ATC200625: Report of the Portfolio Committee on Trade and Industry on the Departments of Trade and Industry and of Economic Development’s Fourth Quarter Financial and Non-financial Performance for the 2019/20 Financial Year, dated 24 June 2020

Trade, Industry and Competition

Report of the Portfolio Committee on Trade and Industry on the Departments of Trade and Industry and of Economic Development’s Fourth Quarter Financial and Non-financial Performance for the 2019/20 Financial Year, dated 24 June 2020
 

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 January to 31 March 2020, on 2 June 2020, reports as follows(2 June 2020):

 

1. Introduction

 

The performance of the DTI and the EDD over the period under review was within an environment of slow economic growth, which was further seriously challenged with the outbreak of COVID-19. This outbreak negatively impacted on all sectors of the economy which compromised some of the deliverables for the DTI and the EDD and contributed to the slowdown in the deepening of industrialisation in South Africa. The socio-economic impact of COVID-19 should not be underestimated as it could further challenge government’s efforts to address the triple challenge of poverty, inequality and unemployment. This would require an extraordinary effort by the new Department of Trade, Industry and Competition (DTIC) to ensure that any policy initiatives should enhance the deepening of industrialisation and counteract the slowdown of the economy going forward.

 

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 and the EDD’s financial and non-financial performance. This will inform the next BRR process. Furthermore, Parliament’s Annual Performance Plan (APP) requires submission of reports on departments’ quarterly performance.

 

1. 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 budgetary oversight. This report assesses the non-financial performance for the fourth quarter of the 2019/20 financial year, namely from 1 January to 31 March 2020; and financial performance up to the fourth quarter of the 2019/20 financial year, namely from 1 April to 31 March 2020.

 

1. Method

The Committee was briefed by the DTI and the EDD on their fourth quarter performance reports for the 2019/20 financial year on 2June 2020.

 

1. 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 DTI’s strategic objectives, and assesses its financial and non-financial performance against its APP for the 2019/20 financial year from 1 January to 31 March 2020.  Section 3 outlines the EDD’s strategic objectives, and assesses its financial and non-financial performance against its APP for the 2019/20 financial year from 1 January to 31 March 2020.Section 4 outlines the key issues raised by the Committee during deliberations for both departments, as there were a number of matters that overlapped. Section 5 provides the Committee’s concluding remarks followed by a note of appreciation in Section 6.

 

 

 

 

 

 

 

1. Department Of Trade And Industry

 

1. Strategic Goals

The DTI’s performance was in line with its strategic objectives, which guided its work and was aligned to its programmes. The strategic goals were as follows[1]:

 

• 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.

 

1. Overview and assessment of the financial and non-financial performance for the period 1 January to 31 March 2020

This section provides a comparison between the DTI’s fourth quarter milestones outlined in its APP against its fourth quarter report for the 2019/20 financial year, namely its non-financial performance, and outlines its financial performance.

 

1. Non-Financial Performance[2]

For the fourth quarter, the DTIhad a total of 25 targets. Of the 25 targets, 16 were met or exceeded. This means 64% of the targets were met. The non-financial performance for the fourth quarter against targets as set out in the APP are detailed below.

 

1. Administration Programme

In programme 1, there were four targets for the quarter. All targets were achieved, namely:

 

• The target of 1,7% staff turnover had been achieved.
• The target of 3,7% of people with disabilities employed had been exceeded, the DTI had achieved 3,9%.
• There had been54% of women in Senior Management against a target of 50%.
• 100% of eligible creditors had been paid within 30 days.

 

1. International Trade and Economic Development Programme

In this programme, the DTI met all its targets. All the targets were for producing and submitting status and implementation reports on trade negotiations and trade agreementsto the Minister. These included the negotiations and implementation of the African Continental Free Trade Agreement (AfCFTA), Tripartite Free Trade Agreement, and Southern African Development Community– European Union (SADC-EU) Economic Partnership Agreement. 

 

In addition, the DTI had led an engagement by the South Africa Government with the United States Trade Representative (USTR) and Members of the Sub-committee in relation to the Generalized System of Preferences (GSP) review. In March 2019, the United States issued a notice that they were in the process of reviewing the GSP, in terms of the products and countries that benefit from that. South Africa was among the countries whose preferences would be reviewed.

