ATC240404: Report of the Portfolio Committee on Trade, Industry and Competition on the Department of Trade, Industry and Competition’s Second and Third Quarter Financial and Non-Financial Performance for the 2023/24 Financial Year, dated 20March 2024

Trade, Industry and Competition

Report of the Portfolio Committee on Trade, Industry and Competition on the Department of Trade, Industry and Competition’s Second and Third Quarter Financial and Non-Financial Performance for the 2023/24 Financial Year, dated 20March 2024

The Portfolio Committee on Trade, Industry and Competition, 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 2023, on 23 February 2024, reports as follows:

1.Introduction

For the 2023/24 financial year, the DTIC had introduced a fundamental shift in setting targets from a focus on outputs within the DTIC’s control (key performance indicators(KPIs)) to a more dynamic, outcome focused approach (impact outcomes). During the second and third quarter of the 2023/24 financial year, South Africa’s manufacturing sector faced challenges with energy supply and logistics. Furthermore, South Africa’s exports of commodities and manufactured products have been facing challenges due to slow global growth. Despite these circumstances, domestic manufacturing production increased by 0,7 percent from December 2022 to December 2023[1]. Within this economic context, the DTIC had achieved 78,8 percent and 58,2 percent of its KPI targetsin the second and third quarter of the 2023/24 financial year respectively and had spent 82 percent of its projected budget as at 31 December 2023. In addition, it had 75 percent or higher achievement for 86,7 percent of its 45 impact outcome targets.

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 provide an assessment ofthe 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 assessment includes the non-financial and financial performance for the second and third quarter of the 2023/24 financial year, the period from 1 July to 31 December 2023.

1.3.Method

The Committee was briefed by the DTIC on its second and third quarter performance for the 2023/24 financial year on Friday, 23 February 2023. The Committee then engaged on the presentation by the DTIC.

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, and provides an assessment of its financial and non-financial performance against its APP for the second and third quarter of the2023/24 financial yearand 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[2]:

Promoting structural transformation, towards a dynamic industrial and globally competitive economy;
Providing a predictable, competitive, equitable and socially responsible environment, conducive to investment, trade and enterprise development;
Broadening participation in the economy to strengthen economic development;
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;
Coordinating the contributions of government departments, state entities and civil society to effect economic development; and
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[3]

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 performance reports for the 2023/24 financial year, and outlines its financial performance for the period under review.

2.2.1.Non-Financial Performance

The DTIC’s 2023/24 APP outlined an innovative new approach it was piloting, in partnership with the Department of Planning, Monitoring and Evaluation. This approach moves away from purely targeting inputs and activities that are within the DTIC’s control or influence, towards 45 targeted impact outcomes. These impact outcomes are based on a set of key assumptions outlined in the APP and the responsibility to achieve them is shared across relevant programmes and entities falling under the DTIC’s mandate (DTIC Group). These impact outcomes are outlined below for the period 1 Aprilup to 31 December 2023 followed by the performance of the DTIC per quarter in terms of the KPIs ascribed to each of its programmes.

In terms of the DTIC’s year-to-date performance, it had over-achieved or achieved (namely 100% achievement or more) 27 of its 45 annual targets. These 27 targets account for 60% of its annual targets that had been achieved by the end of December 2023.Twelveof the annual targets (or 26,7% of its annual targets) had been on-track to be achieved (namely between 75% and 99%achievement); and six of its annual targets (or 13,3% of its annual targets) had less than 75% achievement. A detailed breakdown of this performance is shown in Table 1 below.

