ATC200717: Report of the Portfolio Committee on Trade and Industry on the implications of the Adjustments Appropriation Bill [B10-2020] on Budget Vote 39: Trade, Industry and Competition, dated16 July 2020

Trade and Industry

Report of the Portfolio Committee on Trade and Industry on the implications of the Adjustments Appropriation Bill [B10-2020] on Budget Vote 39: Trade, Industry and Competition, dated16 July 2020

 

The Portfolio Committee having considered the implications of the Adjustments Appropriation Bill [B10-2020] on Budget Vote 39: Trade, Industryand Competition, reports as follows:

 

  1. Introduction

 

On 11 March 2020, the World Health Organisation declared the novel coronavirus (COVID-19) outbreak a global pandemic. It further urged countries to take the necessary steps to contain it, due to the rapid rate of the spread of the virus globally. In his address to the nation on 15 March 2020, President M C Ramaphosa declared a national state of disaster in terms of Disaster Management Act (Act No 57 of 2002) and announced that government would be taking the necessary measures to curtail and manage the spread of the disease and limit the impact of the virus on society and the economy. On 23 March 2020, he further announced a national lockdown outlining more stringent measures to limit the spread of the virus and to mitigate the impact of it on the economy and society.

The government adopted a three-phased approach in its response to the pandemic, of which the first phase was to mitigate against the immediate impact of the lockdown by providing financial relief to workers through wage support via the Unemployment Insurance Fund, tax relief, release of disaster funding, emergency procurement, and funding support for small businesses, thereby preserving the economy. The second phase was aimed at stabilising the economy from the immediate effect of the pandemic with the announcement of a social and economic support package of R500 billion to mitigate against the economic impact. The third phase would represent an economic strategy aimed at faster growth for the long term recovery of the economy post COVID-19.

 

On 24 June 2020, the Minister of Finance, Mr T Mboweni, tabled a special adjustment budget which sets out government’s initial financial and fiscal response to the COVID-19 pandemic. The Adjustments Appropriation Bill seeks to modify the 2020/21 budget to utilise current baseline allocations to provide for the rapidly changing economic conditions and enable spending on the COVID-19 response.

 

As a result of the tabling of the Bill, the Department of Trade, Industry and Competition (DTIC) had to reconsider its Annual Performance Plan (APP) tabled in April 2020 to align it with the new economic reality facing the country. According to Mr E Patel, Minister of Trade and Industry, the revised APP tabled in July 2020, reflects “a number of significant adjustments, with a refocus within programmes to respond to these new needs, using available policy tools to address the economic challenges and utilise the opportunities”. Notwithstanding that the DTIC is one of the departments that play an important role in the response to the pandemic, it has received a significant decrease in its budget allocation. Therefore, there was a need to reconsider critical programmes and the manner in which service delivery is being implemented to maximise the outcomes in spite of budgetary cuts.

 

  1. Constitutional Mandate of the Committee

Portfolio Committees exercise oversight over their respective departments and agencies in line with their Constitutional mandate set out in section 55(2) of the Constitution of the Republic of South Africa, 1996 and section 27(4) of the Public Finance Management Act (No. 1 of 1999) (PFMA). In addition, the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) also requires committees to consider and report on their department’s strategic plan and APP. Portfolio committees may also advise the Standing Committee on Appropriations in the National Assembly regarding possible amendments, within a budget vote, for its consideration.

 

  1. Purpose

The purpose of this report is for the Portfolio Committee on Trade and Industry to report on its deliberations and considerationof the DTIC’s revisedAPPin light of the Adjustments Appropriation Bill as necessitated by the COVID-19 pandemic. Furthermore, to make recommendations regarding the approval, amendment or rejection of the adjustments to the Budget Vote 39, as well as any other recommendation regarding the implementation of the APP of the DTIC.

 

  1. Process

The Committee’s consideration of the implications of the Adjustments Appropriation Bill on Budget Vote 39and the implementation of the DTIC’s revised APP involved an engagement with the Minister of Trade and Industry andMr L October,the Director-General of DTIC, on 8July 2020.Mr Patel engaged the Committee on the implications of the Bill in relation to the mandate of the DTICand provided an overview of the manner in which the DTIC would be mitigating these implications to ensure that it could continue to deliver on its mandate and to offer support to industry to overcome the impact of the COVID-19 pandemic. The Director-General then presented the amendments to the DTIC’s 2020/21 APP and its budget.

 

  1. Implications of the COVID-19 pandemic on the mandate of the DTIC

 

The DTIC is mandated to create a diverse and globally competitive economy through industrialisation which is characterised by inclusive growth and development, decent employment and equity for all South Africans. To implement its mandate, the DTIC provides a policy and regulatory framework to promote the development of industries and the participation of black people in economic activities and to attract and facilitate private investments; as well as to promote international and regional trade; which is supported by various incentives.

 

The DTIC’s mission is to[1]:

  • Promote structural transformation, towards a dynamic industrial and globally competitive economy;
  • Provide a predictable, competitive, equitable and socially responsible environment, conducive to investment, trade and enterprise development;
  • Broaden participation in the economy to strengthen economic development;
  • Continually improve the skills and capabilities of the DTIC to effectively deliver on its mandate and respond to the needs of South Africa’s economic citizens;
  • Co-ordinate the contributions of government departments, state entities and civil society to effect economic development; and
  • Improve alignment between economic policies, plans of the state, its agencies, government’s political and economic objectives and mandate.

 

The contraction in the global and domestic economy has resulted in lowered consumer and investor confidence, which impacted on the DTIC’s work. As a result, it has had to revise a number of its programmes and targets downwards, while introducing more appropriate performance indicators for the situation in other cases.

 

The Minister explained that the new approach considered how to address four elements, namely: the management of limited resources; protection of South Africa’s industrial capacity; identification of opportunities for growth; and incorporation of economic inclusivity and support.

 

In terms of the management of resources, there was a strategy to more efficiently use its human resources to thus reduce overhead costs. This included creating shared services across the DTIC, and speeding up integration of the former Departments of Trade and Industry (DTI) and of Economic Development (EDD) to eliminate duplication and to allocate resources to where they could have the greatest impact. Furthermore, introducing greater technical coordination and integration between the DTIC’s incentives and grants and the Industrial Development Corporation (IDC) and National Empowerment Fund (NEF) loans. This should improve the service offering for companies when they apply for financial assistance and cut overhead costs in this area. In addition, funding for Special Economic Zones (SEZs) would be stretched by introducing a performance management unit. This unit would be available to ensure that existing SEZs functioned better and to offer assistance and support when new SEZs were being proposedto ensure that these applications were based on viable proposals.The DTIC would also utilise its research programme more effectively by building up capabilities and using insights from analytical work and research to enhance the work of the other Programmes to ensure greater value for money. 

 

In terms of the protection of industrial capacity, the risk of the lockdown was that suppliers were placed under enormous strain due to a drop in demand and/or an inability to trade leading to workers being left unemployed and firms or sectorspossibly closing down. The latter was of particularconcern as these firms or sectors may be unable to reopen once the economy recovered. In order to maintain the industrial base, the DTIC needed to support local companies and to protect them where possible and where there was a sound business case. The DTIC could do this by offering internal trade measures to protect the industrial base; identifying options to build new export markets;providing financial support utilisingpartnership agreements with companies to save jobs and maintain the industrial capacity;securing the R600 billion investment commitments ensuing from the Presidential Investment Conferences, as well as previous competition commitmentsto bring small, medium and micro enterprises and black suppliers into the market; and ensuring that mergers and acquisitions were aligned to the key goals of the Competition Act (Act No. 89 of 1998).

 

In terms of identifying opportunities for growth, the DTIC was focusing on the African Continent. This would require the fast tracking of the operationalisation of the African Continental Free Trade Area (AfCFTA). There would also be a stronger broad African focus in promoting exportsand looking for new export opportunities. This would include a focus on manufacturing more personal protective equipment (PPE) such as masks and ventilators but also other products to export to African markets.