 

In October 2019, USTR announced an “enforcement action” following their acceptance of International Intellectual Property Alliance’s (IIPA) concerns on South Africa’s compliance with the GSP eligibility criteria. South Africa is given trade preferences in the African Growth and Opportunity Act (AGOA), which the IIPA was of the view that South Africa would no longer be in compliance with conditions of the AGOAif the Copyright Amendment Bill would be signed into law. Currently, the Bill was with the President.

 

1. Special Economic Zones and Economic Transformation Programme

Under this programme there were four targets, three of which were achieved. The targets that were achieved are:(i) the designation of Special Economic Zones, (ii) the implementation report on Industrial Parks, and (iii) an implementation report for the Broad-Based Black Economic Empowerment (B-BBEE) Amendment Act and Regulations. The target on 25 Black Industrialist inventions hadnot been achieved, there were only 10 interventions implementedfor the quarter.

 

In addition, the DTI had facilitated the creation of 3 660 jobs through the Youth Employment Service (Y.E.S) and 154 companies that participated in the Y.E.S programme received B-BBEE recognition.

 

1. Industrial Development Programme

There were three targets under this programme, two of which hadnot been achieved. The submission of one request to designate a sector/product for local procurement was achieved. The two targets that were not achieved are on developing a new annual Industrial Policy Action Plan (IPAP) for 2020/21 and the production of the implementation report for the 2019/20IPAP. The DTI reported that these could not be achieved during the financial year, because there had been a shift in focus from the previous Industrial Policy, which was implemented through the IPAP to a Reimagined Industrial Strategy, which is implemented through Master Plans. During the 2019/20 financial year, the DTI had developed and implemented Master Plans for the Automotive Sector, Poultry Industry and RetailClothing, Textiles, Leather and Footwear Industries. It planned to finalise the development of other Master Plans in the 2020/21 financial year.

 

While this change in the industrial strategy was communicated in previous meetings between the Committee and the DTI, a revised APP was not submitted. This created a challenge because the performance of the DTI was analysed against what was planned for the year as per the APP.

 

1. Consumer and Corporate Regulation Programme

In this programme, all the targets were achieved. They are:

 

• The final draft Socio-Economic Impact Assessment System (SEIAS) Report on the Companies Amendment Bill had beendeveloped for Minister’s Approval;
• A progress report on the development of the Companies Amendment Bill had been developed for Minister’s Approval; and
• Six education and awareness workshops on policies and legislation had beenconducted and a report had beenprepared for the Minister.

 

1. Incentive Development Administration Programme

In this programme, there were four targets. One target was achieved, which was the target on the number of retained jobs. A total of 9 911 jobs had been retained from enterprises approved for incentives against a target of 3 000 jobs.

 

The targets that were not achieved are:

 

• R1,7 billion of investments had beenleveraged from projects/enterprises approved for incentives against a target of R4,5 billion of investments.
• 1 846 jobs had been supported from approved enterprises against a target of 2 000 jobs.
• 120 enterprises/projects had been approved for financial support across all incentives against a target of 200 enterprises.

 

The targets on investment leveraged through incentives as well as on jobs supported could not be met due to a lower than expected number of incentive applications; this was as a result of the economic slowdown and the impact of COVID-19 on business, according to the DTI.

 

1. Trade and Investment South Africa (TISA) Programme

Under the TISA programme, there were two targets, none of which had been achieved, namely:

 

• Exports sales facilitated totalled R6,8 million against a target of R650 million.
• A total of 160 companies had been assisted under the Export Marketing Investment Assistance Scheme (EMIA) to support value-added exports against a target of 216 companies.

 

According to the DTI, these targets had been impacted partly by trade initiatives that had to be cancelled because of COVID-19 and political unrest in some countries. Initiatives that were cancelled during the quarter included outward selling missions to Brazil, Algeria, Tunisia, and India.

 

1. Investment South Africa Programme

The target of R15 billion in investment projects in the pipeline had beenexceeded, R19,9 billion of investment projects had beenin the pipeline by the end of the quarter.

 

1. Financial Performance

The DTI’s budget/appropriation was R10,08 billion for the 2019/20 financial year. By the end of the fourth quarter, the DTI had spent 98,8%of its budget orR9,9 billion. This was consistent with the performance of the DTIduring the same period in the previous financial year, wherein 99% of the budget had beenspent. In terms of programmes, there had been under-expenditure in all programmes.