Table 1: Performance in terms of impact outcomes as at 31 December 2023

Output	Annual Target	YTD[4] Achieved	% YTD Achieved
1: R200 billion in investment pledges secured across the state	R200 bn	R378 bn	189%
2: R40 billion in additional local output committed or achieved	R40 bn	R82,3 bn	206%
3: R700 billion in manufacturing exports	R700 bn	R761 bn	109%
4: R300 billion in manufacturing exports to other African countries	R300 bn	R313 bn	104%
5: R8 billion in exports of global business services	R8 bn	R8,9 bn	111%
6: R30 billion in support programmes administered by or in partnership with the DTIC Group	R30 bn	R22 bn	75%
7: R15 billion support programmes to enterprises in areas outside the 5 main metros	R15 bn	R10,6 bn	71%
8: R8 billion in financial support programmes to small, medium and micro enterprises (SMMEs), and women and youth empowered businesses	R8 bn	R3,5bn	44%
9: R7,5 billion in financial support programmes to enterprises in labour absorbing sectors	R7,5 bn	R9,6 bn	128%
10: R800 million in Equity Equivalent Investment Programme agreements	R8m	R3 bn	377%
11: R40 billion in black industrialist output achieved (Quarterly)	R40 bn	R88,3 bn	221%
12: 1 million jobs supported by DTIC programmes or covered by master plans	1 000 000	1 021 817	102%
13: 100 000 Jobs to be created (50 000 Social Employment Fund (SEF) funded part-time or temporary jobs)	50 000	350 983	702%
14: 23 000 Jobs in black industrialists’ firms supported	23 000	98 778	429%
15: 20 000 Additional workers with shares in their companies	20 000	17 031	85%
16: 10 High-impact outcomes on addressing market concentration at sector or firm level	10	9	90%
17: 2 New Special Economic Zones (SEZs) Designated and support work with provinces related to industrial parks	2	1	50%
18: R1,3 billion in financial support to enterprises including SMMEs to mitigate impact of load shedding through energy resilience fund (Approved)	R1,3 bn	R1,6 bn	123%
19: 1400 Megawatts (MW) of energy from projects facilitated	1400MW	3444,7MW	246%
20: 550MW of energy available for the grid	550MW	216,1MW	39%
21: 1 Energy One-Stop Shop (EOSS) Operational	1	1	100%
22: 4 Expedited regulatory amendments and flexibility, to promote energy efficiency	4	5	125%
23: 100 Investor facilitation and unblocking interventions provided with a stretch target of 200 interventions	100	279	279%
24: Grey listing: Publication Of ‘Know Your Shareholder’ Regulations’ and Follow Ups	1	1	100%
25: 10 Business forums hosted aimed at supporting increased FDI, exports and outward investment hosted	10	10	100%
26: Four pieces of priority legislation amended, tabled or submitted to the Executive Authority, Cabinet or Parliament	4	4	100%
27: 1 Implementation of the African Continental Free Trade Agreement(AFCFTA)	1	1	100%
28: 10 High impact trade interventions completed	10	13	130%
29: 1 Strategy and advocacy finalised responding to green trade barriers (Carbon Border Adjustment Mechanism (CBAM))	1	75%	75%
30: 1 Electric Vehicle Strategy Finalised (White Paper)	1	100%	100%
31: 1 Finalisation of Green Hydrogen Commercialisation Framework	1	1	100%
32: 1000 Case Studies of firms, workers, entrepreneurs, professionals or communities impacted by the DTIC measures; including 12 local films/ documentaries telling the SA story	1 000	773	77%
33: 52 Community outreach programmes by the DTIC Group	52	39	75%
34: 7 Master Plans Managed And 1 New Master Plan Finalised	7	6	85%
35: Oversight of the Industrial Development Corporation, National Empowerment Fundand Export Credit Insurance Corporation to Ensure that at least 95% of Planned Key Performance Indicators (KPIs) are achieved	95%	75%	75%
36: Oversight of other entities to ensure that at least 95% of planned KPIs are achieved	95%	75%	75%
37: 5 Conferences, summits, and international forums hosted	5	6	120%
38: 50 Mergers and acquisitions where public interest conditions have been incorporated	50	48	96%
39: 4 High-Impact Measures to improve the efficiency and/or effectiveness, of the DTIC’s policy or programme interventions	4	4	100%
40: 10 High-Impact Measures to reduce red tape or improve turnaround times in administration of incentives and work of agencies	10	13	130%
41: 4 protocols finalised under the AFCFTA	4	3	75%
42: 1 Metal trading system developed to identify stolen public infrastructure entering the scrap metal value-chain, export market or legitimate metal production industry	1	80%	80%
43: Promotion of a Transparent and Just Adjudication Process for Incentive Application	1	50%	50%
44: 6 Impact assessments or enhancements of trade instruments or measures	6	3	50%
45: 10 Successful actions completed on price monitoring and excessive pricing or price gouging	10	11	110%

Source: DTIC (2024b)

The DTIC reported that it would most likely achieve most of its impact outcome targets. However, it indicated that in terms of output 17 (twonew Special Economic Zones (SEZs)designated and support work with provinces related to industrial parks), as only onenew SEZ would be designated given fiscal constraints. Therefore, this output would not be achieved in the 2023/24 financial year.

2.2.1.1.Second Quarter Performance by Programme[5]

In terms of the second quarter KPIs, the DTIC had set 80 targets for this quarter, 63 of which had been achieved. This represented a78,8 percent achievement of targets during the quarter.

Programme 1: Administration

Programme 1 had six targets for the second quarter, of which two had been achieved. The four targets that had not been achieved were as follows:

110 DTIC success stories had been profiled through case studies, advertising campaigns and social media platforms against a target of 250 stories for the quarter. The DTIC stated that case studies had to still be quality assured through internal processes before being published.
There had been no funding accessed or support provided for small, medium and micro enterprises (SMMEs) owned by persons with disabilities against a target of 7 percent.
Only 37 percent of funding accessed or support provided for SMMEs had been for women-owned SMMEs against a target of 40 percent.
The target of establishing an Incentives Adjudication Review Committee had not been met.

Programme 2: Trade

Programme 2 had six targets for the second quarter. It had achieved all of its targets.

Programme 3: Investment and Spatial Industrial Development

Programme 3 had eight targets for the second quarter. It had achieved all of its targets.

Programme 4: Sectors

Programme 4 had 15 targets for the second quarter, of which 13 had been achieved. In terms of the other two targets, one had not been achieved and it was unclear whether the other had been achieved or not. In terms of the former, investment to the value of R41,1 million had been facilitated against a target of R400 million.

The latter target was in relation to the development of a Metal Trading System to identify stolen public infrastructure entering the scrap metal value-chain, export market or legitimate metal production industry. The target set for the second quarter was consultation with key stakeholders and the actual output was that a demo system had been developed with user and dealer modules.

Programme 5: Regulation

Programme 5 had five targets for the second quarter, of which three targets had been achieved. The two targets that had not been achieved were as follows:

Only three workshops against a target of six workshops had been conducted in support of increasing the funding accessed by SMMEs and support provided to SMMEs. This was due to limited requests from the Export and Incentives Branches for the Regulation Branch to participate in further workshops targeting women- and youth-owned SMMEs.
The target for two successful actions completed on price monitoring and excessive pricing or price gouging had not been achieved, as no actions had been completed in the quarter. This was becausethe National Consumer Commissionhad still been finalising its investigation.