 

In terms of ensuring economic inclusivity and support, this was considered a critical focus of government to retain existing levels of transformation and to facilitate the entry of more youth and women into the economy at the current time. Therefore, the Black Industrialist Programme would be maintained. Furthermore, the Companies Act was being considered to see what should be reviewed and what changes should be fast tracked; and price increases were being monitored for excessive pricing to ensure that vulnerable consumers and small businesses were not being disadvantaged during the current situation when normal supply mechanisms were not always available.

 

  1. Impact on the 2020/21 Annual Performance Plan and Budget

 

The DTIC’s budget as tabled in February 2020 was R11,08 billion for the 2020/21 financial year. However, the adjusted budget will decrease this by R1,77 billion to R9,31 billion. This decrease is 16% of the original budget.  The DTIC’s work and budget will be divided among its ten programmes, all of which will experience a net decline in their budget allocations.  In each of the programmes, a portion will be channelled towards financing COVID-19 interventions. However, in Programme 6, Industrial Financing, the DTIC will be allocating R500 million to finance COVID-19 interventions initiated by it.

 

Table 1: Budget Adjustments for the DTIC programmes (2020/21)

Programme (R’000)

Main budget

Suspension of funds (COVID-19 purposes)

Allocations (COVID-19 purposes)

2020/21 Total net change proposed

2020/21 Total net change proposed

2020/21 Total allocation proposed

Administration

873 590

-16 000

-16 000

-1,8%

857 590

Trade Policy, Negotiations, and Cooperation

133 969

-5 520

-5 520

-4,1%

128 449

Spatial Industrial Development and Economic Transformation

171 899

-11 956

-11 956

-7,0%

159 943

Industrial Competitiveness and Growth

1 992 120

-338 874

-338 874

-17,0%

1 653 246

Consumer and Corporate Regulation

342 327

-29 561

-29 561

-8,6%

312 766

Industrial Financing

6 059 122

-1 699 116

500 000

-1 199 116

-19,8%

4 860 006

Export Development, Promotion and Outward Investments

456 675

-45 786

-45 786

-10,0%

410 889

Inward Investment Attraction, Facilitation, and Aftercare

58 299

-2 600

-2 600

-4,5%

55 699

Competition Policy and Economic Planning

908 413

-119 015

-119 015

-13,1%

789 398

Economic Research and Coordination

85 724

-3 000

-3 000

-3,5%

82 724

Total

11 082 138

-2 271 428

500 000

-1 771 428

-16,0%

9 310 710

Source: National Treasury (2020b)

 

  1. Budget adjustments by programme

Adjustments are made in all programmes, with the largest adjustment in Programme 6, Industrial Financing. The Industrial Financing budget allocation will decrease by 19,8%. Other programmes that will significantly decrease are the Industrial Competitiveness and Growth (17% decrease), Competition Policy and Economic Planning (13,1% decrease), Export Development, Promotion and Outward Investments (10% decrease), Consumer and Corporate Regulation (8,6% decrease), and Spatial Industrial Development and Economic TransformationProgrammes (7% decrease).

 

  1. Administration

The Administration Programme is responsible for providing strategic support and management to the DTICand its entities. The Programme’sbudget will decrease by 1,8% from R873,5 million to R857,5 million.

 

 

 

Four new performance indicators were added. The table below provides a summary of the Programme’srevised performance indicators and targets for the 2020/21 financial year:

Outcomes:

  • Implement transformation through Employment Equity and Broad-based Black Economic Empowerment
  • Youth Empowerment
  • Promote a professional, ethical, dynamic, competitive and customer focused working environment that ensures effective and efficient service delivery

Outputs

Revised Targets

Amendments

Percentage of People with a Disability employed

3,5%

No change

Percentage of Women at Senior Management Service level

50%

No change

Number of Interns appointed

54

No change

Percentage of eligible creditors payments processed within legal timeframes

100% eligible creditors' payments made within 30 days

No change

Percentage implementation of the COVID-19 Plan

100%

New Target

Number of COVID-19 reports produced

10 reports

New Target

Report on Implementation of the National Macro Organisation of Government Phase 2 Plan

Report covering achievement of no less than 30% of target

New Target

A report on the Implementation of the Shared Services Framework

Development of a Framework on Shared Services

New Target

Source: DTIC (2020a and 2020b)

 

  1. Trade Policy, Negotiations and Cooperation

The purpose of the Programme is to facilitate the building of an equitable global trading system by strengthening trading and investment relations with key markets globally. Furthermore, in line with the New Partnership for Africa’s Development, promoting the development of the African continent through regional and continental integration. The Programme’s main appropriation was R133,9 million. It will be adjusted down by 4,1% to R128,4 million.

 

In this Programme, there are no new targets added, however, the target on the progress report for the Tripartite Free Trade Agreement (T-FTA) was revised down from two reports to one report. The table below provides a summary of the Programme’srevised performance indicators and targets for the 2020/21 financial year:

Outcome: Increased intra-African trade to support African regional development

Indicators

Revised Targets

Amendments

Number of status reports on regional economic integration

1 status reports produced on progress for T-FTA

Revised down from 2 reports

4 status reports produced on tariff and trade related matters under the AfCFTA

No change

Number of status reports on implementation of trade agreements

2 status reports on implementation of Southern African Development Community-European Union Economic Partnership Agreement (EPA)

No change

 

2 status reports on implementation of Southern African Customs Union-Mozambique EPA with the United Kingdom

No change

2 status reports on implementation of African Growth and Opportunity Act

No change

  • 2 status reports on engagements in the Brazil, Russia, India, China, and South Africa (BRICS) platform
  • 2 status reports on engagements in G20
  • 2 status reports on engagements in the World Trade Organisation

No change

Source: DTIC(2020a & 2020b)

 

  1. Spatial Industrial Development and Economic Transformation

The purpose of the Programme is to promote inclusive economic transformation and to industrialise the economy through developing and funding SEZs and Black Industrialists. The Programme’s main appropriation was R171,9 million, which will be adjusted down by 7,0% to R159,9 million.

 

The table below provides a summary of the Programme’srevised performance indicators and targets for the 2020/21 financial year:

 

Outcomes:

  • Increased and enhanced instruments for spatial development of targeted regions and economic transformation;
  • Industrialisation, localisation and exports; and
  • Investing for accelerated inclusive growth

Indicator

Revised Targets

Amendments

Number of implementation reports on SEZ and the National SEZ Capacity Support (Project Management Unit) submitted to Minister

2

Revised, the previous indicator was: Number of implementation reports on SEZ submitted to Minister

Number of implementation reports on the Industrial Parks submitted to Minister

2

No change

Number of implementation reports on the economic transformation submitted to the Minister.

2

No change

Source: DTIC(2020a and 2020b)

 

  1. Industrial Competitiveness and Growth

The Industrial Development Programme is the second largest of DTIC’s programmes. It is responsible for the design and implementation of policies, strategies and programmes to develop the manufacturing and related sectors of the economy to contribute to the creation of decent jobs, adding value to manufactured products and enhancing competitiveness in the domestic and export markets. The main appropriation was R1,9 billion but it will decrease to R1,65 billion, a 17% decrease.

 

The table below provides a summary of the Programme’srevised performance indicators and targets for the 2020/21 financial year. The main changes are the removal of two of the five originally planned Masterplans. In the previous APP, the DTIC had targeted to develop and implement the Sugar, Steel, Furniture, Chemicals and Plastics Masterplans. However, development of the Chemicals and Plastics Masterplans will be targeted for the next financial year. Furthermore, the quarterly monitoring report for compliance with local content requirements has been removed for this financial year. 

