ATC210422: Report of the Portfolio Committee on Trade and Industry on the Department of Trade, Industry and Competition’s Second and Third Quarter Financial and Non-Financial Performance for the 2020/21 Financial Year, dated 17 March 2021

Trade, Industry and Competition

Report of the Portfolio Committee on Trade and Industry on the Department of Trade, Industry and Competition’s Second and Third Quarter Financial and Non-Financial Performance for the 2020/21 Financial Year, dated 17 March 2021

 

The Portfolio Committee on Trade and Industry, having assessed the service delivery performance of the Department of Trade, Industry and Competition (DTIC), against its mandate and allocated resources, in particular the financial resources for the period 1 July to 31 December 2020 on 17 February 2021, reports as follows:

 

1.Introduction

The second and third quarter performance of the DTIC reflected/mirrored a period of sustained pressure on the economy. The work of the DTIC revealed significant consultationswith various industries, further demonstratingthe need for continued engagement with all economic stakeholders to revive the economy. A number of sectors continued to experience limited growth and, in most instances, job losses during the period under review especially in sectors such as tourism, alcoholic beverages, and agriculture. However, the introduction of the Economic Reconstruction Recovery Plan (ERRP), including the sectoral Master Plans, is expected to mitigate against the impact of the COVID-19 pandemic. Recent employment data released by Statistics South Africa indicated a significant uptake in employment as a result of the relaxing of COVID-19 regulations as well as the economic measures introduced compared to the previous months of stricter lockdown. Notwithstanding these challenges, the DTIC achieved most of its targets and would address challenges related to targets that have not been met.

 

1.1.Mandate of the Committee

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

 

The current process forms part of ongoing oversight of the DTIC’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.

 

1.2.Purpose of the Report

The purpose of this report is to monitor the financial and non-financial performance of the DTIC against its predetermined objectives and quarterly milestones as part of the Committee’s ongoing budgetary oversight. This report assesses the non-financial and financial performance for the second and third quarter of the 2020/21 financial year, namely from 1 July to 31 December 2020.

 

1.3.Method

The Committee was briefed by the DTIC on their second and third quarter performance for the 2020/21 financial year on Wednesday, 17 February 2021.

 

1.4.Outline of the contents of the Report

Section 1 of the report provides an introduction to the report including its purpose, and method. Section 2 outlines the DTIC’s strategic objectives, assesses its financial and non-financial performance against its APP for the 2020/21 financial year from 1 July to 31 December 2020 and Section 3 outlines the key issues raised by the Committee during deliberations.  Section 4 provides the Committee’s concluding remarks followed by a note of appreciation in Section 5.

 

2.DEPARTMENT OF TRADE, INDUSTRY AND COMPETITION

 

2.1.Strategic Goals

The DTIC’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]:

1. Promoting structural transformation, towards a dynamic industrial and globally competitive economy;
2. Providing a predictable, competitive, equitable and socially responsible environment, conducive to investment, trade and enterprise development;
3. Broadening participation in the economy to strengthen economic development;
4. Continually improving the skills and capabilities of the department to effectively deliver on its mandate and respond to the needs of South Africa’s economic citizens;
5. Coordinating the contributions of government departments, state entities and civil society to effect economic development; and
6. Improving alignment between economic policies, plans of the state, its agencies, government’s political and economic objectives and mandate.

 

2.2.Overview and assessment of the financial and non-financial performance[2]

 

This section provides a comparison between the DTIC’s second and third quarter non-financial performance milestones as outlined in its APP against its second and third quarter reports for the 2020/21 financial year, and outlines its financial performance for the period under review.

 

2.2.1.Non-Financial Performance

 

1. Second Quarter Performance

The DTIC had 32 targets for the quarter, four of which had not been achieved. This represented an 87 per cent achievement of targets during the quarter. This is an improvement from the 64 per cent achievement of targets in the first quarter where 16 of the 25 targets had been met.

 

The second quarter performance highlights included:

1. Tshwane Automotive Special Economic Zone (SEZ) began with full construction with 12 investors with an investment of R2.8 billion.
2. Saldanha and Richards Bay SEZs attracting seven new investors that invested R437 million which would create 153 jobs.
3. The DTIC facilitating an investment of R800 million in the Poultry sector.
4. The DTIC, through the Competition Commission, approving four mergers with conditions of no merger-related retrenchments, increasing local procurement, and offering employees permanent employment.

 

While the target of R1.4 billion in investment had not been achieved, investments of R1.1 billion were still recorded notwithstanding the impact of the Covid-19 pandemic which resulted in fewer applications.