Programme 6: Incentives

Programme 6 had seven targets for the second quarter, of which six had been achieved. The target that had not been achieved was targetedinvestment of R5 billion;investment worth approximatelyR4,6 billion had been facilitated. This was due to budgetary constraints and slow investment by companies in the quarter.

Programme 7: Exports

Programme 7 had eight targets for the second quarter, of which six had been achieved. The two targets that had not been achieved were as follows:

The DTIC had hosted two business forums aimed at supporting increased foreign direct investment (FDI), exports and outward investments against a target of three business forums. The two forums were with the Democratic Republic of Congo in July and the Republic of Uganda in September 2023. The DTIC noted that the timing of state visits and related business forums were determined by the Presidency. Furthermore, that the year-to-date performance was on-track as an additional business forum had been hosted in the first quarter.
Three high impact trade interventions, including in terms of trade disputes, challenges with the implementation of trade agreements, International Trade and Administration Commission (ITAC) decisions and trade measures, and bilateral trade concerns, had been planned for the quarter. However, the DTIC had only submitted one report, as the identification and resolution of trade interventions took longer than anticipated.Therefore, it would focus more on the programme as well as allocate additional resources to it.

Programme 8: Transformation and Competition

Programme 8 had 20 targets for the second quarter, of which 15 had been achieved. The five targets that had not been achieved were as follows:

An amount of R19,8 million was provided to support SMMEs against a target of R165 million.
A valueof R364 million in output by Black Industrialist firms had been supported by the DTIC group against a target of R1billion.
A total of 999full-time jobs had been created against a target of 1 200 jobs. The DTIC noted that performance under this target was influenced by commitments made by the merging parties and applications received.
Only 433 jobs in Black Industrialist firms had been supported by the DTIC group against a target of 750 jobs.
While no block exemptions for energy suppliers and users had been reported on against a target of one, the DTIC reported that this target had been achieved in the first quarter, as both regulations had been required then.

Programme 9: Research

Programme 9 had five targets for the second quarter, of which four had been achieved. The target that had not been achieved was the Black Industrialist Census, as it had been suspended due to a legal matter.

2.2.1.2.Third Quarter Performance[6]

The DTIC had 79 targets for this quarter, of which 46targets hadbeen achieved. This representeda 58,2percent achievement of its quarterly targets. This is a decline in performance compared to the previous quarter’s performance of 78,8 percent achievement of targets.

Programme 1: Administration

Programme 1 had three targets for the third quarter. However, none of the targets had been achieved. These were as follows:

110 DTIC success stories had been profiled through case studies, advertising campaigns and social media platforms against a target of 250 stories for the quarter. The DTIC indicated that some branches and entities had not yet submitted their case studies for the quarter.
Only two community outreaches were held against a target of 13 outreaches. The DTIC reported that five education and awareness outreaches had been postponed by the Regulation Branch. It had been engaging the acting Director-General about a recommendation to avoid cancellation of community outreach programmes.
The DTIC was meant to conduct an awareness campaign regarding the establishment of its Incentives Adjudication Review Committee. However, members had not yet been appointed to the Committee, as the Minister had not approved the founding documents for the nomination of members to the Committee.

Programme 2: Trade

Programme 2 had six targets for the third quarter, of which five targets had been achieved. The target that had not been achieved was the value of exports in manufacturing sectors to Africa facilitated. The Branch had facilitated R56,6 billion in manufactured exports to Africa against a target of R62,2 billion. The DTIC reported that as this was a new target, it was difficult to project appropriate quarterly values to target.

Programme 3: Investment and Spatial Industrial Development

Programme 3 had nine targets for the third quarter, of which five targets had been achieved. The four targets that had not been achieved were as follows:

The SEZs had supported 997 jobs; whereas the annual target is 25 000 jobs supported. This is assumed to not have been met as about 6 250 jobs should have been targeted for the quarter to be able to meet the annual target (quarterly target from the APP was R300 million, which appears to have been a typographical error).
Only investment of R20,93 billion had been facilitated against a target of R51 billion. However, the DTIC indicated that this target had been over-achieved in the first half of the year.
The Coega SEZ extension designation application had been submitted to the Minister.In addition, the Technical Evaluation Committee had been convened in November to assess the application for FetakgomoTubatse SEZ. The latter application for the designation of the FetakgomoTubatse SEZ has been submitted to the acting Deputy Director-General. However, the target was to assess and submit a second application to the Minister for consideration in relation to the designation of new SEZs. The output appears to be misaligned to the target, as the Coega SEZ is an existing SEZ, while the application for the FetakgomoTubatse SEZ has not been submitted to the Minister as yet.
The quarterly target for the establishment of the physical Energy One-Stop-Shop was to streamline applications and process. However, the DTIC reported on projects being unblocked and its engagement with the relevant municipalities in this regard. This is misaligned with the initial target.

