ATC101117: Report Oversight Visit to Eastern Cape From 3 – 5 August 2010

Trade, Industry and Competition

The Report of the Portfolio Committee on Trade and Industry on their oversight visit to Eastern Cape from 3 – 5 August 2010, dated 17 November 2010.

 

The Portfolio Committee on Trade and Industry, having visited entities, manufacturers and cooperatives to assess the service delivery performance of the Department of Trade and Industry, reports as follows:

 

1. Introduction

 

South Africa is facing a number of challenges in terms of developing its economy, liberalising trade and integrating at a regional level. These challenges among others includes, structural unemployment, deindustrialisation, the impact of the recent economic crisis, and slow transformation and inadequate inclusion of vulnerable groups into the economy.

 

The Department of Trade and Industry (DTI) in its drive to promote industrialisation, foreign investment and broader economic participation provides a policy framework for business and a variety of incentive grants to companies and cooperatives. In addition, the recently revised Industrial Policy Action Plan (IPAP2) identified a number of sectors that will be supported by the Economic Cluster, with the DTI taking a lead role on a number of these.  The IPAP2 attempts to address various economic and industrial imperatives, and also seeks to address the structural challenges faced by the South African economy. IPAP2 seeks to intensify the industrial process, develop local manufacturers that can produce capital goods, promote labour-absorbing industrial sectors and promote a broad-based industrial path.

 

The recent global economic crisis resulted in the global as well as local collapse in demand for manufacturing goods. This has had a serious impact on our local automotive industry which led to the questioning of the viability of the industry. The importance of the automotive industry in achieving the goals as identified in the IPAP2 cannot be underplayed as it is has been identified as a key component that underpins reindustrialisation of the South African economy.

 

 As part of its oversight function, the Committee agreed to conduct an oversight visit to Eastern Cape, given the predominance of the automotive sector in the province.  The Committee visited the Volkswagen manufacturing plant, as well as an automotive component plant in the province. This sector has been stressed as one of the backbones for deepening the industrial base. Furthermore, Coega Industrial Development Zone (IDZ) is one of the most active industrial development zones (IDZs) in the country. The Committee selected to visit Coega IDZ, as it is a hub for foreign direct investment and an opportunity to create sustainable jobs.

 

The Committee also visited the Amathole Branch Office of the Small Enterprise Development Agency (SEDA) in East London, as SEDA plays a critical role in providing non-financial support to small enterprises and cooperatives. The development of small enterprises and cooperatives has been identified as critical for promoting employment creation and broadening participation.

 

 

 

1.2    Preparation Process for Study Visit

 

In light of the above and in line with its strategic objectives, the Committee embarked on an oversight visit to the Eastern Cape visiting Volkswagen South Africa (VWSA), Coega IDZ, SEDA, Mzamo Wethu Cooperation, and the Zenzele Weaving Cooperative. 

 

The following Members of Parliament and the Secretariat participated in the oversight visit to the Eastern Cape:

 

1.       Ms J Fubbs (ANC) – Leader of the delegation

2.       Mr B Radebe (ANC)

3.       Ms H Line (ANC)

4.       Ms F Khumalo

5.       Mr X Mabasa (ANC)

6.       Mr N Gcwabaza (ANC)

7.       Mr S Marais (DA)

8.       Mr A van der Westhuizen (DA)

9.       Ms C Kotsi (COPE)

10.   Ms S Lebenya (IFP)

11.   Adv A Alberts (FF+)

12.   Mr A Hermans – Committee Secretary

13.   Ms M Herling – Content Advisor

 

A report on the interaction with the various organisations during our oversight visit follows below.

 

2.  Organisations visited

 

2.1 Volkswagen South Africa

 

Mr D Powels, Managing Director: VWSA, briefed the Committee on the status of the automotive sector and its contribution to the broader economy. Currently, the sector is not globally competitive and is experiencing a decline in production in both passenger and light commercial vehicles (LVC) from a high of almost 700 000 combined units to almost 400 000 vehicles. This could be attributed to the current global economic market with the projection for the year 2010 more positive.

