concern to the Committee. The impact of the closure of the Saldanha plant and the job losses associated with this would have severe impact on South Africa’s industrialisation drive. The Saldanha Bay plant has been in decline for some time, notwithstanding support provided by government, state-owned enterprises and organised labour. The Committee enquired whether the DTI was considering any other measures that would avert such a move given the potential negative impact on jobs and the deepening of industrialisation. The DTI informed the Committee that AMSA’s unfortunate announcement comes despite significant efforts by Government and public agencies, which agreed to provide additional support to AMSA with a view to prevent jobs losses across the company and the continued operation of Saldanha Steel.  In addition, Government over the past few years supported AMSA with extensive trade support including safeguard duties and the designation of steel for state infrastructure projects which through reduced imports directly benefitted AMSA. Furthermore, the DTI informed the Committee that, together with the Department of Public Enterprises, Eskom and Transnet, it recently engaged with AMSA management on additional support which could be provided by Eskom and Transnet to reduce energy and logistics costs for the company and at Saldanha, in particular.

 

The DTI recognised that the closure of Saldanha Works and retrenchment of workers at AMSA is a harsh blow to industrialisation in the country.  This is particularly regrettable given the energy and efforts put in by all role players in providing support and savings to AMSA. They have informed the Committee that they have urged AMSA to continue to work with National Government and other social partners to reverse this decision and find solutions which can keep the Saldanha Works in operation and workers employed.  The DTI informed the Committee that Government has received an indication that there are potential companies that have expressed an interest in buying Saldanha Steel works and if no solution is found to continue operating, AMSA is urged to consider selling the plant to ensure the country does not lose the industrial capacity and jobs.

 

·         Support offered through the incentive programmes: The Committee noted with concern the DTI’s assertion that incentive payments usually increase during the third and fourth quarters and hoped that this was not attributable to the practice of fiscal dumping. The Committee would like to enquire what the reasons for the sharp uptake or distribution of incentive payments in third and fourth quarters were. Furthermore, the Committee would like to request that the DTI submits a list of investments that are in the pipeline and on the support they provide business through the incentive programme. The DTI informed the Committee that incentives were designed to support investment projects in strategic manufacturing sectors as well as in infrastructure development, agriculture and services sectors; supporting the retention and creation of jobs. This support would be provided as reimbursable cash grants or as cost-sharing to support these investments. Companies would submit claims after they have invested and meet claims mandatory requirements which results in more claims received in quarter three and four of the financial year. The DTI also indicated that the list of investments were contained within the Industrial Financing Division’s Annual Incentive Report 2018/19, which had been tabled in Parliament on 5 November 2019.

 

·       Progress in reducing red tape: The Ease-of-Doing-Business remained a major stumbling block for foreign direct investment. The Committee was of the view that excessive red tape contributed to undermining the country’s attractiveness to business and investors. As this matter had been raised with the Department on numerous occasions, the Committee would like to request an update on measures considered to address this, as well as indicating which department/agency/entity appeared to be impeding these processes. The DTI informed the Committee that Invest South Africa had signed a partnership agreement with the World Bank on a comprehensive investment climate reform program over the next three years. These include improving South Africa’s Ease of Doing Business Indicators in line with the President’s announcement of being in the Top 50 within the next 2-3 years. In addition, five Technical Working Groups have been established: Starting a Business, Registering a Property, Dealing Construction Permits, Trading Across Borders and Paying Taxes. Furthermore, the DTI informed the Committee that key progress had been in Starting a Business in launching an online Bizportal on 2 November 2019 where domestic companies can get (i) company registrations; (ii) domain names; (iii) B-BBEE registration; (iv) SARS registrations; and (v) Unemployment Insurance Fund (UIF) and Compensation Fund registrations. The system is live and operational but is in a pilot phase. Most registrations are completed in a day for domestic firms; however, the CIPC was still working with the Department of Employment and Labour to address the bugs related to the UIF and Compensation Fund registrations and to enhance their back office delivery to reduce its turnaround time.