Programme 4: Sectors

Programme 4 had 14 targets for the thirdquarter, of which ninetargets had been achieved. The five targets that had not been achieved were as follows:

To facilitate exports in manufacturing sectors to Africa to the value of R50 million. However, no exports had been facilitated in the quarter. The Branch indicated that the annual target had already been exceeded by the second quarter.
Only 422 jobs had been supported in Black industrialist firms against a target of 1 500 jobs.
No stakeholder engagement workshops had beenconducted on the draft trade and climate change strategy and action plan.The organisation of these workshops was the responsibility of the Trade Branch to lead.
The action minutes on the technical infrastructure institutions had been drafted but would only be available in the next quarter.
The Metal Trading System (MTS) prototype had been developed and was going through a process of testing. However, the target had been to finalise the system in the third quarter.

Programme 5: Regulation

Programme 5 had five targets for the thirdquarter, of which onetarget had been achieved. The four targets that had not been achieved were as follows:

No workshops were hosted in areas outside the metros to support access to funding against a target of five workshops, as no workshops had been organised by the lead branches.
No workshops were hosted against a target of eight workshops to support increasing the funding accessed by SMMEs and support provided to SMMEs, as no workshops had been organised by the lead branches.
Only 2 123 jobs had been supported from the National Lottery funded projects across the sectors provided in the Lotteries Act against a target of 4 000. This was attributed to the exclusion of the Lottery Sport National Federation’s statistics, as the data had not been received before submission of the report. However, the target for 7 000 jobs supported by liquor distributors and macro manufacturers through the renewal of liquor licence registrations by the National Liquor Authority had been over-achieved with 14 214 jobs supported.
Two successful actions had been completed on price monitoring and excessive pricing or price gouging against a target of three actions.

Programme 6: Incentives

Programme 6 had eight targets for the third quarter, of which fivetargets had been achieved. The three targets that had not been achieved were as follows:

ApproximatelyR5,9 billion of investment had been facilitated against a target of R10 billion. This was due to fewer applications with low investment values being received in the quarter as a result of the economic slowdown.
Only funding of R415 million had been accessed in areas outside the five metropolitan areas against a target of R500 million. The DTIC indicated that fewer claims had been received from outside these areas.
Financial support of R456 million had been provided to SMMEs to mitigate the impact of loadshedding through the Energy Resilience Fund against a target of R500 million.

Programme 7: Exports

Programme 7 had seven targets for the third quarter, of which fivetargets had been achieved. The two targets that had not been achieved were as follows:

No business forums had been hosted aiming at supporting increased FDI, exports and outward investments against a target of two forums.
Two high impact trade interventions, including trade disputes, challenges with implementation of trade agreements, ITAC decisions and trade measures, and bilateral trade concerns, had been planned for the quarter. However, the DTIC had reported that only one export barrier had been resolved and it had submitted a report on resolved export barriers. It noted that the identification and resolution of trade interventions took longer than anticipated. Therefore, it would focus more on the programme as well as allocate additional resources to it.

Programme 8: Transformation and Competition

Programme 8 had 18 targets for the third quarter, of which nine targets had been achieved. The nine targets that had not been achieved were as follows:

Only investment to the value of R965 million had been facilitated against a target of R5,4 billion.
An amount of R50 million was provided to support SMMEs against a target of R275 million. This was attributed to lower support provided than expected.
The target of R200 million worth of loan equity and procurement funding to support black-owned enterprises had not been achieved, as the Equity Equivalent Investment Programme’s (EEIP) applications were still being considered. However, the DTIC noted that the annual target had been exceeded already.
An amount of R188 million of output by Black Industrialist firms had been supported by the DTIC group against a target of R1 billion. The DTIC attributed this to outstanding information from companies.
In terms of part-time jobs created through the Social Economy Fund, only 396 jobs had been created against a target of 2 000 jobs. The DTIC noted that commitments to creating jobs was influenced by the merging parties and applications received.
Only 664 jobs had been supported by the DTIC group in Black Industrialist firms against a target of 750 jobs. The DTIC noted that this output was influenced by the merging parties and applications received.
27 success stories had been profiled through case studies against a target of 50 success stories. The DTIC noted that the quarterly targets had been exceeded in the first half of the year.
No regulations had been published or red-tape reduction interventions had been implemented against a target of one regulation or intervention. The DTIC indicated that the product had been delivered in the first quarter.
One successful action had been completed on price monitoring and excessive pricing or price gouging against a target of two actions. The DTIC reported that the additional action required had been achieved in the first half of the year.

Programme 9: Research

Programme 9 had nine targets for the third quarter, of which seven targets had been achieved. The two targets that had not been achieved were as follows:

The targeted assessment report on the investment conference commitments had not been completed. This was attributed to delays in commencing the project due to budget constraints.
The Report on the Impact Assessment on the EEIP had not been completed. The DTIC reported that the project commenced late due to lack of access to critical data and the project being of a wide scope.

2.2.2.Financial Performance

2.2.2.1.Second Quarter Performance

Of the R6,94 billion projected budget for the second quarter, R6,79 billion had actually been spent. This resulted in an under-expenditure of R144 million (2,1 percent of the projected year-to-date expenditure) as at 30 September 2023.

The main contributors to underspending had been the Incentives programme with an under-expenditure of R186,4 million, the Transformation and Competition programme with under-expenditure of R32,3 million, and the Research programme with under-expenditure of R5,8 million.

There had also been significant over-spending in the Administration programme of R43,5 million (11,7 percent over the projected expenditure for the programme) and in the Exports programme to the value of R32,1 million (10,9 percent over the projected expenditure for the programme).The table below details the second quarter expenditure by programme.