 

The Motor Industry Development Programme (MIDP) introduced in 1995 sought to strike a balance between further opening to international competition and maintaining a measure of protection for the local industry. The rationale for the introduction of the MIDP was to allow for the adjustment to the reintegration into the global economy. Although the MIDP has been extended to 2012, the import duties will continue to be phased down but at a slower rate. The import duty imposed on imported vehicles declined from 115% in 1994 to 27% in 2010 with a further reduction of 2% envisaged with the introduction of the Automotive Production and Development Programme (APDP).

 

 

During this period, there has been increased competition within the passenger vehicle market. In 1994, there were 17 brands and 192 models available in the market, which has diversified to 60 brands and 1 187 models in April 2010. Furthermore, the component sector showed a significant increase in exports from R3.3 billion in 1995 to a high of R44.1 billion in 2008.  However, 2009 reflected a significant decline to R 27.9 billion in component exports, due to the declining global demand.

 

Although the MIDP contributed significantly to the growth of the motor manufacturing sector and component supplier industry in South Africa, it did not take the industry to a global competitive level. VWSA believes that the APDP will provide the impetus to further extend the manufacturing capability and competitiveness. Motor manufacturers and components suppliers need to examine the implications of the new APDP and ensure that opportunities presented by the programme are fully explored and exploited.

 

Mr Powels was of the view that without the rebates the auto industry would collapse which would have a direct impact on employment creation. At present, the auto sector is employing 32 000 automakers with 250 000 jobs dependent on the sector. Support for industry is crucial as the alternative would be to import all vehicles with the result that we would lose the automotive assembly manufacturers and the local components manufacturing base, as well as other affected upstream manufacturers.

 

The market has become more competitive since 1994 due to reductions in import duties and the availability of more brands and models of cars. Component exports increased dramatically from 1995 from R3.3 billion to R44.1 billion in 2008. This has decreased to R28 billion which could be attributed to the impact of the global economic crisis on the local economy. Mr Powels further noted the strategic importance of the automotive sector as it contributes 5.9% to Gross Domestic Product (GDP).  This underscores the importance of the automotive sector to the South African economy and its importance to the export market which contributes 11.8% to the total South African export basket and it is therefore critical to sustain this important manufacturing base.

 

Mr Powels further highlighted the long-term strategy of VWSA with its focus on five key elements, namely:

-          platform reduction i.e. producing few models, while increasing volumes,

-          a renewed manufacturing environment,

-          an increase in local content,

-          skills development, and

-          the development of new products.

 

In response to the factors that contribute to the competitiveness of the sector, Mr Powels alluded to the fact that labour represents a significant cost element but that labour needs to understand the threats and competiveness to industry and moderate their expectations accordingly. Investment in the automotive sector can lead to improved competitiveness and the South African industry should be aiming to breakthrough in 5-7 years. Mr Powels acknowledged that the APDP provides policy certainty required to invest until 2020. Although, Africa is a potential market, it remains a relatively small market, as it is largely focusing on importing second-hand vehicles from cheaper countries. However, the potential remains to export to sub-Saharan Africa despite the threat of competition from Asia. Mr Powels was also of the view that funds locked in the Industrial Development Corporation and the sector education and training authorities (SETAs) could be utilised to create the appropriate skills required for the development of the economy.  

 

2.2 Grupo Antolin

 

The Committee was briefed by Mr N Grobbelaar, Manager at Grupo Antolin South Africa. Grupo Antolin is a wholly owned subsidiary of Grupo Antolin that has recently completed its investment in the new facilities at the NelsonMandela Bay Logistics Park in Uitenhage. This makes it the first plastic facility supporting the automotive industry. This facility manufactures trim panels and other plastic components, as well as the assembly of these components together with their more traditional business of headliners in South Africa. This facility was set up to support the production of the new Volkswagen Polo on the just-in-time principle[1].

 

The main focus of Grupo Antolin is to provide door trim panels for about 471 vehicles per day for VWSA. The use of specific raw material/inputs is imposed by VWSA with 80% imported from the prescribed foreign suppliers, but the potential exists for the use of a local supplier in future.  Mr Grobbelaar was of the view that it would take 2-3 years for the localisation of the inputs to materialise. However, leather used in vehicles is locally sourced unless it is substituted with vinyl. The DTI has approved R41 million under the Enterprise Investment Programme (EIP). Under the EIP, the recipient is expected to comply with agreed obligations including jobs creation before funds are released. Initially, Grupo Antolin employed only 20 people but it has since increased to 96 employees. Currently, Grupo Antolin is only supplying VWSA but would expand if it can reach other original equipment manufacturers (OEMs) cost-effectively.