 

1. Third Quarter Performance 

The DTIC had 28 targets for the quarter, three had not been achieved. This represents 89 per cent achievement of targets during the quarter under review.

 

Performance highlights for this quarter included:

1. R11.3 billion leveraged investments against a target of R1.7 billion on projects in the Automotive Incentive Scheme, Critical Infrastructure Programme, and Business Process Services Incentive Programme. 
2. R31.8 billion facilitated in pipeline investments against a target of R25 billion.

 

2.2.2.Financial Performance

 

1. Second Quarter Performance

The DTIC’s budget is R9.31 billion for the financial year under review. By the end of the second quarter, the DTIC had spent approximately R4 billion of its R9.3 billion annual budget. This accounts for 44 per cent of the total annual budget. This expenditure was in line with the year to date targeted expenditure for the quarter in which the DTIC planned R4.1 billion expenditure by the end of the second quarter. Actual expenditure was 97.7 per cent of the quarterly budget. Therefore, under-expenditure was R95.9 million or 2.3 per cent of the budget.

 

The main contributors to under-expenditure by programme were the Competition Policy and Economic Planning Programme with R73.2 million underspending, the Administration Programme with R39.2 million, theEconomic Research and Coordination Programme with R28.8 million, and the Export Development, Promotion and Outward Investment Programme with R19.6 million.

 

The Industrial Financing Programme was the only programme which reflected overspending of R105.4 million or 12.4 per cent of the programme’s approved budget. The table below provides the detail of the budget, expenditure, and the remaining budget for each of the programmes.

 

Table 1: Second Quarter Expenditure by Programme

PROGRAMMES (R’000)	APPROPRIATION	YTD BUDGET	YTD ACTUAL EXPENDITURE	VARIANCE	AVAILABLE BUDGET
Administration	R857 590	R435 322	R396 041	9.02 per cent	R461 549
Trade Policy, Negotiations, and Cooperation	R128 449	53041	R41 650	21.48 per cent	R86 799
Spatial Industrial Development and Economic Transformation	R159 943	R61 437	R49 225	19.88 per cent	R110 718
Industrial Competitiveness and Growth	R1 653 246	R1 484 537	R1 477 351	0.48 per cent	R175 895
Consumer and Corporate Regulation	R312 766	R261 366	R250 216	4.27 per cent	R62 550
Industrial Financing	R4 860 006	R848 359	R953 786	-12.43 per cent	R3 906 220
Export Development, Promotion and Outward Investments	R410 889	R267 284	R247 619	7.36 per cent	R163 270
Inward Investment Attraction, Facilitation, and Aftercare	R55 699	R24 866	R23 386	5.95 per cent	R32 313
Competition Policy and Economic Planning	R789 398	R636 507	R563 260	11.51 per cent	R226 138
Economic Research and Coordination	R82 724	R37 104	R11 297	69.55 per cent	R71 427
Total	R9 310 710	R4 109 823	R4 013 831	2.34 per cent	R5 296 879

Source: DTIC (2021a)

 

In terms of economic classification, incentives, which are the second largest expenditure item after transfers to entities, were the only expenditure item that incurred over-expenditure. The DTIC had budgeted to spend R743.8 million on incentives by the end of the second quarter, however, actual expenditure was 17.2 per cent more than budgeted at R875.6 million. Over expenditure was R131.8 million.

 

With regard to other expenditure items, the main contributors were Goods and Services with R83.7 million underspending, Compensation of Employees with R71.3 million, and Transfer to Entities with R54.3 million.

 

Other areas where there were underspending related to the payment of capital assets and other transfers with under spending of R11.2 million and R6.3 million respectively.

 

Table 4: Third Quarter Expenditure by Economic Classification

ECONOMIC CLASSIFICATION  (R’000)	APPROPRIATION	YTD BUDGET	YTD ACTUAL EXPENDITURE	VARIANCE (per cent)	AVAILABLE BUDGET
Current payments	R1 915 294	R902 471	R747 319	17.19 per cent	R1 167 975
Compensation of employees	R1 171 420	R564 475	R493 078	12.65 per cent	R678 342
Goods and services	R743 874	R337 996	R254 241	24.78 per cent	R489 633
Transfers and Subsidies	R7 361 295	R3 184 183	R3 225 299	-2.23 per cent	R4 135 996
Payment of Capital Assets	R34 121	R23 169	R11 213	51.60 per cent	R22 908
Total	R9 310 710	R4 109 823	R3 983 831	2.34 per cent	R5 326 879

Source: DTIC (2021a)

 

1. Third Quarter Financial Performance

The R9.31 billion DTIC budget for the 2020/21 financial year was adjusted down by R37.4 million to R9.2 billion during the medium term adjustments process in October 2020. The projected budget was R5.5 billion, but only R5.09 billion had been spent by the end of the third quarter, R425.1 million less than budgeted.