 

Outcomes:

  • Increased industrialisation through the development of Masterplans in National Priority sectors; and
  • Increased localisation through the designation of products

Indicator

Revised Targets

Revised APP

Number of Masterplans as per Reimagined Industrial Strategy submitted to Minister by March 2020

3 Master Plans

Revised down from 5 Master Plans

Number of progress reports of Implementation of Masterplans

4 Quarterly

No Change

4 quarterly monitoring reports on the percentage of adverts that comply with local content requirements across designated products

-

Target removed from the 2020/21 performance period

Number of designation requests prepared for Minister per year

2 designation requests

No Change

Number of progress reports on the support measures to industry to increase localisation of PPE and other products

4 Quarterly progress reports

New Target

Source: DTIC(2020a and 2020b)

 

  1. Consumer and Corporate Regulation

The Consumer and Corporate Regulation Programme is aimed at “developing and implementing coherent, predictable and transparent regulatory solutions that facilitate easy access to redress and efficient regulation for economic citizens”[2]. With a decrease of 8,6%, the budget will decrease from R342,3 million to R312,7 million. 

 

The table below provides a summary of the Programme’srevised performance indicators and targets for the 2020/21 financial year:

 

Outcome: Improved regulatory environment conducive for consumers and companies as well as providing access to redress

Indicators

Revised Targets

Amendments

Number of progress reports on the development or review of legislation for Minister’s approval

4 progress reports on the review of the Companies, Liquor and Gambling legislation developed for Minister’s approval

No change

Number of education and awareness sessions on policies and legislation conducted and report produced for Minister’s approval

-

Target removed from the 2020/21 performance period

Source: DTIC(2020a and 2020b)

 

  1. Industrial Financing

The Industrial Financing Programme is responsible for improving administration of the DTIC’s incentive through designing and implementing incentives and programmes that support investment, competitiveness, employment creation, and equity. This Programme captures the core mandate of the DTIC and is the largest programme accounting for approximately 55% of the total budget.  The Industrial Financing budget will decrease by R1,69 billion but is also allocated an additional R500 million for COVID-19 interventions. This will result in a net decrease of R1,19 billion or 19,8% of its budget allocation.

 

The table below provides a summary of the Programme’srevisedperformance indicators and targets for the 2020/21 financial year:

Outcome: Increased accessible industrial finance measures to support investment in priority sectors in line with approved masterplans

Indicators

Revised Targets

Amendments

Value (Rand) of projected investments to be leveraged from projects/enterprises approved

R5 billion

Target revised down from R15 billion

Projected number of new jobs supported from enterprises/projects approved

-

Target of8 500 jobsremoved from the 2020/21 performance period

Projected number of jobs retained from approved enterprises/projects

-

Target of10 000 jobsremoved from the 2020/21 performance period

Number of enterprises/projects approved for financial support across all incentives

-

Target of 600 enterprises removed from the 2020/21 performance period

Economic Recovery Programme submitted for approval

Economic Recovery Programme developed and implemented with greater focus on saving and expanding jobs and retaining/protecting industrial assets

New Target

Enhancement of domestic industrial finance system to crowd in more funding to enterprises and streamline industrial support

1 Report on developing a more integrated assessment system between the DTIC grants anddevelopment finance institution (DFI) approvals, to reduce overhead costs and enhance impact and effectiveness

New Target

Source: DTIC (2020a and 2020b)

 

  1. Export Development, Promotion and Outward Investments

The Export Development, Promotion, and Outward Investments Programme is aimed at promoting South African exports in high growth markets; identifying new markets for South African manufactured products; and enhancing the ongoing promotion of exports. Furthermore, the Programme supports the building of trade and investment relationships with other African countries. The Programme’s budget will decrease by 10% from R456,6 million to R410,9 million.

 

The table below provides a summary of the Programme’srevised performance indicators and targets for the 2020/21 financial year:

Outcomes:

  • Promote the growth of exports in the economy as a generator of jobs and contributor to Gross Domestic Product (GDP) growth; and
  • Diversify the export bundle, by promoting export growth in priority sectors

Indicators

Revised Targets

Amendments

R4.25billionin Value of Export Sales projected

-

Target removed from the 2020/21 performance period

864 companies assisted under Export, Marketing and Investment Assistance (EMIA)

-

Target removed from the 2020/21 performance period

Number of Companies benefitted from Export Development and Support inclusive of Women, Youth and People with Disabilities

100

Revised down from 850

Number of new companies financially benefitted from EMIA support for digital export promotion initiatives

25

New Target

Number of barriers processed by the Export Barriers Monitoring Mechanism

50

New Target

Number of new applications developed or improved on the Export Data Assistant platform

3

New Target

Number of research reports produced

3

New Target

Source: DTIC(2020a and 2020b)

 

  1. Inward Investment Attraction, Facilitation and Aftercare

The purpose of the Programme is to “support foreign direct investment flows and domestic investment by providing a one-stop-shop for investment promotion, investor facilitation and aftercare support for investors”[3]. The main budget of R58,2 million will decrease by 4,5% to R55,7 million.

 

The table below provides a summary of the Programme’srevised performance indicators and targets for the 2020/21 financial year:

Outcome: Increased strategic investment

Indicators

Revised Targets

Amendments

Value (Rand) of investment projects facilitated in pipelines

R40 billion

Revised down from R100 billion

Number of statistical reports on Company registration within one day

4 statistical reports on Company registration within one day

No Change

Preserve investments and implement investment projects of 2018 and 2019 investment conference

24 unblocking and fast tracking of investor issues

New Target

Source: DTIC(2020a and 2020b)

 

  1. Competition Policy and Economic Planning

The Programme focuses on developing and implementing policy interventions that promote competition.  Key areas addressed under this Programme are market inquiries, mergers and acquisitions, and investigations regarding the prohibition of abuse of dominance on cases that are of public interest. Furthermore, the implementation of recommendations of market inquiries, mergers and acquisitions, and investigations regarding the prohibition of abuse of dominance to maximise redress on the affected parties. The main budget of R908,4 million will decrease by 13,1% to R789,4 million.

 

There had been no amendments to this Programme’s indicators or targets. The table below provides a summary of the Programme’sperformance indicators and targets for the 2020/21 financial year:

Outcome: Policy tools and implementation strategies which contribute to an efficient, competitive economic environment, balancing the interests of workers, owners and consumers and focused on economic development

Indicators

Revised Targets

Amendments

Number of reports on policy and statutory initiatives in support of Ministry

4

No Change

Number of analysis reports on public interest matters

4

No Change

Number of reports on coordinated actions in implementing Competition policy commitments, recommendations and orders

4

No Change

Source: DTIC(2020a and 2020b)

 

  1. Economic Research and Coordination

This is the second smallest programme accounting for 0,77% of the total budget. The purpose of the Programme is to “develop and roll out legislative processes to facilitate an inclusive economy through interventions to increase competitiveness in the economy”[4]. The main budget of R85,7 million will decrease by 3,5% to R82,7 million. 

 

There had been no amendments to this Programme’s indicators or targets. The table below provides a summary of the Programme’sperformance indicators and targets for the 2020/21 financial year:

Outcomes:

  • Socio-, macro- and microeconomic policy options developed and assessed to promote inclusive growth; and
  • Policymakers and stakeholders have access to policy-relevant, high quality economic analysis

Indicators

Revised Targets

Amendments

Number of analytical policy reports produced

8

No Change

Number of research reports produced

6

No Change

Source: DTIC(2020a and 2020b)

 

 

 

  1. Adjustment by Economic Classification

The adjustments in the budget were effected in transfers to public corporations and private enterprises, transfers to departmental agencies,goods and services, transfers to foreign governments and international organisations, and transfers to non-profit institutions. The table below provides details on the adjustments.

 

Table 2: Explanations of budget adjustments (R’000s)

Detail

Downward revisions

Reallocations

2020/21 Total net change

Public corporations and private enterprises: Allocations for incentives will be suspended by postponing activities to the next financial year and reducing support to firms.