Table 2: Expenditure by Programme as at 30 September 2023

Programme (R’000)	Budget 2023/24[7]	Year-to-date			Available Budget
Programme (R’000)	Budget 2023/24[7]	Projected Expenditure	Actual Expenditure	% Variance[8]	Available Budget
1: Administration	840332	371018	414547	-11,7%	425785
2: Trade	244170	170079	168244	1,1%	75926
3: Investment and Spatial Industrial Development	168622	77366	80138	-3,6%	88484
4: Sectors	1722408	1382755	1381658	0,1%	340750
5: Regulation	359604	307342	312250	-1,6%	47354
6: Incentives	5391367	2621959	2435603	7,1%	2955764
7: Exports	407562	293767	325892	-10,9%	81670
8: Transformation and Competition	1728120	1682280	1650024	1,9%	78096
9: Research	60362	30619	24786	19,1%	35576
Total	10922547	6937185	6793141	2,1%	4129406

Source: DTIC (2023b)and National Treasury (2023)

In terms of expenditure by economic classification, there had been significant underspending of R205 million in transfers and subsidies, specifically in terms of incentive payments and external programmes. This had been R185,4 million and R22,0 million respectively. In terms of the procurement of goods and services, there had been over-spending of R19,5 million. There had also been significant over-spending of R51 million in terms of payments for capital assets. Compensation of employees had been under-spent by R9,7 million. The financial performance in terms of the economic classification is depicted in Table 3 below.

Table 3: Expenditure by Economic Classification as at 30 September 2023

Description (R’000)	Budget 2023/24[9]	Year-to-date			Available Budget
Description (R’000)	Budget 2023/24[9]	Projected Expenditure	Actual Expenditure	% Variance	Available Budget
Current payments	1 745 343	817 864	827 611	-1,2%	917 732
Compensation of employees	1 066 140	540 588	530 792	1,8%	535 348
Goods and services	679 203	277 276	296 819	-7,0%	382 384
Transfers and subsidies	9 161 515	6 114 198	5 909 202	3,4%	3 252 312
Incentive payments	5 233 256	2 539 759	2 354 393	7,3%	2 878 863
Department entities	2 066 598	2 066 598	2 066 598	0,0%	0
External programmes	1 651 078	1 396 571	1 374 529	1,6%	276 549
Non-profit organisations (Partnerships with business associations, NEDLAC)	165 117	108 569	108 143	0,4%	56 974
Membership fees (International organisations)	44 459	2 241	2 241	0,0%	42 218
Households	1 007	460	3 299	-617,2%	-2 292
Payments for capital assets	15 689	5 123	56134	-995,7%	-40 445
Payments for financial assets	-	-	194	-	-194
Total	10 922 547	6 937 185	6 793 141	2,1%	4 129 405

Source: DTIC (2023b) and National Treasury (2023)

2.2.2.2.Third Quarter Performance

Projected expenditure by the end of the third quarter had been R8,9billion while actual expenditure had been R8,2 billion. This resulted in under-expenditure of R710,9 million in the third quarter or 8 percent lower than the projected expenditure. The table below details the third quarter expenditure by programme.

Table 4:Expenditure by Programme as at 31 December 2023

Programme (R’000)	Budget 2023/24	Adjusted Budget	Year-to-date			Available budget
Programme (R’000)	Budget 2023/24	Adjusted Budget	Projected Expenditure	Actual Expenditure	% Variance	Available budget
1: Administration	840332	859099	574461	611483	-6,4%	247616
2: Trade	244170	261603	195354	197248	-1,0%	64355
3: Investment and Spatial Industrial Development	168622	140534	141487	116738	17,5%	23796
4: Sectors	1722408	1592932	1643466	1503320	8,5%	89612
5: Regulation	359604	349339	329188	321756	2,3%	27583
6: Incentives	5391367	5413639	3909873	3449811	11,8%	1963828
7: Exports	407562	388284	351971	352051	0,0%	36233
8: Transformation and Competition	1728120	1644977	1706103	1597035	6,4%	47942
9: Research	60362	59112	45782	37317	18,5%	21795
Total	10922547	10709519	8897685	8186759	8,0%	2522760

Source: DTIC (2024b)

The main contributors to underspending had been the Incentives programme with an under-expenditure of R460 million, the Sectors programme with under-expenditure of R140,1 million, and the Transformation and Competition programme with under-expenditure of R109,1 million. There had also been significant over-spending in the Administration programme of R37 million.

In terms of the economic classification, there had been significant underspending in transfers and subsidies (R732 million), specifically in terms of incentive payments, department entities and external programmes. This had been R456,7 million, R194,3 million and R72,6 million respectively. In terms of the procurement of goods and services, there had been over-spending of R17 million. While compensation of employees had been under-spent by R44,9 million or 5,4 percent, a significant increase compared to under-spending of 1,8 per cent in the second quarter. There had also been significant over-spending of R48,8 million in terms of payments for capital assets. The financial performance in terms of the economic classification is depicted in Table 5 below.