 

The main contributors to underspending were the Industrial Financing Programme with R169.3 million underspending, the Administration Programme with R87.4 million and the Export Development, Promotion and Outwards Development Programme with R40.9 million. The table below provides further detail on the budget, expenditure, and the remaining budget for each of the programmes.

 

Table 3: Third Quarter Expenditure by Programme

PROGRAMMES  (R’000)	ADJUSTED APPROPRIATION	YTD BUDGET	YTD ACTUAL EXPENDITURE	VARIANCE (per cent)	AVAILABLE BUDGET
Administration	R862 936	R658 406	R571 001	13.28 per cent	R291 935
Trade Policy, Negotiations, and Cooperation	R115 412	R78 127	R62 320	20.23 per cent	R53 092
Spatial Industrial Development and Economic Transformation	R115 325	R102 004	R75 660	25.83 per cent	R39 665
Industrial Competitiveness and Growth	R1 647 484	R1 556 122	R1 554 689	0.09 per cent	R92 795
Consumer and Corporate Regulation	R297 696	R284 726	R261 255	8.24 per cent	R36 441
Industrial Financing	R4 932 806	R1 775 033	R1 605 729	9.54 per cent	R3 327 077
Export Development, Promotion and Outward Investments	R418 801	R334 420	R293 474	12.24 per cent	R125 327
Inward Investment Attraction, Facilitation, and Aftercare	R55 220	R37 935	R35 136	7.38 per cent	R20 084
Competition Policy and Economic Planning	R776 430	R637 384	R617 608	3.10 per cent	R158 822
Economic Research and Coordination	R51 162	R58 379	R20 502	64.88 per cent	R30 660
Total	R9 273 272	R5 522 536	R5 097 374	7.70 per cent	R4 175 898

Source: DTIC (2021b)

 

In terms of economic classification, there was significant underspending in most of the expenditure items, including compensation to employees, goods and services, and transfers and subsidies.

 

Table 4: Third Quarter Expenditure by Economic Classification

ECONOMIC CLASSIFICATION (R’000)	ADJUSTED APPROPRIATION	YTD BUDGET	YTD ACTUAL EXPENDITURE	VARIANCE (per cent)	AVAILABLE BUDGET
Current payments	R1 757 833	R1 406 137	R1 112 637	20.87 per cent	R645 196
Compensation of employees	R1 093 049	R863 928	R740 354	14.30 per cent	R352 695
Goods and services	R664 784	R542 209	R372 283	31.34 per cent	R292 501
Transfers and Subsidies	R7 498 710	R4 089 058	R3 972 973	2.84 per cent	R3 525 737
Payment of Capital Assets	R16 729	R27 341	R11 763	56.98 per cent	R4 966
Total	R9 273 272	R5 522 536	R5 097 373	7.70 per cent	R4 175 899

Source: DTIC (2021b)

 

3.Issues raised during the deliberations

The following issues related to the performance of the DTIC were raised during the Committee’s deliberations:

 

1. Positive economic growth: The Committee noted that in the presentation by the DTIC it had expressed a fairly optimistic outlook in terms of economic growth for South Africa in 2021. This was notwithstanding the negative impact of the COVID-19 pandemic on the South African economy. The Committee enquired about what informs such optimism for better economic growth in 2021. The DTIC informed the Committee that domestic economic growth projections for South Africa in 2021 were slightly more optimistic than International Monetary Fund (IMF) expectations. The South African Reserve Bank (SARB) and National Treasury projected Gross Domestic Product (GDP) to grow by between 3.6 per cent and 3.3 per cent in 2021 respectively while the IMF projected 2.8per cent. Second wave effects and the extension of COVID-19 lockdown restrictions in the first quarter of 2021 were expected to wane as the procurement and rollout of vaccines gain momentum. In addition, the easing of strict lockdown restrictions, accommodative policies in advanced economies and global economic recovery should boost domestic growth performance in the second half of 2021.

 

Furthermore, the progressive and urgent implementation of targeted interventions captured in the ERRP, as well as sectoral masterplans, are expected to mitigate the effects of South Africa’s underlying structural constraints. ERRP interventions included the substantial investment in infrastructure, the Presidential Employment Stimulus as well as strategic localisation.