 

Table 1: Fourth Quarter Expenditure by Programme

Programmes (R’000)	Final budget	Expenditure	Variance	Variance (%)
Administration	824 760	807 745	17 015	2,06%
International Trade and Economic Development	125 082	124 332	750	0,60%
Special Economic Zones and Economic Transformation	165 289	156 299	8 990	5,44%
Industrial Development	2 091 561	2 076 606	14 955	0,71%
Consumer and Corporate Regulation	336 215	329 908	6 307	1,88%
Industrial Development Administration	5 937 323	5 902 927	34 396	0,58%
Trade and Investment South Africa	538 303	505 655	32 648	6,06%
Investment South Africa	66 194	66 131	63	0,10%
TOTAL	10 084 727	9 969 603	115 124	1,14%

Source: DTI (2020)

 

The DTI attributed this to the following:

 

• The global outbreak of COVID-19 which affected a number of the DTI’s activities including trade export missions and pavilionsthat had been planned for the last quarter and could not take place; international events and fora in the areas of trade and investment that had been cancelled; investment milestones by companies had been delayed due to capital equipment that was ordered from abroad; delivery of ICT equipment which had been scheduled to be delivered in March 2020;and receipt of vouchers timeously from the foreign offices (the DTI has employees in different countries) for expenditure;
• Vacant positions had not been filled due to the merger process with the EDD, hence underspending in compensation of employees; and
• The delay in listing the B-BBEE Commission delayed the implementation of certain projects leading to underspending in Programme 3.

 

Unspent funds were 1,14%of the total budget, which was R115,1 million. The main programmes that had significant underspending were the Incentive Development Administration Programme with R34,3 million underspending, the Trade and Investment South Africa Programme with R32,6 million, and R14,9 million in the Industrial Development Programme.

 

Expenditure by economic classification is detailed in the table below. There was significant under-expenditure in the compensation of employees; goods and services, and transfers and subsidies to Public corporations and private enterprises. On goods and services, an underspending of 4,2% (approximately R30,3 million) was reported.This was as a result of the global outbreak of COVID-19 which affected a number of the DTI’s activities as discussed above, and late receipt of vouchers from the foreign offices for expenditure. In addition, the delay in listing the B-BBEE Commission delayed the implementation of certain projects.

 

Table 2: Fourth Quarter Expenditure by Economic Classification

(R’000)	Final budget	Expenditure	Variance	Variance (%)
Current payments	1 766 109	1 684 266
Compensation of employees	1 046 769
Goods and services	719 340	689 048
Transfers and subsidies	8 286 660	8 259 002
Public corporations and private enterprises	7 368 639	7 344 131
Departmental agencies and accounts	701 201	701 201	-	0,00%
Non-profit institutions	178 897	178 897	-	0,00%
Foreign governments and international organisations	32 667	29 646
Households			129
Payments for capital assets	17 435	11 815
Payments for financial assets	14 523	14 520	3
TOTAL	10 084 727	9 969 603

Source: DTI (2020)

 

 

1. Economic Development Department

 

1. Strategic Objectives

The EDD’s strategic objectives are as follows[3]:

 

• 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.

 

1. Overview and assessment of the financial and non-financial performance for the period 1 January to 31 March 2020

This section provides a comparison between the EDD’s fourth quarter milestones outlined in its APP against its fourth quarter report for the 2019/20 financial year, namely its non-financial performance, and outlines its financial performance.

 

1. Non-Financial Performance[4]

The EDD had 16 annual key performance indicators (KPIs) for the 2019/20 financial year, of which 15 had performance targets for the fourth quarter. Within the KPIs, 67 products were planned as outputs. The EDD had delivered 60 products. This was a 90% achievement of targets. Highlights of the EDD’s quarterly performance included the publishing of the final Buyer Power Regulations and the Price Discrimination Regulations, on 13 February 2020, by the Minister. Furthermore, the EDD had facilitated orders by Walmart in the United States of Rhodes Food Group’s canned pear slices in heavy syrup, andpear halves in juice; and Christmas crackerproducts from Glenmart in Kwa-Zulu Natal.