Table 5: Expenditure by Economic Classification as at 31 December 2023

Description (R’000)	Budget 2023/24	Adjusted Budget	Year-to-date			Available budget
Description (R’000)	Budget 2023/24	Adjusted Budget	Projected Expenditure	Actual Expenditure	% Variance	Available budget
Current payments	1 745 343	1 714 801	1 266 036	1 238 149	2,2%	476 652
Compensation of employees	1 066 140	1 066 140	828 525	783 649	5,4%	282 491
Goods and services	679 203	648 661	437 511	454 500	-3,9%	194 161
Transfers and subsidies	9 161 515	8 926 598	7 622 890	6 890 890	9,6%	2 035 708
Incentive payments	5 233 256	5 257 558	3 783 759	3 326 996	12,1%	1 930 562
Department entities	2 066 598	1 872 318	2 066 598	1 872 318	9,4%	0
External programmes	1 651 078	1 603 132	1 617 448	1 544 893	4,5%	58 239
Non-profit organisations (Partnerships with business associations, NEDLAC)	165 117	146 011	143 666	140 353	2,3%	5 658
Membership fees (International organisations)	44 459	44 459	10 679	2 241	79,0%	42 218
Households	1 007	3 120	740	4 089	-452,6%	-969
Payments for capital assets	15 689	67 899	8 759	57527	-556,8%	10 372
Payments for financial assets	-	221	-	194	-	27
Total	10 922 547	10 709 519	8 897 685	8 186 760	8,0%	2 522 759

Source: DTIC (2024b)

3.Issues raised during the deliberations

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

Impact outcome targets: During the 2023/24 financial year, a number of impact outcome targets had been set by the DTIC. The Committee enquired whether all targets set by the DTIC would be met. The Minister informed the Committee that the DTIC would be on track to achieve all its targets, however, there couldbe one exception as a result of fiscal constraints. The Department had been working very hard to achieve the other targets and, in some cases, it was ahead of its targets. However, he was of the view that the DTIC should continue to work hard to achieve its investment goals, as thesewould facilitate the creation of new jobs.
Industrial policy: At the start of the new administration, government reviewed South Africa’s industrial policy. The main objective was to ensure that ordinary South Africans directly benefitted from the industrialisation initiatives through job creation and more inclusive business ownership. The focus was on strategic value chains, primarily through the promotion of localisation and sector masterplans, and to advance the legal and other modalities necessary to promote trade within Africa through the African Continental Free Trade Area (AfCFTA). The Committee enquired whether South Africa’s industrial policy was interventionist, hence not effectively addressing the structural inefficiencies within the economy. The Minister informed the Committee that there had been significant developments internationally around industrial policy and the role of the state in this regard. Prior to the COVID-19 pandemic, there appeared to have been a reluctance by a number of governments to openly speak about industrial policy, in particular around measures by the state. This view, according to the Minister, had undergone a dramatic shift during and after the COVID-19 pandemic, with the United States of America (US) at the forefront of this. This shift was away from the free-trade paradigm, which started under the previous US administration and was accelerated under the current administration, which included such elements as the “Buy America” provision in public procurement to encourage greater procurement from US businesses.

The Inflation Reduction Act (IRA) wasan example of this acceleration.It included an industrial policy package of billions of dollars which essentially amount to state intervention to rebuild the US’s industrial capabilities. The IRA focused on promoting domestic production of items,such as solar, wind and battery components, to a number of green services and others. In addition, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act aimed to boost domestic research and manufacturing of semiconductors to strengthen the US’s supply chain and counter competition from other countries. According to the Minister, the US is currently busy with one of its largest industrialisation efforts.

This trend was also evident within the European Union (EU) with the promotion and support of strategic industries within their economy. This is in line with their strategic autonomy approach that refers to the EU’s ability to act autonomously without being over reliant on other countries for the supply of key products.

Another example mentioned by the Minister were the measures adopted by Indonesia such as the prohibition of the export of raw nickel to promote the localisation of stainless-steel manufacturing. At the time, the Indonesian government was concerned that it was exporting raw material, however, it took a decision to beneficiate the raw nickel rather than exportit. This resulted in significant investment by the Chinese government in Indonesia to build one of the world’s largest stainless-steel industries. China was another example of strong state measures in support of industrialisation, with India increasing its support and intervention particularly within the manufacturing sector. Therefore, the Minister expressed a view that the position of developed countries, including the International Monetary Fund and World Bank, around industrialisation had evolved.

The Minister informed the Committee that it was important for government to determine the nature of its involvement in the economy, as poorly conceived and executed interventions might have a negative effect on the economy. Failing to determine the extent and kind of government intervention may severely undermine the expansion of the economy. As a result, the government has,in recent years, recognised how critical it is to identify the goals it set out to achieve, deal with unintended consequences, and to ensure that the nature of the intervention permits some level of corporate flexibility. He further emphasised that government might influence the resolution of mandatory issues through settlement agreements, citing the Competition Act as an example. Thus, corporations were able to assert that they could differentiate themselves from competitors and other parties in their supply chain by implementing certain actions through a partnership model. According to the Minister, another example of this is the master plans, which require significant time to develop and implement. Hence government needs to ensure, that for future master plans, the required skills mix among both regulators and line departments are available given its complexity.

3. Structural challenges facing the South African economy: South Africa’s economy is the most diversified, technologically sophisticated, and industrialised in Africa. However, there are structural imbalances that serve as intractable barriers to long-term economic development and progress. Socio-economic challenges posed a significant risk given the continued energy crisis, constrictedinfrastructureand logistics, with unfavourable global conditions, and climate shocks. The Committee enquired whether government had been considering measures to change the structure of the South African economy. With regards to the structure of the economy, the Minister informed the Committee that currently there were still high levels of economic concentration within most sectors of the economy, with two or three firms dominating in these markets. This provided limited opportunity for new entrants, especially for young entrepreneurs, given the high levels of economic concentration. This phenomenon reflects the structural constraint within the economy. To address this constraint to growth and structural transformation, the competition legislation had been amended to counteract market concentration abuse and alleviate this structural limitation. An example of this was where a major food chain restaurant only allowedone service provider to handle its delivery service. This eliminated any opportunity for small businesses to enter the market at a local level.