 

2.3 Dynamic Commodities

 

Dynamic Commodities is located within the Coega IDZ and exports frozen foods. It was founded in 1996 and produces sorbet, frozen lemon juice and frozen peppadews. The products it produces are highly labour intensive and the company employs about 1 200 people directly, with most workers employed all year around, and approximately 1000 indirect jobs via their suppliers.

 

According to their CEO, although high volumes are produced it is not reflected in higher profits mainly due to the exchange rate.  Due to the recent strike by transport workers that affected the harbour and coincided with their peak demand season for sorbet, they lost their sorbet advantage in certain American supermarkets due to the resulting insecurity of supply.

 

2.4 Coega Development Corporation (CDC)

 

The Coega Development Corporation was established in 1999 by the Ministry of Trade and Industry and is fully owned by the South African Government. The rationale behind the establishment of the CDC is that it would advance industrial growth in South Africa, particularly the Eastern Cape. Its focus would be on the stimulation of economic growth, skills development and the creation of sustainable jobs. Achieving sustainable economic growth would be through the attraction of foreign direct investment, technology transfer, human capital development, economic transformation and industrial expansion.

 

The CEO of CDC, Mr P Silinga, proceeded to brief the Committee on recent developments within the CDC.  He informed the Committee that the CDC has a total number of 15 investors with a total value of R30 billion. This led to the creation of 24 000 jobs within the Coega IDZ. Examples of the success can be seen in the level of investment generated such as Dynamic Commodities, an agro-processing concern located in the IDZ, which achieved substantial and sustainable growth through its presence in the IDZ. 

 

Another key achievement is the development of the Nelson Mandela Bay Logistics Park (NMBLP), situated near VWSA. General Motors South Africa’s (GMSA) new parts and accessory warehouse will be located in the IDZ. Companies are exploring automotive assembly, component manufacturing, logistics and distribution opportunities in one location to sustain the South African automotive sectors’ and their competitive position in the global environment. Mr P Silinga believes that the NMBLP is the channel for automotive investment linked to the IDZ. This became the region’s automotive hub that contributes about R11 billion to municipalities’ turnover and makes up 60% of the Eastern Cape’s manufacturing activity. This contributes to the increase in local content on vehicles which impacted positively on job creation.

 

Enabling infrastructure development remains a key focus area for the CDC in order to promote investment. Most of the projects are multi-year projects with the key focus on municipal and bulk infrastructure. Investment in the necessary infrastructure and enabling systems are important to create and establish an environment conducive for growth. The CDC adopted a multi-sector strategic approach to identify industries for relocation. In addition, the CDC seeks to increase local content through its infrastructure and facilities support for the automotive industry and other opportunities that may benefit from export opportunities.

 

In their submission to the Committee, CDC highlighted a few challenges namely funding, policy alignment and the absence of IDZ incentives, particularly tax related incentives for investing companies. CDC was of the view that failing to address these constraints would lead to opportunities lost with respect to the creation of jobs and further investment, as well as delays in the social upliftment of surrounding communities. The collapse of entire projects would have a negative impact on investment confidence, especially in the Eastern Cape, as well as a negative perception of state-led investment initiatives.

 

With respect to policy limitations, CDC highlighted the fact that IDZ regulations were not updated in the IPAP2 context, with no IDZ specific incentives. It would be crucial to ensure the continued resourcing of the IDZ to meet policy requirements and to address the lack of alignment with other legislation.

 

The CDC also identified key areas that require continuous political as well as financial support. These are the Combined Cycle Gas Turbine (CCGT) power station project, the Petro SA oil refinery project, the relocation of the Manganese Terminal to Saldanha, the upgrading of the rail line between Sishen and Port Elizabeth.

 

CDC indicated that Coega IDZ and NMBLP offer incentives to investors in terms of providing top structures for manufacturers. However, internationally, similar zones offer tax incentives to investors and often relax local laws as well. CDC has considered a tax holiday in conjunction with the National Treasury but this has not been realised yet. This has played a limiting factor in terms of attracting investors and has contributed to delayed projects. Another key factor contributing to delayed projects has been the energy crisis. In addition, the lack of coordination between the port and the IDZ is perpetuated by being run by different management and being overseen by different departments.