 

For the quarter, because of COVID-19, the EDD also focused on the development of regulations for mitigating the impact of the pandemic. Regulations that the EDD had been developing in collaboration with the Competition Commission (CC) and the National Consumer Commission (NCC) included:

 

• Consumer and Customer Protection and National Disaster Management Regulations and Directions;
• COVID-19 Block Exemption for the Healthcare Sector, 2020;
• COVID-19 Block Exemption for the Banking Sector, 2020;
• COVID-19 Block Exemption for the Retail Property Sector, 2020;
• COVID-19 Block exemption for the Hotel Industry, 2020; and
• COVID-19 Export Control Regulation Government Notices.

 

1. Financial Performance[5]

The EDD’s budget for the 2019/20 financial year was R1,1 billion. The budget was adjusted downwards during the financial year to an allocation of R989,6 million. By the end of the fourth quarter of the financial year, the EDD had spent R966,3 million or 98% of the annual budget. The largest proportion had been spent on transfers and subsidies, which amounted to R840,8 million that was 87% of total expenditure. According to the EDD, the under-expenditure on transfers and subsidies of R7,5 million was as a result of some companies contributing to the Tirisano ConstructionFund having financial difficulties. The EDD’s expenditure on its programmes was R125,5 million, accounting for 13% of total expenditure.

 

In terms of its programmes, the Investment, Competition and Trade Programme underspent by the largest amount (R7,7 million or 39% of the programme’s budget). There had also been under-expenditure in the other two programmes: Growth Path and Social Dialogue and the Administration Programmes with underspending of R4,2 million (or 12% of programme’s budget) and R3,6 million (or 4% of programme’s budget) respectively.

 

 

 

Table 3: Fourth Quarter Expenditure by Programme

Programmes (R’000)	Final budget	Expenditure	Variance	Variance (%)
Administration	85 014	81 401	3 613	4%
Growth Path and Social Dialogue	36 335	32 053	4 282	12%
Investment, Competition and Trade	19 803	12 055	7 746	39%
Transfers and Subsidies	848 491	840 821	7 670	1%
Total	989 643	966 330	23 313	2%

Source: EDD (2020)

 

In terms of expenditure by economic classification, there had beensignificant underspending in the compensation of employees’ budget. Expenditure on this item was R83,2 million, which was R12,6 million less than the budget. According to the EDD, this was as a result of a number of resignations as well as unfilled vacancies because of the merger process with the DTI to form the DTIC. The Department’s compensation of employee’s budget was also increased in the current year. The underspending on goods and services of R3million was attributed to State Attorney fees which had not yet been paid because an invoice had not been received by theEDD. A detailed account of expenditure against the budget is shown in the table below.

 

Table 4: Fourth Quarter Expenditure by Economic Classification

Economic classification (R’000)	Final budget	Expenditure	Variance	Variance (%)
Compensation of Employees	95 943	83 269	12 674	13%
Goods and Services	44 463	41 462	3 001	7%
Transfers to Entities	848 241	840 741	7 500	1%
Households	250	80	170	68%
Payment of Capital Assets	746	746	-	0%
Total	989 643	966 298	23 345	2%

Source: EDD (2020)

 

 

1. Issues raised during the deliberations

 

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

 

1. Decline in foreign direct investment: Although gross fixed capital formation increased by 4% in the third quarter, the decline in the fourth quarter was of major concern to the Committee. In order to build an inclusive economy, fixed capital investment would be a critical pillar as it would add to the productive capacity of the economy. The Committee enquired what the reason for the decline in investment was and what measures were being considered to address the slowdown in investment.The DTIC informed the Committee that according to the United Nations Conference on Trade and Development (UNCTAD), global Foreign Direct Investment (FDI) would decline by 30-40% in 2020. The effect of the COVID-19 pandemic since December 2019 hadbeen a slowdownof international trade and investment. Domestic investment and supply chains had also been disrupted. Consequently, Government has implemented a stimulus package to protect jobs and industries in this period.

 

1. Trade balance with Brazil, Russia, India and China (BRIC countries): Despite the increase in overall trade with the BRIC countries, South Africa recorded a huge trade deficit of R26 billion with the BRIC countries. This was of major concern to the Committee given South Africa’s current economic realities, specifically as it relates to unemployment. The Committee enquired what the measures were that were being considered to reduce the trade deficit and what the economic impact would be on the South African economy. According to the DTIC, South Africa has trade deficits with many trading partners but also surpluses with others. Over the last three years,the aggregate trade balance has been in surplus: R88,1 billion, R15,2 billion, and R24,7 billion respectively. The DTIC informed the Committee that with respect to the BRIC countries, the overall trade deficit narrowed over the past 5 years, from R130 billion in 2015 to R112 billion in 2019. The trade deficit with China alone represented R95,7 billion of this.