 

·         Trade deficit with Brazil, Russia, India, and China (BRIC): While South Africa’s trade deficit with BRIC countries has been narrowing, the Committee remained concerned with the extent of the deficit. The Committee enquired whether any measures were being considered to further reduce the trade deficit with the BRIC countries. According to DTI, expanding trade and investment among the BRICS[7], and narrowing South Africa's trade deficit with the group, is the aim of a number of measures. These include, but were not limited to:

o     Utilising the BRICS as a platform to address export barriers faced by South African exporters entering the BRIC markets.

o     The launch of BRICS-supported efforts to combat under-invoicing and other instances of trade mispricing, to assure effective border enforcement of import controls.

o     The development of mechanisms for cooperation on export promotion initiatives, including the recent signature of a memorandum of understanding among BRICS Trade and Investment Promotion Agencies.

o     Regular trade promotion initiatives in the BRIC countries supported by the Export Marketing and Investment Assistance incentive, including 25 National Pavilions and 19 outward selling missions to the BRIC countries over the past five years (includes events in Hong Kong and planned activities for later in the financial year).

o     The creation of business-led export strategies for individual BRIC countries, led by the BRICS Business Council with support from the DTI.

 

·         Products supported through the Global Exporter Passport Programme (GEPP): The Committee enquired whether the DTI could provide a breakdown on the types of products being exported by companies that benefitted from the GEPP. The DTI informed the Committee that GEPP training is for emerging exporters who have not exported yet but have demonstrated an interest in doing so in future.  During the second quarter of the 2019/20 financial year a total of 416 company representatives participated in the various phases of the programme. 

 

The following was a synopsis of the sectors that the 416 participants represent:

 

Table 4: Sectors that have been supported through the GEPP

Sector

Number

Multi Sectoral

133

Agro Processing

78

Consulting: Freight Forwarding, Custom Clearing, Trading Agents

58

Creative Industries: Arts & Crafts, music, film and TV

41

Clothing, Textile, Leather and Footwear

29

Cosmetics, Pharmaceuticals, Plastics and Chemicals

19

Electro-Technical/ ICT Services

12

Mineral Beneficiation

10

Automotive Components

10

Construction

7

Renewable Energy

6

Oil and Gas

6

Forestry, Timber, Paper, Pulp and Furniture

5

Capital Equipment

2

TOTAL

416

 

·         Budget of the Industrial Development Division (IDD): The Committee requested that the DTI provide a breakdown of how the budget for the IDD is spent. The DTI informed the Committee that as at 30 September 2019, the IDD’s expenditure was R1,7 billion of the allocated budget of R2,1 billion. This was split as follows:  

o    Transfers to the Standardisation, Quality Assurance, Accreditation and Metrology Institutions (i.e. NRCS, SANAS, SABS and NMISA) was R836,6 million.

o    Transfer to the Clothing and Textile Programme was R617 million.

o    Other transfers were R170 million.

o    Operational costs, which consists of compensation of employees, and goods and services were R59,9 million.

 

·         Township and rural economies masterplan: The Committee welcomed the approach to develop sectoral Masterplans as part of the re-imagined industrial strategy to facilitate the transformation of the economy.  However, the Committee noted that a Masterplan to resuscitate the township and rural economies is not being considered at this stage. The Committee would like to enquire whether the Department is considering developing such a Masterplan that would facilitate the development of the township and rural economies. The DTI clarified that the Department of Small Business Development would be responsible for such a Masterplan.

 

·         Access to business visas and work permits: The Committee remained concerned about the administrative burden for foreign investors to apply for business visas and work permits in South Africa. It enquired what the DTI was doing to address this challenge faced by international investors. The DTI informed the Committee that an Inter-Departmental Committee had been set up between the DTI and the EDD, the Department of Home Affairs and the Department of Employment and Labour at a Deputy Director-General level to look at policies impeding the immigration regime and to fast track and/or unblock permits and visas. The Committee will meet on a monthly basis or as required and will also include the Department of Higher Education and Training, who are working on the critical skills visas list.

 

 

4.     Conclusions

Based on its deliberations, the Committee drew the following conclusions:

 

4.1       The Committee raised concerns with the continued contraction of economy, in particular the manufacturing and agricultural sectors, as these have the potential to contribute to job creation and poverty reduction.