 

1. Trade policy in relation to the Brazil, Russia, India and China (BRIC) countries:  It would appear that there had been limited work done with regard to furthering South Africa’s trade agenda, particularly with some global South partners. The Committee enquired why a free trade agreement was not being pursued with China, similar to China’s free trade agreement with Mauritius, rather than being dependent on a series of Memorandum of Understandings (MOUs) with respect to trade relations. The Committee also enquired whether the DTIC would be willing to share those MOUs in order for the Committee to gain a better understanding of the level of cooperation and ongoing negotiations between SouthAfrica and China.

 

The DTIC informed the Committee that trade relations with many trading partners, including those of the global south, are pursued through structured forums such as binational committees and similar, or through the structures set up under several MOUs. On identified trade issues that arise from time to time, the DTIC also utilises the diplomats of both the DTIC and the Department of International Relations and Corporation (DIRCO) stationed at South Africa’s missions abroad. These engagements mainly aim to facilitate trade by resolving barriers to trade,other than import tariffs.

 

South Africa has a preferential trade agreement (PTA) with a group of developing countries, through the Southern African Customs Union (SACU)-The Common Market of the South (MERCOSUR)PTA, which includes Brazil. This entered into force on 1 April 2016. The DTIC recognised that overalltrade relations with countries of the global south – outside of Africa - did not appear to have served South Africa’s industrialisation needs in all respects. South Africa’s export composition to these countries contained a below-average share of manufactured goods, while the import composition reflects a high share of manufactured goods.

 

A free trade agreement (FTA), which is by its nature reciprocal and would mean reducing import tariffs to zero on substantially all products, would pose considerable danger to the South African manufacturing sector. China is the world’s largest manufacturer and is highly competitive across a broad range of products/industries. Opening up the South African manufacturing sector, which does not enjoy the same economies of scale or competitiveness, could result in significant de-industrialisation and could neutralise the initiatives implemented in recent years to grow the manufacturing sector and create jobs. The real market access gains through a free trade agreement would not offset the losses, and South African manufacturers would neither be competitive in that market, nor be able to supply the required volumes. An FTA would essentially expand and “lock in” the current pattern of trade where South Africa is a primary resource exporter, while importing manufactured products. Therefore, the DTIC’s focus is on finding niche markets in value chains at advanced/high-skill levels of manufacturing in the Chinese and other developing country markets. Export promotion initiatives are key in this respect.

 

1. Impact assessment of the COVID-19 regulations (the lockdown) on the economy: A number of sectors in the South African economy, which include among others; alcoholic beverages, tourism, and agricultural sectors, are seemingly shedding jobs and in some instances going out of business. These are the sectors that have been affected the most by the lockdown. The Committee enquired whether the DTIC had done an impact assessment to quantify the impact of the lockdown regulations on the economy. The DTIC informed the Committee that it undertook a study on the impact of COVID-19 on employment, titled “COVID-19 in South Africa: The economy wide impact assessment and recovery options.” The study was based on the economy-wide analysis through the input-output models with employment and output multipliers calculated from the 2019 input-output model for a 50 sub-sector economy for South Africa.

 

The study showed that the economic shock caused by the COVID-19 pandemic had adverse effects on a significant number of industries, both individually and through their linkages with other sectors. The results were broadly in line with Statistics SA’s data releases which show a significant fall in employment accompanied by a relatively strong rebound in employment as the lockdown is progressively eased.

 

The sectors likely to see the greatest employment losses associated with a forecast decline in final demand of 10 per cent are:

• Wholesale and retail trade;

• Community, social and personal services;
• Business Services;
• Agriculture; 
• Construction,
• Transport and storage services; and
• Catering and accommodation services.

 

1. Impact of government spending on growing the economy: The DTIC referred to government spending expected to boost demand, thus positively contributing to economic growth through the multiplier effect. The Committee enquired whether the DTIC had figures to quantify the impact increased government spending would have on the economy.  

 

According to the DTIC the ‘fiscal multiplier’ refers to the effect that an increase in government spending has on a country’s Gross Domestic Product (GDP). Most countries, and especially developing countries, have fiscal multipliers that are positive. This means that if government spending increases so does GDP. There are certain circumstances in which the fiscal multiplier may be negative. This typically occurs in countries where full employment has been achieved, and/or where production is already at or close to its maximum. Under such circumstances, government spending may lead to inflation and/or increased imports to supply domestic demand, and/or declining exports as these goods are offered to supply domestic demand, and/or leads to serious infrastructural bottlenecks.

 

According to the DTIC, this is certainly not the case for South Africa.Demand has been growing slowly; production, as measured by capacity utilisation rates, had remained at the 80 per cent mark for a number of years; and investment rates by firms were still well within the investment capacity of South Africa’s financial sector.