 

Beyond trade balances, the basket of products traded is of greater strategic importance. In general, while 55,3% of South African global exports are comprised of manufactured products, 92,9% of imports are manufactures. With a secular decline in global commodity prices, the terms of trade moved against countries/economies that are heavily dependent on commodities in their export basket. This underlines the importance of industrial development and upgrading in South Africa to diversify the export basket to include a greater share of higher value-added manufactured products.

 

It would appearthat the accuracy of import data from some of the BRIC countries was a concernfor the DTIC. According to the DTIC, significant under-invoicing takes place, which improves the relative competitiveness of such imported products in the domestic market and against domestically produced products, which undermines theindustrialisation efforts. Mr E Patel, the Minister of Trade and Industry, has raised under-invoicing in a BRICS[6] Trade Ministers Meeting, with agreement that a working group would be established to address this. The matter was also being addressed in customs cooperation structures.

 

The DTIC informed the Committee that it had a two-fold strategy in place to address the value and quality of thetrade basket, particularly with China. It is working to get China to invest and produce goods in South Africa and not make South Africa merely an export market, e.g. Hisense and automotive products are now being produced in South Africa as a result of Chinese direct investment in the domestic market. The intention is that companies in China should also produce in South Africa and export manufactured products from South Africa.

 

As the second part of the strategy, trade imbalances were also being addressed through the DTI’s export promotion initiatives, with emphasis on value-added exports. The DTIC informed the Committee that support would be provided to outward selling missions to the BRIC countries, via the EMIA incentive. Furthermore, its Foreign Economic Representatives and Marketing Officers stationed at South African embassies in the BRIC countries provide ongoing in-country support. Finally, it runs the Export Barriers Monitoring Mechanism, which supports businesses in resolving barriers to exports inBRIC markets.

 

In addition, itinformed the Committee that it collaborates with the South African chapter of the BRICS Business Council (SABBC), in facilitating manufactured exports to BRIC countries and improving awareness of trade opportunities in BRIC markets. Recently, cooperation initiatives in five areas were agreed with the SABBC, specifically to support economic recovery in the face of COVID-19. These included digital trade missions; finding export markets for excess stockpiles of some products while avoiding dumping of large stockpiles; identifying key importers in BRIC markets and then leading a structured engagement and matchmaking with these firms with South African suppliers; establishing a research group to monitor emerging risks to doing business with BRIC countries; and working through the existing Export Barriers Monitoring Mechanism to prioritise barriers resulting from COVID-19 related trade barriers. Increased manufacturing also creates employment opportunities. As an example, the Hisense plant, since the time of establishment in 2013, has created more than 500 jobs on a permanent basis.

 

1. The impact of COVID-19 on small businesses: The Committee recognised the significant contribution of small, medium and micro enterprises to the broader economy. It noted the significant negative impact that the COVID-19 pandemic was having on small businesses and their survival. The Committee enquired what initiatives and programmes were being considered by the DTIC to assist small businesses especially as a result of the impact of the COVID-19 pandemic.The DTICinformed the Committee that it was in the process of developing an economic recovery support package in response to the negative impact that COVID-19 had on businesses.  This package wouldinclude grant and loan funding which would be administered in collaboration with the Industrial Development Corporation (IDC) and the National Empowerment Fund (NEF) to retain jobs and stimulate investment.

 

1. Downgrade by credit agencies: The impact of the recent downgrade by credit agencies of South Africa to junk status as well as the significant slowdown in global and domestic economic growth and rising debt cost was of major concern to the Committee. The Committee enquired whether the recent downgrade had a constraining influence on recent economic policy decisions and what the DTIC’s contribution would be to address the economic challenges facing the country. The DTIC informed the Committee that the long-expected downgrade of South Africa’s investment status was largely as a result of itsstructural constraints which impede faster economic growth and the increase in Government debt. The DTIC was of the view that the increase in the cost of Government borrowing limits the ability of Government to make economic policy decisions which require significant government financing. This was because a further increase in Government debt wouldraise the prospect of South Africa’s status being lowered even further below ‘investment grade’. 