 

R500 million is reprioritised towards firms that are in distress as a result of the restrictions on economic activity

-2 067 257

500 000

-1 567 257

Departmental agencies (non-business entities): Suspension of allocations to general operational spending

-132 882

-132 882

Goods and services: Suspension of allocations to general operational spending items such as travel and subsistence, communications, inventory and consumables, and venues and training facilities

-51 353

-51 353

Foreign governments and international organisations: Suspension of allocations due to anticipated improved exchange rates

-4 282

-4 282

Non-profit institutions: Suspension of allocations to general operational spending items

-15 654

-15 654

Total

-2 271 428

500 000

-1 771 428

Source: National Treasury (2020b)

 

  1. Key issues raised by the Committee during its deliberations

 

The Committee raised a number of concerns during its deliberations, including:

 

  1. Adjustment of Performance Targets:The special Adjustments Appropriation Bill tabled by the Minister of Finance was in direct response to the impact of the global COVID-19 pandemic on the South African economy. Although the DTIC would play a critical role in ensuring economic stabilisation and reconstruction post COVID-19, it must do so with a reduced budget of R1,7 billion. As a result of this, the DTIC had to make specific adjustments to its performance targets. The Committee enquired what would the impact of these adjustments be and which performance targets were affected. The Minister welcomed the recognition by the Committee of the magnitude of the reduced allocation, which was closer to R1,8 billion, to the DTIC and the potential impact on its deliverables. With such a significant reduction in budget it was not possible to make a few small adjustments and simply absorb the reduction, rather the DTIC needed to determine how it could further enhance its work notwithstanding the budgetary reduction.

 

The Minister informed the Committee that under the transfers to public corporations and private enterprises line item, which is where the State provides a range of incentives in support of private enterprises in return for them making matching investments, including job and innovation commitments, it had to make a significant adjustment. Now given the economic reality facing the country, and with the reduced allocation for the DTIC, it had to relook at its available toolkit to ensure continued support to productive sectors and to become more innovative with its approach toensure continued support.

 

The Minister further informed the Committee that the DTIC had to explore a number of mechanisms such as whether trade tools could be used more actively to offset against reduced incentive support to minimise its impact or looking at what the competition authorities could do that would open up a greater level of dynamism and competition in those sectors. In making the necessary adjustments, the DTIC recognised that some companies would not be utilising existing incentives as a result of a lower demand for their products, and low confidence about their growth prospects over the short and medium term, which would lead to delays in implementing some programmes such as upgrading of technology or making improvements to their plants and operations. However, the Minister also recognised that the DTIC’s incentive programmes should play a counter-cyclical role when companies’ confidence in their prospects would be low.A sharp set of focused programmes by government could therefore assist by injecting liquidity and confidence in those sectors.

 

  1. Reconsideration of current government policies:The Committee enquired whether the DTIC would reconsider current policies and programmes given the current economic environment and its reduced budget. The Minister supported the view, that in considering a future path given the current economic realities facing the country and a reduced budget, government needs to do things differently. The COVID-19 pandemic would have a substantial negative impact on the global economy and it would become increasingly evident that, according to the International Monetary Fund, the impact of the pandemic would remain until the 2021/22 financial year.

 

The Minister informed the Committee that the presentation of the DTIC was to indicate how things would be done differently, not to compromise on service delivery but to continue to pursue the same goals. The goals were not changing, in fact some of those goals became more urgent. Achieving these goals requires constant learning and consideration of how to do things smarter. The Minister informed the Committee that he did not subscribe to the notion that government would not be open to do things differently where it would make sense to do so. The National Development Plan’s goals are to build an economy that is resilient and fast growing to build an inclusive, strong and active state while creating jobs and opportunities for the youth, women and black South Africans too. Given South Africa’s very limited fiscal space, government must strengthen a number of its current economic policies to improve impact, lower the cost of implementation, and prioritise amongst a number of policy demands.

 

For example, to improve impact, the DTIC would work closely with organised Labour, Business and Community through structures such as the National Economic Development and Labour Council (NEDLAC)and the sectoral Masterplans to ensure that policies are responsive to social partners’ needs, were based on the principle that all social partners should contribute in policy processes, and that implementation would have better outcomes when all social partners participate.To lower the cost of implementation, the DTIC would introduce shared services for example in undertaking due diligence of projects, partnerships with banks to provide industrial finance and improve regulatory processes to lower the cost of firms’ compliance with these requirements.Furthermore, the DTIC informed the Committee that it would prioritise interventions which protect domestic industrial capabilities and support labour-intensive sectors to contribute to job creation. In addition, the DTIC would prioritise a public/private partnership with social partners to increase import replacement so as to create jobs locally.

 

  1. Policy changes to address challenges:The impact of the COVID-19 pandemic on the economy should not be underestimated. In light of the tabling of the special Adjustments Appropriation Bill, the DTIC’s budget allocation was drastically reduced. Given this new reality of a reduced budget, the Committee enquired whether the DTIC could provide any examples of policy changes/differences, if any, in how the DTIC intends to move forward. Given the significant budgetary constraints that all Government departments would be facing over the coming Medium-term Expenditure Framework period, the DTIC informed the Committee that it has embarked on a process to evaluate opportunities for cost-savings through for example shared services within the DTIC and its agencies. In addition, the merger of the former DTI and EDD is expected to give rise to cost-savings from the eradication of duplicate functions, unlocking of programmatic synergies, and procurement of goods and services. The difficulty in travelling during and after COVID-19 would also assist it to save on costs in terms of both domestic and international travel by introducing Information and Communication Technology tools such as Zoom and Microsoft Teams to allow for participation in meetings, trade missions and international fora without the associated travel costs. These ‘new ways of working’ are expected to allow the DTIC to continue delivering on its mandate, but at a lower cost to the State.

 

  1. Policies promoting transformation:A view was expressed that certain policies based on the promotion of particular race groups, notwithstanding the need to redress past inequalities, had not proven to be successful. The Committee enquired whether the DTIC would be reconsidering these policies given the current economic reality facing the country. The Minister welcomed the Committee introducing a discussion on whether “race-based” policies should single out a particular group for receiving “handouts”. He informed the Committee that he was not of the view that it was government’s role to give “handouts” but rather through a more active form of incentives government expects that recipients contribute to delivering on its specific mandate derived from the electoral mandate of the majority party. This electoral mandate stresses the need for policies to redress the impact of Apartheid, reduce inequalities, and to create the conditions for inclusive growth. Reducing inequality would be essential to long-term stability and economic growth as has been proven empirically by multilateral organisations, including the World Bank.

 

The Minister expressed clearly that government policies do not state that only black South Africans, women or youth would be the only constituents that could access public funds. He further stated that approved funds from the IDC and the DTIC do not only go to designated groups. In addition, it was important to note that all except one incentive programme (the Black Industrialist Scheme (BIS)) were open to enterprises and entrepreneurs of all races. The BIS was essential to transforming and growing the South African economy and provides more customised support to Black entrepreneurs who may not benefit from the DTIC’s generic incentive schemes. Therefore, the recognition that government should identify designated groups in ensuring that they received financial support was important to the Minister.

 

He further alluded to the United States of America, as an example, where young entrepreneurs were driving the digital economy which is not the case in South Africa and should be encouraged. After the Minister engaged the youth on what were the constraints to them entering the economy, they informed him that they did not have access to funds. Banks excluded support to young entrepreneurs by requiring a commercial record of 20-30 years. The question arose how could they develop a track record if they are not allowed on the playing field. Therefore, government must step in through its youth promotion programmes and try and support young South African entrepreneurs in the economy. The Minister noted that the majority of South Africans are black but one does not see their proportional participation in the economy. It is not because one particular group have the innate ability and are capable of running businesses more that another group of South Africans, as all groups possessed the necessary talents and skills, but yet the outcome is different. This, according to the Minister, was the result of South Africa’s history forged over many centuries and cannot be undone in 30 years.

 

He illustrated this by saying that if someone whose parents owned a family business with strong links and associations with the commercial and financial sector, is commercially talented, he would inherit the family business which would include all its commercial and business links. On the flip side, you have a family living in the informal settlement in which the father was working in the informal sector, with a young son who is talented, the father would not have any business or assets he could give his son. He would not be in a position to provide his son with any surety if his son applied for a loan nor does he have the necessary network that would provide access to the commercial and business world. This reality is still prevalent today, hence the Minister was of the view that all, not only government, should ensure that the young person, whose father is working in the informal sector receives the same support as the son whose father was fortunate and is able to provide him with the necessary support. This is the reality, as a country, we need to confront. The Minister informed the Committee that the role of government would be to encourage both sets of young people because both of them, if they are successful, would help to create jobs and economic value for the country. He further emphasised that both young persons could apply but that government should take into account historical disadvantage.