 

CDC is expected to meet current national objectives despite the fact that the legislation governing it does not require this. It has suggested that a process of aligning policy is embarked on.

 

CDC has had a positive experience working with the SETAs. It is using a model where SETAs provide funding to CDC, which has the capacity to train individuals and the business relationships to assist in placing trained individuals. Furthermore, CDC has attempted to train some of the construction workers to improve the sustainability of employment, which peaks during the construction phase and then declines dramatically in terms of operational employment.

 

 

2.5 Small Enterprise Development Agency (SEDA)

 

SEDA is an agency of the DTI, which was established in December 2004, through the National Small Business Amendment Act, Act 29 of 2004. It is mandated to implement government’s small business strategy; design and implement a standard and common national delivery network for small enterprise development; and integrate government-funded small enterprise support agencies across all tiers of government.

 

SEDA’s mission is to develop, support and promote small enterprises throughout the country, ensuring their growth and sustainability in co-ordination and partnership with various role players, including global partners, who make international best practices available to local entrepreneurs.

 

Mr L Dibi, the provincial manager, informed the Committee that between 2004 and 2008 there were 24 enterprise information centres (EICs) privately run in the Eastern Cape. These 24 EICs were responsible for drawing up registers of Small, Medium and Micro Enterprises (SMME) and identifying the types of services they required. All except one of the EICs were cancelled and replaced with a provincial SEDA representative linked to each of the municipalities, as SEDA is promoting an integrated approach with municipalities. It is SEDA’s objective to establish branches in rural areas to provide services despite the lack of economic activity. In certain municipalities, an office and infrastructure has been made available to SEDA and representatives have then been deployed to these areas. In addition, SEDA has used kiosks to service rural areas and have implemented a new electronic system that facilitates offline applications to counter the Eastern Cape’s power supply instability.

 

Currently, established or existing businesses are not confident about the relevance of the business support services government is providing but SEDA hopes to change this perception through the positive experiences of local business. For example, SEDA assisted a small auto component manufacturer to achieve its ISO accreditation to comply with the required quality standards to be eligible to supply components to VWSA. 

 

Mr Dibi also highlighted the core services provided by SEDA:

 

·         Alerting businesses about tenders by categorizing tenders according to price and other criteria and forwarding this information to the appropriate small businesses and tailoring notifications to the needs of each sub-sector.

·         Facilitating exposure to international exhibitions to enable SMMEs to learn how to price and compete appropriately.

·         Supporting enterprise development by assisting SMME’s to access the markets. However, there has been limited success in accessing international markets through the Trade Point facility, which is an internet-based gateway to global networking.

·         Providing access to finance as there is currently only a 12% success rate in gaining access to finance for SMME’s through conventional funding mechanisms. SEDA also assisted cooperatives with accessing the Cooperatives Incentive Schemes.

·         Providing small enterprise training and mentoring relevant to stakeholders’ needs. SEDA has also received assistance from CSIR but with limited success.

·         Business registration was facilitated by SEDA.

·         Subsidising business services, such as business cards and signage, for signed projects between the value of R7 500 and R10 000.

 

Challenges faced by SEDA relate to the fragmentation of service as municipalities are creating similar services. A coordinated approach is required to ensure that the appropriate services are provided to SMMEs. A key constraint for SMMEs is gaining access to markets making connectivity to the rural areas crucial.

 

The Committee enquired about the challenges that faced SMMEs and cooperatives. In terms of accessing finance, SEDA indicated that banks have responded that some of the requirements for successful applications include references to markets and that the business owner or leader must have experience in the business and must demonstrate a good understanding and knowledge of the business. They have also indicated that a deposit is not mandatory. However, despite these guidelines, SEDA found that the banks are still rejecting applications without any further explanation. One of the key challenges is that business owners do not have a clean credit record. In this regard, the Eastern Cape Development Corporation assists businesses that have been awarded contracts with interim financing to improve their credit records.

 

Another critical challenge is SMME’s ability to penetrate markets. Often, SMMEs do not produce goods at the appropriate quality, price and quantities required by buyers. An enterprise development route is being considered to facilitate a link between companies that must meet their BBBEE requirements with SMMEs. SEDA has also decided to move their exhibitions to malls and extend these over weekends to facilitate sales.