 

The DTIC’s primary objective was to raise the level of economic growth in the domesticeconomy. It seeks to do so by (i) facilitating and providing financial support to domestic and foreign investors; (ii) assisting firms to grow by opening up new export markets through trade agreements and export support measures; and (iii) providing firms industry and sectoral assistance that includes competitiveness improvement and procurement support which is designed to position firms and industries for faster growth. These, together with the DTIC’s transformation interventions, contributed to the fight against poverty, unemployment and inequality.

 

1. The advancement of women and the promotion of gender equality: The Committee has been unequivocal in its support to advance women and to promote gender equality in all spheres of government. However, a view was expressed that, notwithstanding the 50% target for women in senior positions in government, what informed the DTI and the EDD exceeding this target significantly. With respect to the DTI, once the 50% target was reached, the filling of vacancies was opened for all gender categories in terms of the equal opportunities principle. This principle dictates that the most suitable candidate for the job should be appointed.  As women were found to be the most suitable candidates in terms of the selection criteria, this resulted in the 50% target being exceeded.

 

With respect to the EDD, although the EDD targeted 50% of women, resignations over the years resulted in a net decrease in male employees – which in turn meant more female employees, proportionally.

 

1. The amalgamation of the DTI and the EDD: The announcement by President M Ramaphosa of the amalgamation of the DTI and the EDD led to the formation of the DTIC. However, the Committee noted that the former Acting Director-General of the EDD was not available to present its fourth quarter report. The Committee enquired what the staff implications of the merger were and whether certain staff were being phased-out as part of the process. The DTIC informed the Committee that due to the complexity of the merger of the two departments, it haddecided to implement the merger in two phases.

 

The objectives of Phase 1, which came to an end on 31 March 2020, was to ensure stability and continuity of operations by bringing together the two departments “as is” without any due diligence being undertaken.Consultations with organised labour had beensuccessfully concluded and employees were issued with transfer letters into the new Department.All employees have been accommodated in the new DTIC structure, and therefore no supernumerary employees had beenidentified.

 

Phase 2 would be embarked upon to align the current structure of the DTIC to ensure a fit for purpose structure.Due to the national lockdown, Phase 2 would commence during Quarter 2 of the 2020/21 financial year. This wouldaddress work silos, streamline business processes, reduce administrative burden and reprioritise resources.

 

1. Failure to meet targets:The Committee noted with concern that the Incentive Development and Administration Division (IDAD) had only achieved one of its four targets set out for the fourth quarter. Although the right of any individual to develop and improve their skill set was not in question, a concern was expressed that a lack of presence of senior leadership in this Division may have led to the failure of it to reach its targets. The Committee enquired what the reasons were for the IDAD failing to meet all its targets during the fourth quarter. The DTIC informed the Committee that the Division’s failure to meet all of its targets was due to it receiving fewer applications than anticipated. This was as a result of a number of factors such as, companies not being able to invest as planned due to the economic conditions, cancellation/postponement of international exhibitions and foreign film productions as a result of COVID-19 pandemic, as well as companies not complying withincentive requirements.

 

1. Level of vacancies: The Committee was of the view that the recent merger of the two departments to form the DTIC may lead to some uncertainty among staff members. It enquired what the level of vacancies in both departments had been before the merger, the current vacancy rate with the formation of the DTIC and what measures were being implemented/considered to fill the vacancies.

 

The DTIC informed the Committee that as at 31 March 2020, the DTIhad reported a vacancy rate of 6,1% whilst the EDD had reported a vacancy rate of 23,9%. As at 5 June 2020, a vacancy rate of 7,8% had been recorded for the DTIC.The filling of vacancies, especially in the line function, have been prioritised in anticipation of the merger of the two departments and also to contain costs on the Compensation of Employees budget in both departments. According to the DTIC, filling of the current vacancies for the new department were at different stages of the recruitment and selection process.A new approach had been adopted in line with the social distancing rules, and the DTIC was currently making use of virtual selection processes in terms of shortlisting and interviewing, as far as possible. In line with Circular 19 issued by the Department of Public Service Administration on the advertisement of positions during the lockdown period, only critical positions would be identified and advertised during this period.