 

  1. Incentives and continued support to firms:The reduced allocation for public corporations and private enterprises would have a significant impact on the support provided to firms during this financial year. The Committee enquired what the impact of reduced incentives would be on support of firms on the broader economy. The Minister informed the Committee that what the DTIC would be trying to achieve through its actions would be to limit the impact of the reduced budget by seeking to release more resources to critical frontline programmes through shared services and other arrangements. He informed the Committee that currently it would be difficult to change the overhead cost structure in the short-term but that the DTIC would be utilising the remaining part of this financial year to determine how it could further reduce some of the overhead costs that it and some of its entities faced. For example, in dealing with industrial incentives, creating a shared service to provide a common platform to assess the viability of a proposal, that are submitted to the DTIC, the IDCor the NEF. This would mean that only one set of officials would be dealing with the matter but the Minister recognised that it would be a work in progress to perfect but operationalisation should be startedimmediately. This would allow the DTIC to release resources, that would otherwise have gone into overhead expenditure, to financially support companies or alternatively the human resources released could provide post-investment support. The Minister was of the view that the current economic reality and a reduced budget required the DTIC to work much smarter to achieve similar or even better outcomes.

 

Furthermore, the DTIC informed the Committee that the implication of the budget cut was that what it, in the past, could independently achieve would now require greater partnerships including, with private sector funders. The joint mission should be to protect and grow productive capacity to sustain and grow jobs in the domestic economy. The DTIC would have to re-prioritise its funding allocation to support both firms (a) in distress to sustain current productive capacity and jobs, and (b) those firms that can expand their productive capacity and create new jobs.This means that supported firms would have to demonstrate that they were committed to the objectives of job retention/creation, deepening productive capacity and transformation.

 

  1. Assistance to firms in distress:An amount of R500 million was reprioritised to assist firms in distress because of the restrictions placed on economic activity during the lockdown. The Committee enquired what criteria was used to select firms that should be assisted. Furthermore, it enquired whether this would be in addition to funding that had been already been set aside by the IDC. The Minister responded that the R500 million had been resources that the DTIC had identified and transferred to the IDC, the NEF and the Small Enterprise Finance Agency (SEFA)to assist them to provide immediate distress funding to companies producing PPEs.

 

Key deliverables would include sustaining and increasing jobs and productive capacity, economic inclusion and increasing localisation. Funding would be made available to companies impacted by COVID-19 with a sustainable business plan indicating the business would be viable post COVID-19. Applicants must demonstrate strong business fundamentals and a strong business case to recover within a timeframe of 18-24 months. The funding of R500million was specifically allocated for distressed facility support and the funding mechanism may include DFIs like IDC and other relevant institutions which demonstrate the most appropriate fit and synergy between loans and incentive grants.

 

  1. 12i Tax incentive:The objectives of the Section 12i tax incentive programme were to support investment in manufacturing assets and to improve labour productivity and the skills profile of the labour force. The Committee enquired whether the DTIC, in consultation with National Treasury, was considering extending the 12i tax incentives as it would assist the manufacturing sector without impacting the DTIC’s budget. The DTIC informed the Committee that it had consultations with National Treasury to consider extending the 12itax incentive. The Minister of Finance’s Budget Speech of February 2020 confirmed that the 12itax allowance would not be extended.

 

  1. Role of the Industrial FinancingUnit:Given the significant reduction in the budget of the Industrial Financing Unit, the Committee enquired what the role of this Unit would be given the fact that incentives had been significantly reduced. The DTIC informed the Committee that the role of the Unit was to grow sustainable, competitive enterprises through accessible incentive measures that support national priorities. These incentive measures were given to companies over a period of three years, the Unit would continue to monitor implementation of these measures. Furthermore, it would utilise its current budget allocation to continue to support national priorities by consolidating some incentive programmes as well as blending these support measures with other support offered by other institutions. 

 

  1. Impact of budgetary cut in incentive programmes on the economic recovery plan: The Committee enquired whether the cut in incentive programmes would negatively impact the economic recovery plan and DFIs, especially in terms of industrialisation. Furthermore, what the impact of this would be on retaining and creating jobs. The DTIC informed the Committee that its support to the economic recovery plan has been impacted on by the budget cut. However, the DTIC would utilise its current allocation to calibrate and implement those incentive measures that could support industrialisation and implementation of masterplans through prioritising investment projects that demonstrate the maintenance and creation of jobs and productive capacity.

 

The investment made into the Clothing, Textiles, Leather and Footwear (CTLF) sector during the past 10 years, through the Clothing and Textiles Competitiveness Programme, which was administered by the IDC, had allowed manufacturers to improve their competitiveness and ability to respond to retail demand. The gains made over the past ten years would likely reduce the threat imposed by the reduced allocation. However, the risk to industrial capacity and jobs remains. Support would continue to be provided, with adjustments made in terms of the qualification-criteria and benefit-ceilings.

 

Despite the reduced budget allocation, support would also continue to be provided on most critical areas across all sectors, with certain adjustments made. In addition, the DTIC would deploy other industrial policy tools through providing a range of programmatic interventions which seek to support domestic demand – such as procurement and trade measures – and facilitate access to fast-growing export markets, especially on the African continent. In the short to medium term, greater efforts would be placed on stabilising the productive sectors, job-preservation and reducing the rate at which the economy is shedding jobs.

 

  1. Domestic industrial finance system:The Committee enquired what measures would be considered by the DTIC to enhance the domestic industrial finance system to crowd in more funding for enterprises and streamline industrial support. The DTIC would continue to partner with DFIs and other private sector finance institutions to crowd in more funding to stimulate investment. Consideration will be given to other means of support such as blended finance models comprising of grants and loan facilities to companies. 

 

The measures include looking at proposals to National Treasury on utilising instruments such as tax allowances and tax holidays to enhance the industrial financing system as done in other jurisdictions.

 

  1. Development of Masterplans:Economic transformation and job creation remains a key priority of government. Government’sRe-Imagined Industrial Strategywould be implemented through a number of Masterplans that would facilitate industrial growth. Given the current economic reality facing the country and the reduced DTIC budget, the Committee enquired which sectors’ Masterplan development was being delayed and what informed this decision.

 

The DTIC informed the Committee that all Masterplans, led by the DTIC, would be developed and implemented over the current Medium-Term Strategic Framework period, but will be staggered. Three masterplans were already approved, and were in various phases of implementation: theAutomotive 2035 Plan; the Retail-CTLF; and the Poultry Masterplans. For these approved masterplans, greater effort would be made to drive implementation of the agreed programmes by all social partners, with some adjustments necessitated by the coronavirus impact and budget reductions. For the 2020/21 financial year, three masterplans would be finalised: Sugar; Furniture; and Steel and Metal Fabrication.

 

Given the constraints placed on financial resources across Government and the resultant need to put a concerted effort in ensuring the finalisation of the aforementioned masterplans, both the Chemicals and Plastics masterplans would be deferred to the next financial year. In the short to medium term, this would allow for further strengthening and deployment of key interventions to cushion these labour-creating industries from total collapse, while ensuring that key productive sectors, such as automotives, steel and sugar, act as catalysts for the economic recovery in the long-term. Notwithstanding the deferral, there is a broad agreement between the social partners that implementation of key interventions in the sectors would commence simultaneously while finalising the Masterplans.

 

  1. Furniture Masterplan:The Committee welcomed the decision to finalise the Furniture Masterplan in this financial year. The Committee enquired whether the DTIC could advance this industry as it has the potential to create jobs and bring in much needed revenue. The Minister welcomed the comments on the furniture industry and agreed that it had enormous growth potential. He was of the view that more should be done to enhance the value proposition of the South African furniture industry. South African furniture retailers should be encouraged to actively promote South African produced furniture in their stores and the call to “buy locally” should further support this initiative.