 

The Committee emphasised the need to improve access to rural areas. Currently, SEDA is targeting its efforts in the Alfred Nzo, OR Tambo and Chris Hani District Municipalities. The District Municipalities determine where the SEDA satellite offices are located. However, SEDA has three mobile units that visit rural areas every second week to provide services to a wider area in liaison with the local municipalities. The intention is to have a consistent presence in municipal offices and possibly post offices in most areas and a few municipal managers have offered basic infrastructure for SEDA staff to work from their offices. SEDA was also discussing the possibility of Companies and Intellectual Property Rights Office’s physical presence within the province. Hon Mphalele, a Member of the Committee, advised SEDA of the availability of special licences to roll out ICT services in rural areas with funding from the Universal Service and Access Agency of South Africa to address some of the infrastructure constraints.

 

The Committee is of the view that real empowerment involves building skills and knowledge, and expressed concern about the availability of mentorship programmes. SEDA responded that Khula was primarily responsible for mentoring SMMEs but agreed that mentorship was critical to the success rate of a business. In this regard, SEDA has moved away from a performance management system that rewarded business advisors for the number of businesses they had assisted with three solutions to measuring whether businesses were adopted and are growing over time.

 

In terms of training provided, training is conducted based on needs determined from clients. Social offices are also approached in rural areas when running these training groups. Training is specifically targeted where there is a need for that type of training and the focus is on individuals interested in running businesses. SEDA has also hosted co-sessions with the South African Revenue Service and commercial banks on financial literacy for businesses.

 

SEDA also has regular meetings with critical role players such as the Departments of Public Works and Agriculture. There is a project with construction SMMEs to move them from CIDB (Construction Industry Development Board) Level 1 towards Level 9 in the Coega IDZ. SEDA is assisting with this in conjunction with the Department of Public Works. Furthermore, Community Development Officers have been trained regarding cooperatives through the Department of Social Affairs. There is coordination at the Council of Trade and Industry Institutional level in sharing resources and coordinating programmes.

 

SEDA has requested Parliament’s assistance regarding the governmental use of the 10 products for preferential access by SMMEs and adherence by government departments to the 30 day payment settlement arrangement for SMMEs as administered by SEDA.

 

SEDA has made the following observations while working with cooperatives:

 

-          Cooperatives that have started up independently tend to be very resilient. These are usually characterised by charismatic leaders and when these leave, the cooperatives tend to have problems.

-          Cooperatives are being targeted for training.

-          Primary cooperatives should focus on production and be supported by secondary cooperatives.

-          CIS should then be targeted towards secondary cooperatives, where the secondary cooperatives should work purchase and manage equipment, such as tractors, and focus on business development. The secondary cooperatives would then provide integrated services to a few primary cooperatives, which would reduce costs and time for all the cooperatives.

-          The role of cooperative members and the purpose of a cooperative are not clearly understood, as the strength of cooperatives lies in its numbers and the contribution of each member.

-          There is a perception that cooperatives are a vehicle to receive grants from government and the incentive is not necessarily to create a business. There have been cases where cooperatives were established because of local government efforts and once the funds start dwindling, the cooperatives were dissolved.

-          Cooperatives need capacity building and not just funding. A proper business model is required and there must be shared values and commitment from all members for a cooperative to be viable.

-          There is a need to link cooperatives with big business to address market access and possibly capacity building.

-          There are many loopholes in the current legislation and insufficient institutional mechanisms to facilitate cooperatives.

 

Currently, cooperatives are funded by the DTI through the Cooperative Incentive Scheme, which grants funds to assist in establishing a cooperative. This consists of a once-off amount to a maximum of R300 000, which is used by the DTI to purchase assets and/or inputs on behalf of a cooperative. The CIS has relatively easy criteria to access the funding. In order to receive approved funding from the CIS, cooperatives are required to provide certified copies of identity documents for membership verification, tax clearance certificates for the cooperative and information submitted must be verified. SEDA assists this clearance process by receiving compliance documents on behalf of the DTI. The DTI emphasised that not all activities that are applied for by a cooperative qualify under the CIS and are excluded. This may result in the initial approved amount being decreased accordingly. Furthermore, a cooperative must have a commercial outlook and a target market in order to qualify for CIS funding.