 

4.2       Furthermore, the announcement by ArcelorMittal South Africa about the intention to close their Saldanha plant is unfortunate given the foreseen impact on job losses and industrialisation generally. The Committee acknowledged the historic efforts made by government and public entities to support ArcelorMittal South Africa and continued efforts to mitigate the impact of the foreseen closure of the Saldanha plant. In addition, the Committee was of the view that the broader steel industry was under pressure and the Steel and Metal Fabrication Masterplan should be fast-tracked.

 

4.3       The Committee welcomed the progress in developing sector-specific Masterplans, as well as the collaborative approach being utilised to develop these. Furthermore, it requested that the Department of Trade and Industry provides a progress report on these processes.

 

4.4       The Committee was of the view that it was essential to develop township and rural economies as part of facilitating inclusive economic growth and to effectively contribute to efforts to address inequality, unemployment and poverty. Therefore, it is necessary to also focus on a broader Masterplan that considers township and rural economic development.

 

4.5       The Committee acknowledged the Minister’s intervention in the Agro-processing Competitiveness Fund that could improve access to funds by more beneficiaries in a more targeted manner and lead to greater job creation opportunities in the agricultural sector.

 

4.6       The Committee noted the progress made with the five Technical Working Groups addressing the ease-of-doing business, in particular progress in terms of starting a business. In addition, it acknowledged the establishment of the Inter-Departmental Committee addressing policies impeding the immigration regime. However, the Committee remained of the view that the process should be fast-tracked, particularly in relation to business visas and work permits for investors, and the finalisation of the critical skills visas list.

 

4.7       The Committee welcomed the narrowing of the trade deficit with Brazil, Russia, India and China (BRIC) through trade and investment promotion and facilitation initiatives using the BRICS[8] platform.

 

4.8       The Committee was concerned about the high salaries and bonuses being paid to executives and board members of the Departments of Trade and Industry and of Economic Development’s public entities, as these were in excess of the Public Service Commission’s guidelines given the current fiscal constraints.

 

 

5.     Appreciation

The Committee would like to thank the the Director-General of the Department of Trade and Industry, Mr L October, and the Acting Director-General of the Economic Development Department, Dr M Tom, as well as their team, for their cooperation and transparency during this process. The Committee also wishes to thank its support staff, in particular the committee secretaries, Mr A Hermans and Mr T Madima, the content advisor, Ms M Sheldon, the researcher, Ms Z Madalane, the committee assistant, Ms Y Manakaza, 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.

 

6.     Recommendations

Informed by its deliberations, the Committee recommends that the House requests that the Minister of Trade and Industry should consider:

6.1       Engaging the Minister of Small Business Development to develop a Masterplan to revitalise township and rural economies within two months of the adoption of the report.

6.2       Reviewing the salaries and boards being offered to Executives and board members of the public entities reporting to him and to submit a report on the findings within two months of the adoption of the report.

6.3       Fast-tracking the Masterplan for the Steel and Metal Fabrication Sector that would facilitate increased participation from the downstream steel sector and table a progress report within two months of the adoption of the report.

6.4       Adjusting and channelling unused funds from programmes under the Industrial Development Division to other incentives that require additional funding, in particular the Manufacturing Competitiveness Enhancement Programme and the Downstream Steel Competitiveness Fund.

 6.5      Submitting a report relating to the Department of Trade and Industry's progress in finalising the outstanding disciplinary cases within a month of the adoption of the report.

6.6       Submitting the legislative programme for the next financial year within a month of the adoption of the report.

 

Report to be considered.

 

 

References

 

Department of Trade and Industry (2019a) Annual Performance Plan 2019/20.

 

Department of Trade and Industry (2019b) the dti’s Second Quarter Report 2019-2020. Presentation to the Portfolio Committee on Trade and Industry. Cape Town: Parliament, 12 November.

 

Economic Development Department (2019a) Annual Performance Plan 2019/20.

 

Economic Development Department (2019b) EDD Presentation on the 2nd Quarter 2019/20. Presentation to the Portfolio Committee on Trade and Industry. Cape Town: Parliament, 12 November.

 

 


[1] EDD (2019a)

[2] EDD (2019b)

[3] Ibid

[4] DTI (2019a)

[5] DTI (2019b)

[6] Ibid

[7] BRIC countries plus South Africa

[8] BRIC countries plus South Africa.

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