 

Empirical work by the Institute for Economic Justice, 2020, Fiscal Policy in South Africa: Closed Input-Output Income and Employment Multipliers as well as United Nations University, 2018, Fiscal multipliers in South Africa: The importance of financial sector dynamics provide recent estimates. The Institute for Economic Justice found that on average, South Africa’s fiscal multiplier is 1.68. This means that if government spending were to increase by R1.00, GDP would increase by R1.68. The United Nations University paper found that South Africa’s fiscal multipliers are between 2 and 3, given a particular set of assumptions. This means that if government spending were to increase by R1.00, GDP would increase by between R2-R3.

 

1. Revising the Trade Policy and Strategic Framework (TPSF): The Committee noted that the current South African TPSF had been developed in 2010 and revised in 2012. Given the current economic realities facing South Africa, the Committee enquired whether the Government was considering tabling a revised TPSF that could reflect the current economic and trade realities facing the country, which should include a focus on trade in services. The DTIC informed the Committee that when the TPSF document was published in 2010 it represented, at that time, the widest consensus in South Africa on the broad approach to trade policy. It had been formulated on the basis of extensive consultations between government and constituencies. It had also obtained the support of the parliamentary portfolio committee. A short update was issued in November 2012, largely focused on updating trade data with some attention to emerging trade policy issues at that time.

 

The TPSF is premised on the enduring objectives set out in the National Development Plan to promote and accelerate economic growth along a path that generates sustainable, decent jobs in order to reduce the poverty and extreme inequalities that characterise South African society and economy. It outlines how trade policy and strategy in South Africa could make a contribution to meeting the objectives of upgrading and diversifying the economic base in order to produce and export increasingly sophisticated, value added products that generate employment. Trade policy should, therefore, firstly support industrial policy.

 

The TPSF observed that tariffs, as a key industrial development policy instrument with implications for capital accumulation, technology change, productivity growth and employment, needed to be carefully calibrated to the specificities of each sector and its production upgrading possibilities. It sets out general guidelines for a ‘developmental approach to tariffs’, determined on a case-by-case, evidenced-based investigation and analysis under the processes and procedures followed by the International Trade and Administration Commission of South Africa (ITAC). There is no prior presumption of the benefits or costs of maintaining either low or high tariffs. The upper limits for tariff setting are however, set by the binding obligations South Africa has taken in the World Trade Organisation (WTO) and in other bilateral trade agreements.

 

The TPSF proposes that South Africa pursue ‘strategic integration’ into the global economy in a manner that supports its national developmental objectives. This approach aims to ensure that the policy space to pursue national objectives while leveraging the benefits of more integrated regional and global markets is preserved. This has also informed South Africa’sapproach to a range of trade-related policy areas where work is ongoing on trade in services, intellectual property, competition, investment and procurement.

 

The TPSF recommended strengthening the institutional arrangements for trade policy making in South Africa. Ongoing efforts have been undertaken to improve coordination and consultation within government and between government and stakeholders in Parliament, business and labour, research institutions and academia.

 

While there have been many significant changes in South Africa’strade relations, the strategic thrust and overall orientation of the TPSF to support industrial development in South Africa remains critical and relevant. South Africa has witnessed changes in trade flows, shifting rankings in itstrade partners, and an evolution in the discussion on trade-related matters. There have also been new issues emerging more prominently. The core principles and approach set out in the TPSF continue to offer important guidance in approaching such matters as digital trade, and trade and health, amongst others, from a developmental perspective.   

 

The DTIC informed the Committee that it would initiate a review of the TPSF this year. The process wouldbe overseen by the Trade Policy, Negotiations and Cooperation Branch and wouldinvolve consultations with other government departments, interested stakeholders and constituencies. The DTIC was of the view that the Parliamentary Portfolio Committee should play an important role in this process.

 

1. Merger of the Department of Trade and Industry (DTI) and the Economic Development Department (EDD): The Committee welcomed the progress made in respect of the merger of the two departments which brought together all agencies that could provide targeted industrial and financial support underpinning the country’s revised industrial strategy. However, the Committee enquired whether the new organogram supports the above initiative of targeted support, what the number of employeeswere currently, and if the department would continue with its learnership/internship programme. The DTIC informed the Committee that it had been aligning itself only in certain areas and the structure was not revised in totality.  This process is currently underway and has not been finalised.  Due to budget constraints in terms of the Compensation of Employees, no new posts could be created.  The current establishment consists of 1 349 permanent posts. The Department would continue with its Internship programme and would recruit for the next intake during the 2021/22 financial year and for the 2022/23 financial years.