 

The DTI is formulating new legislation that will establish provincial cooperative academies, a cooperative tribunal to regulate the sector and a cooperative agency like SEDA. There will be a formalisation of cooperatives, where 3-4 cooperatives can form a secondary cooperative and then a tertiary cooperative or apex body. In the interim, there will be a transfer to SEDA of between R5 to R50 million to train and assist cooperatives.

 

In terms of monitoring and evaluating the effectiveness of SEDA’s support to SMMEs and cooperatives, SEDA conducts an impact assessment six months after it has provided assistance to a business and relies on businesses to provide it with information on why it has succeeded. However, there is a need to capture specific lessons learnt. SEDA runs an 18 month period database on active and dormant businesses registered for SEDA assistance. In terms of requests for assistance, 75% of these businesses are active. Dormant businesses refer to those that have not revisited SEDA after 18 months of receiving support.

 

2.6 Mzamo Wethu Cooperative

 

During the Committee’s oversight visit to the Eastern Cape, it visited the Mzamo Wethu Cooperative. This is an agricultural cooperative established in 1999 as a poultry project. In 2006, it registered as a cooperative consisting of 11 members of the community. The cooperative supplies nine villages with products and can be viewed as a success. In 2005, the cooperative received R170 000 from the Buffalo Municipality to purchase seeds. In 2006, the cooperative applied to the DTI for funds and received a grant of R300 000 in the 2008/9 financial year. The funds were used for the purchase of a tractor, chicken stock, seed and a water-pump. The full amount of R300 000 has not yet been used by the cooperative and the remaining funds is being held by the DTI until additional assets or stock are requested by the cooperatives.

 

Members of the cooperative informed the Committee that they are faced with numerous challenges such as the lack of water for irrigation, the size of their farm limits expansion and increased production of their crops, the shortage of chicken stock and the unavailability of transport to access the potential markets. Currently, the municipality is only providing water for domestic use and assistance is required to revitalise the boreholes on farms. The cooperative informed the Committee that its produce is sold to Fruit & Veg City. It however is experiencing problems with selling its poultry. The cooperative informed the Committee that it would welcome new members, but the R200 required to join the cooperative remains a barrier to entry.

 

2.7 Zenzele Weaving

 

Zenzele Weaving is a cooperative that was established in 1999 to assist the local deaf/disabled community. Initially, there were 5 members; and the membership has grown to 11 individuals. The cooperative was responding to the great demand for sewing and weaving that they identified in the community.

 

Members and employees of Zenzele Weaving spin and dye wool, design woven products and weave the final products. The cooperative operates under difficult conditions and can not always pay salaries. Their main market is the local communities, where they sell and get orders through schools, but they have found that their mats are expensive because of the costs of their inputs. They indicated that they source their raw materials from Port Elizabeth(wool), Durban (dye) and Standerton (cotton). Furthermore, they would like to purchase a dyeing machine to increase their capacity but due to the cost and space constraints this is a challenge.

 

The cooperatives access to markets has improved since it began creating woven crafts, as the cooperative was then recognised by the Department of Arts and Culture. However, they are still experiencing marketing challenges to increase their exposure to other markets.

 

Over the years they have received support from various government institutions such as:

 

§         SEDA: assistance was hampered due to issues with accessing markets.

§         National Development Agency assisted them in 2008.

§         Have received training on how to weave but create their own designs

§         The DTI: The Enterprise Organisation (TEO): accessed the Cooperative Incentive Scheme, which was used to purchase a weaving machine; however, one part of the machine was never delivered. TEO has been pursuing the matter and may be instituting legal action against the supplier on behalf on Zenzele Weaving.

 

2.8 Semani Cooperative

 

Members of the Committee were requested by the O R Tambo District Municipality to visit a cooperative owned and managed by former pupils from Ethatha School for the deaf and blind. Due to a lack of job opportunities for people, who are blind or deaf, these members of the community established their own cooperative. With limited resources and with the assistance of the parents of one member of the cooperative, a small workshop was established that would allow them to earn a living. Through this individual initiative, they are making clothes and school uniforms for schools in the area. 