 

1. Facilitation of broad-based economic participation: The Y.E.S. Programme is one of the initiatives to facilitate B-BBEE participation through targeted interventions to achieve more inclusive growth. This is a joint initiative between business, labour, and government, which aims to address South Africa’s youth unemployment crisis by creating 1 million work experiences for youth between the ages of 18 and 35 over the course of the next five years. The Committee welcomed the 3 660 jobs created as a result of this initiative but enquired what the percentage of women were that had benefited from this programme. The DTIC informed the Committee that the Y.E.S. initiative aims to improve the employment outlook for young work seekers, by offering a first chance of quality work experience. Its intention is to create quality work experiences over and above existing hiring plans, to improve their chances of finding a job or starting their own businesses. Since its implementation to date, the Y.E.S. initiative has created over 35 411 jobs of which 60% of the Y.E.S.-placed youth were female.

 

1. The Tirisano Construction Fund: The Tirisano Construction Fund was aimed at improving the quality of life of communities through promoting social and economic welfare, by funding social infrastructure build programmes and skills and enterprise development. However, according to the EDD, less funds had been spent because it would appear that some companies responsible for contributing to the Funds had gone into business rescue. The Committee enquired what measures could be implemented to ensure that the amounts allocated for this Fund were spent to ensure the objective of the Fund would not be compromised. The DTIC informed the Committee that the Tirisano Fund has a board of Trustees that works through the IDC. Government has representatives on the board and government engages through that mechanism. The funds for the Tirisano Fund is paid into the National Revenue Fund by the construction firms, and then allocated to the Tirisano Trust at the IDC through the EDD’s budget allocation process. Allocations and spend are therefore based on the anticipated receipts of the construction companies as well as operational planning of the Trustees.

 

1. The Status of the Reimagined Industrial Strategy: The Reimagined Industrial Strategy is being implemented through a number of Masterplans. The Committee enquired what the status of the Masterplans were and how these would contribute to ensuring B-BBEE participation.The DTIC informed the Committee that the Masterplans were led by various Departments, which were at different stages of development but that Parliament would continuously be updated on the progress. The common pillar in the masterplans is transformation, where they seek to drive industry transformation with a focus on supporting new and emerging entrants – in particular black industrialists, and increasing youth and women participation. This intervention would ensure that the objectives of B-BBEE were realised.

 

The following Masterplans were led by theDTIC:

 

• Clothing, Textile, Leather and Footwear: The Masterplan had beensigned-off and launched at the 2019 Presidential Investment Conference, and the institutional structures set up to monitor the implementation of the commitments thereof.
• Poultry: The Masterplan had been finalised and launched at the 2019 Presidential Investment Conference. The Executive Oversight Committee (EOC) had been established to monitor progress against this plan and to ensure the effectiveness of the masterplan.
• Sugar: The Masterplan contents had beenfinalised and agreed to by all participating stakeholders at a meeting that took place through video-conference on 8 April 2020. The sign-off event would be organised following the lifting of the COVID-19 Lockdown.
• Steel and Furniture: These Masterplans were in progress with ongoing engagements and consultations with relevant stakeholders, taking place virtually during this lockdown period.
• Chemicals and Plastics:These Masterplans were work-in-process with the lead researchers having commenced with the situational analysis and scoping of the key sub-sectors. Parliament would be informed once the Masterplans were signed off by all social partners.

 

1. Price discrimination and buyer provisions: The Committee welcomed the implementation of new price discrimination and buyer provisions of the Competition Act (Act No. 18 of 2018) regulations as it provides the necessary tools to transform the South African economy aiming at protecting small and medium enterprises and firms owned by historically disadvantaged individuals. The Committee sought clarity on the regulations that provide for the benchmarks to determine the application of section 9(1)(a)(ii) to the firms owned and controlled by historically disadvantaged persons. The DTIC informed the Committee that important work in the development of Regulations include an economic assessment, as well as public consultations, so as to set appropriate benchmarks in the Regulations. Benchmarks are contained in these Regulations.

 

A critical part is the publication of Guidelines.During the month of May,the Competition Commission had published Guidelines relating to the reported Regulations. Guidelines provide the general principles that the Competition Commission would follow in enforcing the published Regulations. Guidelines are subject to revision based on future experiences and lessons. The DTIC acknowledged that it was important to ensure appropriate communication with the relevant stakeholders, namelysmall, medium and micro enterprises and firms owned and controlled by historically disadvantaged persons, on Regulations and Guidelines. Furthermore, it stressed the importance that the details of Regulations and Guidelines were clearly explained so that the ordinary South African could easily understand.