 

1. Nkomazi SEZ support:  The designation of the Nkomazi SEZ would support significant economic and industrial development within the Nkomazi Local Municipality and Mpumalanga as a whole. The Committee enquired about the progress in securing the necessary support for the Programming Management Unit of the Nkomazi SEZ for the development and implementation of the SEZ strategy and implementation plan. As part of the strategy to strengthen the implementation of the Nkomazi SEZ, the DTIC informed the Committee that it had appointed three senior officials to sit on the board of the SEZ, which would also include representatives from the Ehlanzeni District and Nkomazi Local Municipalities. According to the DTIC, the intention was to ensure that the SEZ would be well supported, the company was established, all systems were in place, and all the approval processes were accelerated.  In addition, the DTIC was also making use of the National Project Management Unit to provide technical advisory support to the SEZ.  The DTIC would also develop a tripartite agreement between the DTIC, the province, and the municipality to ensure that there was clarification of roles amongst the critical stakeholders.

 

1. Measures to support localisation: The Committee enquired about what measures (financial and non-financial) have been put in place by the DTIC to support the local production of Personal Protective Equipment (PPE), and how many companies have been supported thus far. The DTIC informed the Committee that as soon as the COVID-19 pandemic took hold and South Africa issued Alert levels in response to the pandemic in early 2020, the DTIC undertook a scoping exercise to evaluate local capacity in order to respond to the demand for PPE.

 

Moreover, the DTIC joined forces with stakeholders in the industry, organised labour and civil society to form the PPE Local Manufacturing Partnership (LMP).  The LMP objective was to support and capacitate local manufacturers to be able to respond to the demand for PPE. This entailed supporting the processes required to meet the South African Health Products Regulatory Authority’s (SAHPRA) licensing criteria and the National Regulator for Compulsory Specifications (NRCS) and the South African Bureau of Standards’ (SABS) regulatory and certification requirements for market access. Thus far, the process had led to the verification of 50 companies (70 per cent Level 3 and higher Black Economic Empowerment (BEE) levels) to supply the following PPE: medical textiles (isolation gowns, surgical masks, ffp2 respirators and aprons), sanitisers and disinfectants, face shields, goggles, diagnostic kit testing and gloves.

 

The DTIC informed the Committee that it quickly responded to developing the Recommended Guidelines for the manufacture of Fabric Face Masks used in South Africa – with South Africa being one of the first countries in the world to issue such guidelines. The local manufacturers are currently procurement ready. The following measures were undertaken and supported by the DTIC:

• Facilitating testing and accreditation of PPE products according to Department of Health (DoH) and WHO specifications.
• Assisting manufacturers to obtain NRCS accreditation and SAHPRA licencing – including conducting on-site visits and supporting testing processes.
• Assisting testing facilities to obtain South African National Accreditation System (SANAS) accreditation and scope extensions to test products and also facilitated funding for testing laboratories to procure additional equipment – expanding the testing infrastructure and scope extension of accredited facilities to test a broader range of medical textiles.
• Provided inputs on local procurement of PPE on the National Treasury’s Instruction Note No.3 of 2020-21 pertaining to the COVID-19 Disaster Management Central Emergency Procurement Strategy. The DTIC also provided a list of compliant manufacturers and suppliers of the various PPE products and the list is available on both the DTIC and National Treasury’s websites.
• Established a Project Management Office (PMO) within the DTIC to manage and coordinate PPE localisation. This entailed coordinating stakeholder engagement and participating on platforms to ensure jobs were not lost and supporting industry to create new jobs, respondquicklyto COVID-19 PPE and support DoH colleagues.
• Worked with Customs at South African Revenue Services (SARS) and ITAC to facilitate the importation of raw materials that are not available in the country and to ensure adherence to importation requirements.

 

The DTIC informed the Committee that it was supporting local manufactures find export markets for PPE such as on-boarding them on the current African Union portal and finding potential European Union and North American markets. In addition, it provided export permit support to local manufacturers that had found markets for PPE products.

 

The above-mentioned measures have led to the creation of new local capacity in PPE such as FFP2 masks (also known as N95) and South Africa is exporting locally made fabric facemasks. The Department, in close collaboration with the industry and labour, is also on shoring syringe and needle manufacturing.

 

1. Designation of Poultry Products: The Committee enquired about when the DTIC would finalise the process of designating poultry products. The DTIC informed the Committee that the technical team between the DTIC and National Treasury had concluded consultations and discussions, and finalised the research on the designation of the Poultry Products. The final report was under consideration by the Minister and the industry as part of the masterplan process.