 

  1. Ensuring continued localisation:Localisation remains a critical policy tool to ensure sustained industrial development that would contribute toa growing economy and manufacturing sector. The Committee enquired how the DTIC would ensure that state entities buy locally produced products and whether government would be considering designating additional products with specific local content thresholds. The DTIC informed the Committee that it would continue to work with key stakeholders, including procuring entities, to identify a range of products that can be leveraged for deepening localisation and local supplier development, as well as monitoring and enforcing compliance.  More emphasis would be put on strengthening consequence management through legislation. Enforcement would be strengthened through new legislation which empowers the Auditor-General to act against non-compliance with procurement prescripts.

 

Government has intensified efforts into expanding the scope of designations to include strategic sectors such as construction materials, automotives and pharmaceuticals as well as other products. The DTICwas working closely with the private sector and leveraging on the localisation opportunities presented by COVID-19, for example PPEs; food; clothing and footwear; and hardware, amongst others. The focus would be on those products that can easily be localised, and where the economy already has sufficient industrial capacity and capabilities.

 

  1. State production of PPEs:The Committee enquired given the current shortages whether the government had considered whether a state-owned enterprise (SOE) should not be developed to produce PPEs. The Minister informed the Committee that he had responded to a similar parliamentary question and had provided a detailed reply. He informed the Committee that, on the one hand, the DTIC were using state entities to support the production of PPEs, while, on the other hand, it was building partnership with companies, including youth- and women-owned and managed enterprises to build broader capabilities therefore providing economic opportunities to South African entrepreneurs. An example provided by the Minister was when there was a shortage of face masks and similar products, companies such as Sheraton which is a subsidiary of the IDC, were able to shift their production and produce face masks. Furthermore, the IDC was able to utilise and mobilise its resources to support smaller businesses and companies owned by the youth to gain entry into the face mask market.

 

With respect to the production of ventilators, the Minister informed the Committee that the CSIR would now be producing the largest number of Continuous Positive Airway Pressure (CPAP) machines, which is an example of a SOE producing goods but that would not preclude private enterprises from producing ventilators. It was about doing both, utilising the resources of the State where the capability existed, but at the same time stimulating opportunities for young people, women and all South Africans to enter the market. Through doing it this way, government does not have to raise all the capital but could provide either incentives or provide loan funding with the private sector utilising the resources they can access. The Minister was of the view that if the State had unlimited resources it could do more but where resources are limited it must carefully consider where it should focus. It must be recognised that many young people and the private sector players bring the expertise and capability to run a business, which might not reside within the State. Operating a PPE plant is not the same as running a government department or entity, as it requires a different skill set and flexibility. For the State to provide emergency supplies, it would be subject to the PFMA which would present major challenges. Therefore, a combined approach is necessary; where the State has the capability it should participate, but for the State to establish a new entity and factory would be misdirecting its resources given the current economic environment.

 

  1. Centralisation of SEZ process:The promotion of regional industrial development through policies and programmes like the SEZs remains a critical tool for government. As a result of limited resources, government would be playing a more central role in the planning, development and management of SEZs with the creation of the National SEZ Capacity Support Programme. The Committee enquired what had informed the decision to establish this unit and to centralise support for SEZs. The Minister informed the Committee that for a number of years the Department’s main responsibility, besides developing policy and implementing the SEZ legislation, was to assess applications from provinces to establish new SEZs and to continue providing funding to existing SEZs. The DTIC had formulated a new approach in the management and implementation of the SEZs Programme which was informed by an outcome of an evaluation of the programme that determined a disparity in performance of the SEZs reflecting three SEZs performing way above the others, which were the CoegaIndustrial Development Zone (IDZ), the Dube Trade Port’s SEZ component, and the East London SEZ. Amongst other things these three account for 82% of investments in the programme. A larger number of SEZs, especially in the Free State, Gauteng, and the Western Cape showed unsatisfactory performance specifically in terms of investment attraction and the roll out of bulkinfrastructure. The unsatisfactory performance has been attributed largely to technical capacity in provinces for planning and project management, a slow pace in terms of infrastructure development and poor coordination with critical stakeholders. The Minister highlighted that the Richards Bay IDZ which had been around for some time had not registered a significant uptake of investment projects to date.  The Saldanha Bay SEZ had a similar experience. To date, or according to the Minister since last year, the DTIC only provided advice when requested by provinces that wished to establish an SEZ in their province. In order to address this uneven development, the DTIC started to evaluate and rethink its strategy and identified where the gaps or challenges were. The Minister informed the Committee that as a result of this process, the DTIC identified a need for a stable government, strong and capable Chief Executive Officers, and critical technical expertise located at a SEZ. A business plan that had gone through a rigorous process of assessing whether the economic potential identified by a province or municipality was also recognised in the marketplace was critical to ensure the viability of a proposed SEZ. The Minister informed the Committee that recently the DTIC had received a proposal from a province to establish a SEZ, but after close analysis the DTIC determined that it would not be viable as a significant uptake in investment would not materialise; hence the request was declined. Therefore, the DTIC, working together with the IDC and the Development Bank of Southern Africa (DBSA), and recognising the capacity constraints within provinces, identified the need for skilled people that would work with provinces to enhance the quality of their proposals to establish a SEZ before it was submitted to government for consideration.

 

In doing so, the DTIC would identify viable options that might require fewer financial resources because the intrinsic proposal would be strong. Thus, it would only need to assist with funding for top structures and to facilitate supplier development. In the view of the Minister, where the underlying rationale to establish a SEZ was weak, the State would be required to provide significant resources to attract investment and given the current resource constrained environment, this would not be feasible. Further, the Minister was of the view that given the financial constraints, efforts should focus on strengthening the capacity of SEZs to improve their performance as well as assisting provinces that wish to establish SEZs to submit well-articulated business plans for consideration. Hence the proposal to establish the National SEZ Capacity Support Programme, bringing together the skilled personnel of the DTIC, the IDC and the DBSA, in support of the SEZs.

 

The new approach included the establishment of a National SEZ Capacity Support Programme which would, amongst others, provide support in driving the implementation of underperforming and strategic SEZs. The National Capacity Support Programme would provide technical advisory services to under-capacitated SEZs and Industrial Parks in the planning, development and management of infrastructure development and investor attraction. It would also play a critical role in the collaborative and holistic planning of key national departments and agencies in support of these programmes.

 

  1. Support for Industrial Parks:The revised APP reflects continued support for the development of industrial parks. With the onset of the COVID-19 pandemic, the roll-out of bulk infrastructure was delayed. The Committee enquired what measures are being considered to ensure the roll-out of bulk infrastructure to support industrialisation in relation to industrial parks. The DTIC informed the Committee that the Industrial Parks Revitalisation Programme would continue to be implemented in all provinces of operations as a priority programme that supports industrial development in the regions including the township economy.

 

Following the onset of the COVID-19 pandemic, construction work was put on hold; however, implementation was resumed at level three. A protocol informed by strict health and safety measures had been put in place. The bulk infrastructure would continue to be revitalised; however, it would be on a needs basis; informed by the applications of the respective industrial parks.

 

In addition, the Committee enquired whether the DTIC should not consider providing additional support to existing industrial parks to ensure its operational efficiency rather than opening up additional industrial parks given the current budget constraints. According to the DTIC, the Programme had identified 27 existing industrial parks for revitalisation. All of these were old state-owned industrial parks. There are currently no new industrial parks planned for support due to the current budget constraints.

 

  1. Investment in Industrial Parks:A view was expressed that government should not invest in industrial parks as there had been no proof of any new investment notwithstanding expenditure of R500 million to upgrade these. The Committee enquired whether the DTIC considered the business plans of these parks and if concessions were secured from local and provincial governments before investing in these industrial parks. Following the inception of the Industrial Parks Revitalisation Programme, the Industrial Parks have realised investments some of which include the following:
  • Botshabelo Industrial Park – 18 investors – 2230 jobs and R330million investment.
  • Babelegi Industrial Park– 9 investors – 163 jobs and R12millioninvestment.
  • iSithebe Industrial Park – 22 investors – 1898 jobs and over R300million investment

 

The Industrial Parks are in the process of developing masterplans as part of the phase 3 revitalisation process.