 

1. Proposed export tax: The Committee noted that the annual Taxation Laws Amendment Bill had proposed an export tax for ferrous and non-ferrous waste and scrap metal with consultation to be concluded by 31 May 2020. Consequently, the EDD had reported that the policy directive on the price preference system would be extended until 31 December 2020. The Committee enquired when the tax was expected to become operational. The DTIC informed the Committee that the Price Preference System (PPS) had been extended to December 2020 to allow sufficient time for National Treasury to finalise the consultation and implementation modalities for the proposed export tax on scrap metal.  National Treasury had initiated the consultation process; however, the scheduled stakeholder workshops were delayed due to the COVID-19 lockdown. Stakeholders were requested to provide written comments to the National Treasury and once the process had been concluded National Treasury would make the necessary pronouncements.

 

 

1. Conclusions

 

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

 

5.1     The Committee noted the impact of the COVID-19 pandemic on the DTI and the EDD’s ability to meet some of its economic targets, particularly for the Incentive Development and Administration, and Trade and Investment South Africa Programmes.

 

5.2     The Committee welcomed the creation of 3 660 jobs through the Youth Employment Service (Y.E.S) with 154 companies participating in the Y.E.S programme, despite the current turbulent economic conditions facing the country.

 

5.3     While the Committee acknowledged that there had been a lower than expected number of applications received for the incentive programmes, it remained concerned about the targets around jobs created not being achieved.

 

5.4     Although the target with respect to the publication of a new iteration of the Industrial Policy Action Plan for the 2020/21 financial year was not met, the Committee recognised that this was due to a policy shift of implementing industrial policy through a Reimagined Industrial Strategy. It welcomed the collaborative approach in which Masterplans were being developed.

 

5.5     The Committee welcomed the economic recovery support initiatives offered by the Industrial Development Corporation and the National Empowerment Fund to small businesses to assist them during the COVID-19 pandemic.

 

5.6     The Committee noted that the under-expenditure in the Investment, Competition and Trade Programme was mainly due to the funding allocated for the Tirisano Construction Fund. This was due to a number of construction companies contributing to the fund going into business rescue due to the contraction in the domestic economy.

 

5.7     The Committee welcomed the gazetting of the Regulations on the Competition Act related to price discrimination and buyer power in February 2020.

 

5.8     The Committee welcomed the progress made in terms of the proposed export tax on ferrous and non-ferrous waste and scrap metal.

 

1. Appreciation

 

The Committee would like to thank the Director-General of the Department of Trade and Industry, Mr L October, the Acting Deputy Director-General for the Competition Policy and Economic Planning Branch of the DTIC, Dr M Pule, and the former Chief Financial Officer for the EDD,Ms I Ramafola, for their cooperation and transparency during this process. The Committee also wishes to thank its support staff, in particular the committee secretary, Mr A Hermans, 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.

 

Report to be considered.

 

 

References

 

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

 

Department of Trade and Industry (2020)Presentation to the Portfolio Committee on Trade, Industry and Competition on the Fourth Quarter Performance Report 202019/20 Financial Year. Parliament, Cape Town.

 

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

 

Economic Development Department (2020) Presentation to the Portfolio Committee on Trade, Industry and Competition on the Fourth Quarter Performance Report 2019/20 Financial Year. Parliament, Cape Town.

 

National Treasury (2019a) Adjusted Budget Summary: Vote 34 Trade and Industry.

 

National Treasury (2019b) Adjusted Budget Summary: Vote 25 Economic Development.

 

Naumann, E. (2020) South Africa under GSP country review: what implications for preferential exports to the United States? Internet. Available from <https://www.tralac.org/news/article/14355> Accessed on 1 June 2020.

 

Portfolio Committee on Trade and Industry (2019) Budgetary Review and Recommendation Report of the Portfolio Committee on Trade and Industry, dated17 October 2019. Parliament, Cape Town.

 

United States Trade Representative (2019) 2019 Generalized System of Preferences (GSP): Notice of Annual GSP Product and Country Review; Deadline for Filing Petitions. Internet. Available from <https://www.federalregister.gov/documents/2019/03/25/2019-05614/2019-generalized-system-of-preferences-gsp-notice-of-annual-gsp-product-and-country-review-deadline> Accessed on 1 June 2020.

 

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[1] DTI (2019)

[2] DTI (2020)

[3] EDD (2019)

[4] EDD (2020)

[5] Ibid

[6]BRIC countries plus South Africa.