 

1. Status of trade relations with the United Kingdom (UK) post Brexit: Recently the UK had concluded its withdrawal agreement from the European Union (EU). The Committee enquired on the status of trade agreements between South Africa and the UK since the conclusion of the withdrawal agreement with the EU. The DTIC informed the Committee that the UK and the EU concluded the EU-UK Trade and Cooperation Agreement on 24 December 2020. This agreement provisionally entered into force on 1 January 2021 and provides for zero tariffs and zero quotas on all trade in goods originating in the UK and the EU. The UK therefore left the common customs area with the EU on 31 December 2020 that further means that the SADC-EU Economic Partnership Agreement (EPA) also stopped applying to the UK on that date.

 

South Africa has concluded an EPA with the UK as part of the Southern African Customs Union (SACU) and Mozambique to ensure that trade with the UK continues uninterrupted once the EU-SADC EPA no longer applied to the UK. This agreement, called the SACUM-UK EPA, has entered into force on 1 January 2021.

 

The terms of the SADC-EU EPA have basically been transposed into the new SACUM-UK EPA, mutatis mutandi. The tariff preferences, except for tariff rate quota (TRQ) volumes, product specific rules of origin and provisions on administrative cooperation are therefore identical in the EPAs between South Africa and the EU; and South Africa and the UK. In short, South Africa’s trade with the UK has not changed following the UK’s exit from the EU.

 

1. Application for funding: The Committee enquired about the application process for funding from the National Empowerment Fund (NEF) and the Industrial Development Corporation (IDC), the timelines associated with such an application, and whether sufficient communication mechanisms exist between the applicant and the Development Finance Institutions (DFIs) during this process.

 

In its response to the Committee, the IDC outlined the following in terms of its accessibility and application process:

 

1. Applicants can apply to the IDC telephonically, via email, through on-line applications or through itsregional office network. Details of information requirements are available on itswebsite or through itsregional offices. Applications are handled by senior professionals who will evaluate the transaction, engage the client for clarity of intent and to address key risk and information considerations and will then recommend the application for due diligence or rejection.

 

1. During due diligence, the IDC assesses all important aspects relating to technical, commercial, financial, and economic and management appraisal of businesses and projects to ascertain sustainability and economic viability thereof.

 

1. In assessing the suitability of an application during due diligence, the unit considers the following:

• Whether the business venture or project exhibits economic merit in terms of profitability and sustainability;
• Whether the shareholders and owners make a reasonable contribution to the business venture;
• Compliance with applicable environmental standards;
• Whether the venture or project has significant socio-economic impact such as job creation potential, value addition to raw materials, rural development, empowerment, or township development; and
• Whether the business has security, the form and nature of which must be related to the entrepreneur’s specific circumstances.

 

1. Once the due diligence is completed, the application is submitted to the credit committee for approval, and, if approved, the legal agreements are then prepared for signature by the client and the IDC. Once the legal agreements are signed, and any conditions are met, the funds can be disbursed as per the terms of the funding.

 

1. Timelines for this process vary per application depending on the complexity of the transaction and availability of information. The IDC has senior professionals in each business unit who are the point of contact between the applicant and the IDC. These individuals ensure that the applicant is kept abreast of the progress on their applications.

 

In the response to the Committee, the NEF highlighted the following in terms of its accessibility and application process:

1. The client is required to fill in the application form and submit with the necessary documentation, depending on the funding requirements and product that the funding qualifies for. The NEF call centre staff explain the process to the client telephonically and supply the relevant forms.
2. The application is captured in the system and a unique reference number is generated for the client to use in tracing the progress of the application. An acknowledgement letter is then sent to the client with the reference number.
3. The application is then checked for eligibility, that is, if it meets the mandate in terms of black ownership and the size of the amount being applied for to make sure that it is within the NEF’s minimum threshold. A meeting is held with the client to clarify information submitted to the NEF.
4. The application is assessed for viability. If the transaction is not viable, the client is contacted telephonically to discuss the steps to be taken to make the business viable. The client is thereafter sent a letter indicating the steps discussed telephonically. If the business is viable, then a due diligence (site visit and customer/contract verification) is conducted. This process also involves meetings with the client to provide feedback on findings. If results of due diligence are positive, the application is presented to the Investment Committee for final approval. Upon approval, the client is informed in writing of the decision.
5. Legal agreements are then forwarded and discussed with the client and at the client’s selection, vetted by the client’s advisors after which they are concluded with the client. Funds are then disbursed to the client after verification of the bank accounts of the client and the organisations where the client is acquiring assets and equipment. The client is then handed over to Post Investment for monitoring and mentorship support.