The second area of concentration related to the South African economy being carbon intensive, emitting large quantities of carbon for every billion rand of gross domestic product. Despite South Africa’s coal dependency, there is an opportunity to moderate the reliance on coal by advancing the green economy. Government’s current priorities included developing value chains in the green economy, green hydrogen, and the renewable energy programme. These are all examples of trying to change the structural composition of the economy while addressing the high levels of carbon emissions.

The third structural feature of the economy is that South Africa has the predisposition to import consumer and capital goods, notwithstanding that it possesses the necessary resources and technical capabilities and skills to produce goods domestically. The localisation policy seeks to support the preference for sourcing domestically produced goods and services instead of importing these, in addition to developing local industries. The Minister informed the Committee that as part of the localisation drive, Novo Nordisk, a global leader in diabetic research and innovation, and AspenPharmacare, Africa’s largest pharmaceutical manufacturer, came to an agreement to produce human insulin locally by converting insulin into finished dose vials. This collaboration would aim to supply over 1 million patients about 16 million doses of insulin in 2024. According to the Minister, globally, companies had been recognising the capabilities of South African companies such as Aspen Pharmacare, which also through collaboration with Johnson & Johnson produced the COVID-19 vaccine in South Africa. Therefore, localisation is one of the tools utilised to change the structure of the South African economy.

The fact that South Africa’s industrial base is primarily inland and centred around the mining sector presented another structural challenge. As a result, effective transportation logistics are essential to the economy. The government and the business sector recognised this structural limitation and have been working to enhance efficiencies and improve the capacity of ports and airports.

The Minister also conceded that it might take longer to address South Africa's low savings propensity, the other structural issue. Due to its low savings rate, South Africa is less able to finance its future growth since it lacks the necessary capital base. As a result, South Africa is dependent on FDI to finance its future growth. An increase in the level of domestic savings is required to address this.However, both FDI and increased domestic savings would be the catalyst to promote economic growth.

The fact that South Africa’s economy was based on trading relations with the US, China, India, and the EUrather than with other African nations presented another structural challenge. However, the AfCFTA, on the other hand, aims to remove these constraints and seeks to promote greater intra-African trade.

3.3 Skills development: Currently, South Africa is facing an imbalance between the demand and supply of appropriate skills to grow the economy. Given its industrialisation trajectory, the available skills [MS1] do not match/fulfilthe market’s demands. Therefore, a clear government-led vocational training strategy is required to ensure the supply of sector-specific skills that would promote and enhance its current industrialisation drive. Notwithstanding the progress made with respect to skills development, the Committee enquired whether the DTIC has effectively addressed the skills mismatch within the labour market. With regard to skills development, the Minister informed the Committee that the DTIC’s skills development programme centred on artisanal training, supportinga number of companies. However, the DTIC cannot address the current skills shortages on its own, especially in specialised areas, which remains a constraint in rolling out new investment, notwithstanding the current programmes. The Minister stated that new partnerships with universities of technology, further education and training colleges and government departments, together with the private sector are essential in developing and securing the required skills for a growing economy.

4. Status of the African Growth and Opportunity Act (AGOA): The AGOA is set to expire in 2025. The Committee has been aware of the initiatives by government, through the DTIC, to extend the term of AGOA and to secure South Africa’s continued participation in AGOA. The Committee enquired what the status of the negotiations on AGOA was. Regarding AGOA, the Minister informed the Committee that, despite positive and constructive engagements with US policy makers, South Africa and the US nevertheless hold divergent views on a variety of topics. However, with this acknowledgement, both countries recognised that there would be a number of areas of mutual interest for cooperation. The Minister further acknowledged that South Africa’s economy and the regional value chain would benefit from the continued preferential access to the US market, which would incentivise the production and export of goods and services with added value. He further stated that the recent engagement with the US highlighted the critical importance of the regional value chains.

For instance, Zambian copper is used in South Africa's auto manufacturing to make wiring systems. Lesotho produces leather automobile seats, while Botswana produces the electric harness that covers the copper wiring system. Ghana, Malawi, Nigeria, and Cote d’Ivoire manufacture the rubber used in automobile tyres, and Tunisia manufactures steering wheel devices. This is an illustration of African integration. The future lies in building and maintaining these value chains to support economies on the African Continent. Therefore, AGOA supports the work done in respect of the AfCFTA and it thus becomes important that South Africa retains continued preferential access to the US market. With regard to access to other markets, South Africa should work towards retaining its access to the EU, and Japanese markets.In respect of China and India, it should increase exports of manufactured goods.

5. Trade performance/Balance of payments: South Africa’s trade balance remains in the negative, hence the Committee was concerned about the effectiveness of its trade promotion strategy. The Minister informed the Committee that there was a difference between the tradebalance and the current account. The current account measures trade flows (balance of trade) and dividend flows. He noted that the trade balance had been positive in 2023 and that a trade deficit over the short-term may not necessarily indicate a challenge with the trade strategy. For example, when South Africa attracts FDI, it may include the importation of capital equipment and machinery, which may in turn lead to a deficit on the trade balance. However, if these investments boost economic growth and the exports of finished goods, then this would not be a cause for concern.Over the last few years, South Africa has had a trade surplus and recently there has been a surge of imports. Thus, the DTIC would be considering whether there are opportunities for South Africa to produce more of these imported products locally.