 

  1. Rationale for downward adjustment of projected investment:The DTIC had adjusted its annual targets for the value of projected investments from approved projects/enterprises from R15 billion to R5 billion, and the value of investment projects facilitated in the pipeline from R100 billion to R40 billion. The Committee enquired what the rationale had been for this downward adjustment. Furthermore, it noted that a number of the output indicators had been removed for the Industrial Financing Programme, such as the projected number of new jobs supported and jobs retained and requested that the DTIC explain why these had been removed. According to the DTIC, the downward adjustment was based on 3 elements:
  • global trends in foreign direct investment (FDI) and specifically the 2020 World Investment Report issued by the United Nations Conference on Trade and Development (UNCTAD) in May 2020;
  • South Africa’s downgrades by the rating agencies; and
  • the negative impact of the COVID-19 pandemic.

 

According to UNCTAD’s World Investment Report 2020, the COVID-19 crisis is expected to cause a dramatic fall in FDI. Global FDI flows are forecast to decrease by up to 40% in 2020, from their 2019 value of $1,54 trillion. This would bring FDI below $1 trillion for the first time since 2005. FDI is projected to decrease by a further 5% to 10% in 2021.Developing economies were expected to see the biggest fall in FDI because they rely more on investment in global value chain (GVC)-intensive and extractive industries, which have been severely hit, and because they were not able to implement the same economic support measures as developed economies. The COVID-19 crisis has arrived at a time when FDI was already in decline, with the African continent having experienced a 10% drop in inflows in 2019 to $45 billion. FDI flows to the continent are forecast to contract between 25% and 40% based on GDP growth projections as well as a range of investment specific factors. Manufacturing industries intensive in GVCs will be strongly affected, a sign of concern for efforts to promote economic diversification and industrialization in Africa. However, the report further suggests that in the short term, curtailing the extent of the investment downturn and limiting the economic and human costs of the pandemic is of paramount importance whilst in the longer term diversifying investment flows to Africa and harnessing them for structural transformation remains a key objective. In order to realise both of these objectives will require a prudent, coordinated and timely response from African countries.

 

The impact of the global economy and the decline in global market demand is likely to affect the growth plans of both domestic and foreign owned companies in South Africa. Taking into account the budget cut and projected targets,the number of jobs created and sustained would still be monitored and reported on annually through the incentive performance report which is tabled annually.

 

  1. Measures to increase private sector investment:The Committee enquired what measures the DTIC could consider that would facilitate increased private sector investment in the economy given the current economic challenges facing the country. The DTIC informed the Committee that investment had been (and would continue to be) encouraged and prioritised in the healthcare, pharmaceutical and agricultural/food production sectors to ensure stability in supply chains. Energy capacity in the country needs to be stabilised by, amongst others, encouraging investment in renewable energy and to establish South Africa as the region hub for renewable energy component manufacturing. Deepen localisation and local value chains. Investment in infrastructure as highlighted at the Sustainable Investment in Infrastructure Symposium.

 

Government through the Presidency is developing a comprehensive pipeline of infrastructure investments which were to be funded and developed in partnership with the private-sector. These infrastructure projects would create jobs in South Africa, would draw in locally-produced goods (for example cement, steel, furniture, chemicals), and provide opportunities for local and international investors.

 

The DTIC would provide investment assistance through InvestSA to promote investment opportunities, unlock regulatory barriers and improve the ease of doing business in South Africa. In addition, the DTIC and Government as a whole would provide enhanced support for investors through the current investment incentives, partnerships with local DFIs and international DFIs such as the BRICS New Development Bank and the African Development Banks.

 

  1. Status of legislation: The APP refers to the development or review of legislation on companies, liquor and gambling. The Committee enquired what the status of these laws are and when are they expected to be tabled for Parliamentary consideration. The DTIC responded that the Companies Amendment Bill had recently completed the NEDLAC process. The Bill was in the process of being tabled in Cabinet for adoption and thereafter would be introduced to Parliament. The Bill could be introduced to Parliament in Quarter 4 of this financial year. In terms of the Liquor Amendment Bill, the Bill was in the process of being tabled in Cabinet for adoption before it was introduced to Parliament.  The DTIC was currently reviewing policy issues and ensuring that recent developments in the liquor industry as well as public interest issues were taken into consideration.  The Bill could be introduced to Parliament during Quarter 4 of this financial year. Furthermore, the National Gambling Amendment Bill was currently in the National Council of Provinces process.  The DTIC had briefed the new Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour and the nine Provincial Legislatures in the 6th Parliament.  The Select Committee was in the process of coordinating final mandates to conclude the consideration of the Bill.

 

  1. Impact of delays in pay-outs of COVID-19 relief funding:The impact of the COVID-19 pandemic and the national lockdown has far reaching implications for the sustainability of non-governmental organisations (NGOs) and non-profit organisations (NPOs) that play a significant role in the lives of millions of South Africans. The National Lotteries Commission (NLC) decided to release additional relief funding to NGOs and NPOs to ensure that these remain operational. The Committee enquired what measures were being considered to mitigate against delays in pay-outs of COVID-19 relief funds to NGOs and NPOs that are currently without funding. The NLC indicated that the following measures were introduced to mitigate against delays in the processing of the grants:
  • Adjustment of the funding model to allow for the submission of applications electronically. This accelerated the process whilst abiding by the lockdown regulations of social distancing.
  • The assessment template was enhanced to enable faster assessment of the applications.
  • Further reduction of the number of days for the return of the Grant Agreement from 30 days to 7 days to speed up payment.
  • Electronic conclusion of the Grant Agreements.

 

Legislatively, the NLC has 150 days to adjudicate an application, however the turnaround time for the COVID-19 Relief applications is on average 14 days. Furthermore, it has 60 days in which to effect payment once a fully compliant Grant Agreement has been received. However, for these grants the average turnaround time is 11 days.All the above has been achieved including payment to most of the successful applications despite the NLC having to close its doors for six days due to employees who tested positive for COVID-19.

 

  1. Allegations against the NLC:Recent allegations of maladministration and malpractice at the NLC is a major concern for the Committee. The Committee would like to enquire what measures are being considered by the DTIC to address the challenges facing the NLC and whether the report of the investigation into the NLC would be made available to the Committee. The DTIC informed the Committee that it had received the Preliminary Report on Friday, 10 July 2020.  The Preliminary Report is on one project.  The Director-General would be engaging with the investigators to discuss the content of the Report. At the conclusion of this process, the Report would be discussed with the Minister who would determine and communicate the process going forward to the Committee.

 

  1. Performance of theInternational Trade Administration Commission of South Africa (ITAC):A view was expressed that the performance of ITAC appears to inhibit trade and localisation in South Africa. The Committee enquired what measures are being considered to support localisation and to address other issues affecting domestic and international trade. The DTIC informed the Committee that tariff determinations were conducted on the basis of case-by-case, detailed investigations and analysis by the ITAC. South Africa’s Trade Policy and Strategy Framework provides as a general guideline that tariffs on mature upstream input industries could be reduced or removed to lower the input costs for the downstream, more labour-intensive manufacturing sectors.

 

Tariffs on downstream industries, particularly those that are strategic from an employment and/or value-addition perspective, may be retained or raised to ensure long-term sustainability and job creation in the context of domestic production capabilities/potentialities and the degree of trade and production distortions on these products at the global level. The ITAC assesses the information through a detailed process of investigation for tariff changes within this policy framework.

 

There is a wide range of industrial rebates provided for in Schedule 3 of the Customs and Excise Act (Act No. 91 of 1964).These rebates were created to assist the domestic industry to import inputs at a reduced duty for manufacturing of specific products in South Africa. For example, Rebate Provision 311.42 specifically provides for imports of a range of fabrics for the manufacture of household textiles, including bed linen, under certain circumstances.