 

1. Support of companies: The Committee enquired whether the DTIC would reconsiderits position on providing support/protection to companies that are shedding jobs. Thissupport/protection by government translates into increased profits for the companies but also to higher levels of unemployment.  Should companies that get support from the government not prioritise employment or should government not require them to retain jobs in order to receive such support? The DTIC informed the Committee that the incentive guidelines make it mandatory for companies not to shed jobs for the duration of the incentive contract. To be approved for an incentive, the applying company should not have reduced its employment levels from the average employment levels for a 12-month period prior to the date of application, and these employment levels should be maintained for the duration of the incentive period/agreement.

 

1. Protection for the steel industry: The Committee enquired whether the DTIC would reconsider its position around the protections around the steel and scrap metal industries. The Steel Masterplan Version 1.0 has been developed through engagements with industry across the steel value chain and the unions.  According to the DTIC, the Masterplan seeks to develop an industry that is competitive, dynamic, and inclusive; and that is able to provide a stable platform for investment, growth and job creation.  A Steel Oversight Council of industry, government and labour representatives has been established whose focus is to develop a dynamic implementation plan within the next month based on priorities identified by the Members and emanating from Version 1.0.  A part of the implementation plan is to consider the balance of trade and other measures in the context of the industry challenges and opportunities as well as consider trade-offs and sharpening the implementation of the on-going support measures afforded to the industry. 

 

4.Conclusions

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

 

1. The Committee welcomed the positive economic outlook projected for 2021 which was positively affected by the easing of lockdown restriction as well as the aggressive and urgent implementation of targeted interventions as outlined in the Economic Reconstruction and Recovery Plan (ERRP), including sectoral masterplans which are expected to mitigate the effects of South Africa’s underlying structural constraints.

 

1. The Committee welcomed the study undertaken by the DTIC on the impact of the COVID-19 pandemic on employment. The study showed that the economic shock caused by the COVID-19 pandemic, had adverse effects on a significant number of industries such as tourism, alcoholic beverages, and agriculture, both individually and through their linkages with other sectors. However, Statistic South Africa’s recently released data showed a significant rebound in employment as the lockdown was progressively eased.

 

1. The Committee recognised the importance of trade relations with countries of the South but noted that such relations must support South Africa’s industrialisation drive.

 

1. Trade relations between South Africa and the United Kingdom were not affected by its the exit from the European Union. This was a result of the SACUM-UK Economic Partnership Agreement (EPA) which was developed and negotiated by the DTIC and ratified by Parliament prior to their exit. Therefore, the Committee welcomed this smooth transition. 

 

1. The Committee applauded the collaboration between government, labour and business to establishment the Personal Protective Equipment Local Manufacturing Partnership (LMP).  This partnership ensured that local manufacturers were able to respond to the demands by building manufacturing and export capacity of Personal Protective Equipment. It was further encouraged by the cooperative work done between the DTIC and DoH and its entities in this regard.

 

1. While the Committee was encouraged by government’s continued support of companies in strategic industries, it remained concerned that notwithstanding its support for the steel industry, it continues to shed jobs while making increased profits.

 

1. The Committee was encouraged by the work done by the DTIC and the National Treasury towards the designation of poultry products. It requested that the DTIC accelerated the finalisation of the designation.

 

1. The Committee welcomed the collaboration between the DTIC and the local municipalities to facilitate the designation of Special Economic Zones. The Committee encouraged the DTIC to continue to work with all stakeholders, across government, to facilitate the designation and functioning of SEZs.

 

5.Appreciation

The Committee would like to thank the Director-General of the Department of Trade, Industry, and Competition, Mr L October,as well as their team, for their cooperation and transparency during this process. The Committee also wishes to thank its support staff, in particular the committee secretary, Mr A Hermans; 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.

 

 

References

 

Department of Trade, Industry, and Competition (2020). Annual Performance Plan 2020/21.

 

Department of Trade, Industry, and Competition (2021a) DTIC Presentation on the2nd Quarter 2020/21. Presentation to the Portfolio Committee on Trade and Industry. Cape Town: Parliament, 17 February.

 

Department of Trade, Industry, and Competition (2021b) DTIC Presentation on the3rd Quarter 2020/21. Presentation to the Portfolio Committee on Trade and Industry. Cape Town: Parliament, 17 February.

 

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

 

Department of Trade, Industry, and Competition (2021a). Verified SecondQuarter Report For The 2020/21 Financial Year. DTIC. Pretoria.

 

Department of Trade, Industry, and Competition (2021b). Verified Third Quarter Report ForThe 2020/21 Financial Year. DTIC. Pretoria

 

 

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[1] DTIC (2020)

[2]DTIC (2021a) and (2021b)