 

Through some assistance from the O R Tambo District Municipality, they were able to purchase machines and the necessary material. Currently, the cooperative is providing work for more that 10 individuals with disabilities, who would otherwise not have been productive members of the society. Members of the cooperative highlighted the challenges they faced, namely a better working environment, access to the market, better machines as well as material. They also have the burning ambition not only to serve the local community but also communities in the rural areas.

 

The Committee members present praised the initiative of these individuals in starting their own business. They were of the view that initiatives like this should receive all the government support required to make it a success. Through such initiatives, local economic development would be stimulated which ultimately would lead to job creation. The Committee indicated that they would liaise with the relevant DTI agencies to ensure that the necessary support is provided.

 

 

3. Concluding remarks

 

3.1 The oversight visit of the manufacturing sectors was very constructive. The Committee also had the opportunity to visit a number of upstream and downstream operations including community driven projects.

 

3.2 However, visits to the various community-driven projects, further confirmed the need for intensive investment related to rural economic development. This implies that a coherent and integrated inter-departmental approach should be strengthened particularly for activities related to IPAP2 and agro industries.

 

3.3 As part of the cross-sectoral mandates that Portfolio Committees in the economic cluster have in relation to IPAP2, Committees should coordinate their oversight activities. This could enhance oversight over the respective departments. The Portfolio Committees on Trade and Industry, and of Mining, for instance, is embarking on a joint oversight visit to Kumba Iron Ore’s mines.

 

3.4 In the Committee’s opinion, the current requirement for the establishment of a cooperative of at least 5 members does not necessarily achieve the twin objectives to create employment and grow the local economy effectively. Therefore, amendments to the Cooperatives Act regarding the minimum size of the membership should be considered.  Furthermore government should allocate resources relative to the size of the cooperative and its potential impact on employment creation and economic growth.

 

3.5 Limited and/or poor quality infrastructure, particularly related to road and rail, makes agricultural cooperatives in rural areas often unsustainable as it limits access to the market.

 

3.6 Access to water for the development of the rural economy in the Umtata area has been limited since the building of the dam. The Committee is of the view that closer interaction between the DTI and the Department of Water Affairs is needed to address the access of water by businesses to stimulate the economy.

 

3.7 The challenges of ownership within the IDZs and cooperative governance amongst the spheres of government should be resolved to eliminate the constraints that exist to develop the IDZs. In the Committee’s opinion, significant investments in bulk infrastructure should be made by Government to continue attracting foreign direct investment within IDZs. Furthermore, the Committee encourages appropriate marketing of IDZs to improve accessibility by potential investors, workers and SMMEs.

 

3.8 The Committee welcomed the significant increase in the local content of new vehicles, in particular Volkswagen SA’s new Polo model, as well as the facilitation of this through the investment by component manufacturers in industrial hubs such as the Nelson Mandela Bay Logistics Park. This type of investment needs to be encouraged in other industries in this area.

 

3.9 In the Committee’s opinion, the decision to directly link a committee meeting and a public hearing on intellectual property in Umtata has proven to be efficient and effective in ensuring that the oversight role and work of the Committee was better understood by the attending communities. Furthermore, it gave the Committee a better understanding of the challenges faced on the ground.

 

 

4. Acknowledgements

 

The Committee would like to thank participants from the Ministry of Trade and Industry and the DTI at the meeting, as well as the parliamentary liaison officer, Ms S Naidoo, who has facilitated the constructive relationship with the DTI. The Committee also wishes to thank its Committee support staff in particular the Committee Secretary, Mr A Hermans and the Content Advisor, Ms M Herling for their professional support and conscientious commitment to their work.  The Chairperson thanks all Members of the Committee for their active participation during the process of engagement and deliberations and their constructive recommendations made in this report.

 

5. Recommendations

 

5.1 The DTI together with the EDD should intensify support for SMMEs and Cooperatives through development finance institutions as part of IPAP2 to successfully broaden participation of historically disadvantaged groups and productive investment in rural areas to grow the economy.

 

5.2 A concern that arose was that the community driven projects were not supported in a holistic but rather a piece-meal manner. Therefore, the DTI should address the issue of lateral linkage with entities falling under them in this regard and other Departments to avoid unsustainable outcomes.

 

5.3 The DTI in conjunction with National Treasury should consider tax incentives linked to IDZs to attract investors and promote the IPAP2 objectives.

 

 

Report to be considered.