 

The Retail-CTLF Masterplan underscores the strategic use of rebates to deepen value-addition and enable local manufacture of final products.The fabric rebate issue had been a subject of focus in the Masterplan, with a working group established to tighten and review some industrial rebates under schedule 3 of the Customs and Excise Act. Also, the Minister had already issued directives to the ITAC to investigate and evaluate the creation of rebate facilities to address the supply of textiles for use in the manufacture for apparel. Furthermore, there were also continuous engagements between the ITAC and the South African Revenue Service to strengthen enforcement and compliance by aligning their respective guidelines specifically for textile and clothing industrial rebates.

 

  1. Status of the AfCFTA:The Committee enquired what the status of the AfCTA was given the fact that the only outstanding matter was the finalisation of the rules of origin. The DTIC responded that due to the COVID-19 pandemic and in particular the decision taken by the African Union (AU) Commission to suspend AU meetings/engagements in March 2020, the outstanding AfCFTA negotiations has been unable to proceed. The outstanding work and negotiations involve the submission of tariff offers, the conclusion of rules of origin that are integral to those offers, as well as the submission of services offers on the five priority sectors The 13th Extra-Ordinary Summit that would have adopted the outcomes of the work and provided a legal basis for preferential trade, has been postponed until 5 December 2020 with the commencement of trade under the AfCFTA preferences delayed to 1 January 2021.  The AU Ministers of Trade meeting held in May 2020 directed the AU Commission to facilitate the conclusion the outstanding negotiations between June-November 2020 using virtual platforms.

 

  1. Creation of a shared service framework:The Committee welcomed the development of a shared service framework to mitigate against the budget shortfall. This is to maximise the impact of service delivery and improve cost efficiencies.  The Committee enquired how the DTIC would ensure improved efficiencies and how this would be measured. According to the DTIC, the improved efficiencies would be realised by providing its agencies with a set of services that could easily be decoupled from the agencies. The development of a framework would assist it in identifying areas that could be serviced through a centralised platform and the cost savings in the identified areas would measure the success of this intervention. For the remainder of the year, the DTIC will focus on planning and developing a framework for the shared services model. 

 

  1. Public-Private Partnership (PPP) with respect to office accommodation:The DTIC had reported that its main cost drivers were the PPP agreement for office accommodation at its campus and its foreign economic offices. The Committee enquired what strategies were being implemented to mitigate or reduce the impact of this. The DTIC informed the Committee that PPP arises from a contractual obligation that the DTIC had to honour. The payments were based on a 25-year PPP Agreement concluded in 2003, for the provision of the office accommodation and facilities management by a private party. The DTIC through its Export Development, Promotion and Outward Investments Programme has foreign economic offices in various countries across the globe. These offices are part of and contribute to South Africa’s key trade and investment programmes. The Department of International Relations and Cooperation (DIRCO) conducts and co-ordinates South Africa’s international relations in support of its foreign objectives through, inter alia, the co-ordination of the activities performed by its missions. 

 

There is a close co-operation between the DTIC and DIRCO where the financial and administrative functions have been streamlined to ensure optimal efficiency of functions performed at foreign missions.

 

  1. Impact of the reduced budget on entities or sectors:The Committee enquired which entities or sectors would be impacted by the 16% reduction in the budget. According to the DTIC, the reduction in the budget of 16% cuts across the key areas of its work. The significant cut of 20,4% was in respect of transfers to public corporations and private enterprises, which provides incentives to companies across the various incentive programmes. This would require programme restructuring to improve results and changes to the incentive regime.

 

The next significant area with a 14,9% reduction was in respect ofthe DTIC entities (namely: the South African National Accreditation System, the National Metrology Institute of South Africa, the National Regulator for Compulsory Specifications, the National Credit Regulator, the National Gambling Board, the National Consumer Tribunal, the National Consumer Commission, the Companies Tribunal, the Competition Commission, the Competition Tribunal, the ITAC, the South African Bureau of Standards, the Export Credit Insurance Corporation of South Africa, and the SEFA). To this end a shared service framework for the DTIC entities is being developed to maximise the impact of service delivery as well as to achieve cost efficiencies.

 

  1. Conclusions

 

Having considered the information shared and reports from the DTICwith respect to its strategic and annual performance plans, the Committee has reached the following conclusions:

 

5.1     The Committee noted the significant reduction in the budget allocated to the DTIC, and the revised performance indicators and targets. While some programmes and targets had been decreased to accommodate the impact of the COVID-19 pandemic and the consequent lockdown restrictions, the Committee welcomed the DTIC’s approach to maintain its core mandate and service delivery objectives.

 

5.2     The Committee also welcomed the R500 million set aside to support both companies in distress and companies expanding production of personal protective equipment in response to the impact of the COVID-19 pandemic and the lockdown.

 

5.3     Notwithstanding the budget reduction, keeping the principles of the National Development Plan, such as economic transformation and inclusivity at the core of the revised annual performance was commended.

 

5.4     The Committee noted the Minister’s commitment that the DTIC would be assessing its current way of providing its services, including the shared service model initiative, and encouraged the DTIC to find more creative and innovative ways to achieve this. This would reduce its cost structure so that more resources could be channelled to financing businesses and would ensure that a complementary suite of support mechanisms were utilised to support the industrial base and the economy.

 

5.5     Within the current economic environment facing South Africa, the Committee welcomed the development of options to fast-track the operationalisation of the African Continental Free Trade Area, thereby contributing to broadening participation and facilitating that potential benefits for the South African economy are delivered more rapidly.

 

5.6     Preserving and protecting the industrial base is of paramount importance for the Committee. Therefore, the Committee supports the initiative of a centralised approach to the development of Special Economic Zones and Industrial Parks to maximise limited resources while providing the requisite skills often lacking within provinces to plan, develop, and manage Special Economic Zones.

 

5.7     The Committee welcomed the initiative to enhance localisation through the development of support measures that would increase localisation of various personal protective equipment and other products.

 

5.8     The Committee recognised that, as a result of a revised budget, the DTIC had to reconsider the development of the sectoral Masterplans which are at the core of the Reimagined Industrial Strategy. Hence, some of the Masterplans had been deferred to the 2021/22 financial year, such as for chemicals and plastics. However, the Committee welcomed the fact that the Masterplans for the steel, sugar and furniture sectors would be completed in this financial year. Furthermore, it emphasised that sectors that had high job creation and economic growth opportunities should be prioritised for the development of future Masterplans.

 

5.9     Notwithstanding the reduced allocation for transfers to public corporations and private enterprises, the Committee welcomed the continued support for greenfield, including infant industries and brownfield investments and companies in distress in order to retain jobs and industrial capacity.

 

5.10   The Committee welcomed the initiative to enhance the domestic industrial financing system to crowd in more funding for enterprises and streamline industrial support.

 

  1. Acknowledgements

 

The Committee would like to thank Mr E Patel, the Minister of Trade and Industry, and Mr L October,the Director-General of the DTIC, for their cooperation and transparency during this process. 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. The Committee also wishes to thank its support staff, in particular Mr A Hermans, the Committee Secretary, Ms M Sheldon, the Content Advisor, Ms Z Madalane, the Researcher, Ms Y Manakaza,the Committee Assistant, and Ms T Macanda, the Executive Secretary, for their professional support. 

 

 

  1. Recommendations

 

The Portfolio Committee on Trade and Industry, having considered the amendments to the 2020 Budget Vote 39: Trade, Industry and Competition, recommends that the House adopts the amendments related to Budget Vote 39: Trade, Industry and Competition in the Adjustments Appropriation Bill [B10-2020].

 

Report to be considered.

 

References

 

Department of Trade, Industry, and Competition (2020a) Annual Performance Plan. DTIC: Pretoria.

 

Department of Trade, Industry, and Competition (2020b) Revised Annual Performance Plan. DTIC: Pretoria.

 

National Treasury (2020a)Estimates of National Expenditure: Vote 39 – Trade, Industry, and Competition. Pretoria.

 

National Treasury (2020b)Supplementary Budget. Pretoria.

 


[1]DTIC (2020a: 20)

[2]National Treasury (2020a)

[3]National Treasury (2020a)

[4]National Treasury (2020a)

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