6. Status of the Health Promotion Levy (HPL):In an effort to lower the nation’s sugar consumption and combat obesity, the South African government implemented the HPL, a levy on sugar-sweetened beverages (SSB), in April 2018. This was in response to aWorld Health Organization proposal. The Committee enquired what the status of the HPL was,given that its increase had been suspended until 2025, and whether the DTIC would be engaging the Minister of Finance in this regard. The Minister alluded to the fact that the Minister of Finance had not specifically made reference to the HPL in his budget speech. He noted that government must balancehealth considerations by using fiscal policy to influence behaviour, however, it should also recognise the negative impact on jobs. Despite a call for the Minister of Finance to increase the HPL, he had chosen to defer it, hence it is an issue that should be monitored, as the postponement was for a period of 24 months.

4.Conclusions

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

The Committee noted the DTIC’s non-financial performance for the second and third quarter of the 2023/24 financial year of 78,8 percent and 58,2 per cent respectively. It encouraged the DTIC to address the areas that have been lagging.

However, it welcomed the DTIC’s achievement on its 45 impact outcome targets up to the third quarter with 60 per cent of the annual targets already achieved or over-achieved, and a further 26,7 per cent of the annual targets well on track to be achieved by the end of the 2023/24 financial year.
In addition, it welcomed government’s interventions to address the structural constraints to the economy. Interventions included beneficiation, localisation enabled by the industry Master Plans, and the promotion of local manufacture and export of value-added products.
Furthermore, it welcomed the existing collaboration between the government and the private sector in certain sectors, which has facilitated localisation of productive capacity, particularly in sectors such as pharmaceuticals.
It acknowledged the critical role that Africa played in developing regional value chains, as well as the work being done to facilitate these value chains. This includes the development of the African Continental Free Trade Area and ensuring that trade agreements support regional economic development.
It also welcomed the progress made in terms of engagements with the United States on South Africa’s ongoing inclusion in the African Growth and Opportunity Act and the extension thereof beyond 2025. South Africa’s continued inclusion in and preferential access to the United States’ market through the African Growth and Opportunity Act would support continental economic integration.
The Committee remains concerned about the high levels of economic concentration within most sectors of the economy, which constrains inclusive economic growth. There is a need to address the concentration in the economy both geographically and intra-sectorally. In this regard, there is a need to increase support for small, rural and township businesses to participate in the mainstream economy through the revitalisation of industrial parks and the provision of industrial financing. Furthermore, more work should be done to address high levels of concentration in various sectors of the economy.
Given shifts in the developed economies towards lowering the carbon footprint of the goods they manufacture and import, the Committee encourages the DTIC to continue implementing measures to enable the manufacturing sector to remain globally competitive. In this regard, it welcomed the shifts towards the green economy and green hydrogen.
The Committee acknowledged the skills mismatch in the economy and there is a need for collaboration between the DTIC and relevant national departments and institutions of higher learning.
The Committee welcomed that the health promotion levy on sugar-sweetened beverageswould not be increased until 2025, as this provides an opportunity for the sugar industry to investigate diversification options.
It urged the DTIC and the industry to continue pursuing these options and implement the necessary legislative amendments to ensure the sustainability of the industry, in particular small-scale canegrowers.

5.Appreciation

The Committee would like to thank the Minister, Mr E Patel, and Acting Director-General of the Department of Trade, Industry, and Competition, MsM Mabitje-Thompson,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 content advisor, Ms M Sheldon; and the committee assistant, Ms Y Manakaza, 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 concluding remarks reflected in this report.

References

Department of Trade, Industry, and Competition (2023a) Annual Performance Plan 2023/24.

Department of Trade, Industry, and Competition (2023b)Second Quarter Report for the 2023/24 Financial Year.

Department of Trade, Industry, and Competition (2024a) Third Quarter Report for the 2023/24 Financial Year.

Department of Trade, Industry, and Competition (2024b) the dtic Performance Report: Second & Third Quarter Report 2023/2024 Accounting Period, Green Hydrogen Commercialisation Strategy, White Paper on Electric Vehicles. Presentation to the Portfolio Committee on Trade, Industry and Competition, Virtual platform: 23 February.

National Treasury (2023) Vote 39: Trade, Industry and Competition, 2023 Estimates of National Expenditure, p 813-878.

Statistics South Africa (2024) Manufacturing: Production and sales, December 2023.

[1]Statistics South Africa (2024)

[2] DTIC (2023a)

[3]DTIC (2023a, 2023b, 2024a and 2024b)

[4]Year to date (YTD)

[5]DTIC (2023b)

[6]DTIC (2024a)

[7]Notwithstanding that the DTIC has reported on adjusted figures in the second quarter, the table reflects the original budget as depicted in the 2023 Estimates of National Expenditure.

[8]Variance is the difference between the projected expenditure and the actual expenditure. A positive variance refers to an under-expenditure and a negative variance refers to an over-expenditure.

[9]Notwithstanding that the DTIC has reported on adjusted figures in the second quarter, the table reflects the original budget as depicted in the 2023 Estimates of National Expenditure.

[MS1]Are we referring to quantity or skill sets? I am assuming the type of skills and the number of people with these

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