ATC120516: Report Budget Vote 36: Trade and Industry, dated 16 May 2012

Trade and Industry

Report of the Portfolio Committee on Trade and Industry on Budget Vote 36: Trade and Industry, dated 16 May 2012

Report of the Portfolio Committee on Trade and Industry on Budget Vote 36: Trade and Industry, dated 16 May 2012

 

The Portfolio Committee on Trade and Industry, having considered Budget Vote 36: Trade and Industry, reports as follows:

 

1. Introduction

 

The Department of Trade and Industry (DTI), in this budget, continues to drive its commitment to job creation, investment and employment equity in key sectors with its flagship programme, the Industrial Policy Action Plan (IPAP). In this way, the DTI is able to bring about an enabling environment for inclusive and sustainable economic development and employment. The world has seen, in a short space of time, a shift in the global economic forces from the traditional economic powers to the emerging countries, significantly the countries comprising BRICS ( Brazil , Russia , India , China and South Africa ) but also the great potential power of the African region.

 

The recovery of the global economy will now depend on this new economic alignment. Infrastructure has been identified as the catalyst to deepen Government’s efforts to grow its job creation in our emerging, productive economy in a developmental state. However, acknowledging the importance of trade, that underpins this economic thrust, the DTI has reiterated that South Africa will continue to maintain links with its traditional economic partners, in particular the European Union, while building new partnerships with countries of the South and strengthening and expanding its footprint within the African continent. The Portfolio Committee would agree that this configuration of the DTI’s operational mandate is certainly pointed in the right direction for success.

 

The Portfolio Committee of Trade and Industry through the engagement with the Minister, Dr Rob Davies, and his department led by the Director-General, Mr Lionel October, unpacked, analysed and evaluated the implications of the 2012/13 budget within the policy framework outlined by President Zuma in the State of the Nation Address and supported by the budget allocations tabled by the Minister of Finance, Mr Pravin Gordhan.

 

1.1. Constitutional Mandate of the Committee

 

Portfolio committees exercise oversight over their respective departments and agencies in line with their Constitutional mandate set out in section 55(2) of the Constitution (No. 108 of 1996) and section 27(4) of the Public Finance Management Act (No. 1 of 1999).

 

1.2. Process

 

The Portfolio Committee on Trade and Industry met on 16 March 2012 to consider the DTI’s Medium Term Strategic Framework 2012 – 2015. The Minister and Director-General provided the context within which the Medium Term Strategic Framework has been developed for the DTI and presented the Strategic Plan for the DTI. The position of the Committee after its deliberations is captured in this report.

 

 

 

 

 

2. DTI’s budget allocation

 

2.1 Key Achievements during the 2011/12 financial year

 

The 2011/12 Budget identified key sectors which through IPAP receives the necessary financial support in promotion of Government’s agenda of job creation. In support of the call for job creation, the expansion of the manufacturing sector is a key component for the promotion of industrial development and industrialisation. The DTI acknowledged the impact that the global economic crisis has had on all manufacturing – although manufacturing has not fully recovered to the extent prior to the onset of the crisis – South Africa has experienced an improvement in production.

 

The DTI has made a number of achievements in terms of industrial development. One of the key achievements for 2011/12 was the amended regulations for the Preferential Procurement Policy Framework Act that allowed the Minister to designate strategic sectors to leverage local procurement. In December 2011, five sectors (buses, canned vegetables, textile and clothing, leather and footwear, power pylons and rail rolling stock) were designated. Amendments to the Preferential Procurement Policy Framework Act were aimed at fast-tracking Governments’ localisation and employment drive. The leveraging of the infrastructure programme commenced through the Passenger Railway Agency of South Africa (PRASA) agreement on 40% local content for rail signalling in the Western Cape and Durban . Furthermore, the automotive sector secured a significant investment with 91 projects being supported through the Automotive Incentive Scheme (AIS) with an investment value of R4.7 billion being leveraged. The AIS had channelled commitments to the value of R14 billion within the industry and had created approximately 12 000 jobs. The Clothing and Textile Competitive Programme (CTCP) and the Production Incentive (PI) programme had supported 171 companies and had supported or saved 40 591 jobs and created approximately 1 111 new jobs. The DTI also started to implement its renewable energy initiative by launching the South African Renewable Initiative (SARi), the Clean Techs Awards and the Industrial Energy Initiative. The film incentive leveraged an investment of R2 billion that supported 67 films and TV productions. In the Business Processing Services sector, significant investment of R4 billion has been secured with the potential to create 2 690 jobs. Indicative of this is the sound foundation laid for the up-scaling of industrial development.

 

With respect to trade, investment and exports, the Export Marketing and Investment Assistance Scheme (EMIA) supported 896 programmes as well as secured international investment from Nestlé and Unilever to the potential amount of R34.4 billion. South Africa has also submitted a revised list to China on value-added exports to and investment from China to change the structure of trade between the two countries. The DTI also finalised an in-principle paper on Regional Industrial Development Policy with regard to the Southern African Customs Union’s five-point plan.

 

In the area of broadening participation, the DTI has completed its Small, Medium and Micro-Enterprise (SMME) Report with a key recommendation to support incubators and cooperatives. The review of the Broad-Based Black Economic Empowerment (BBBEE) Codes of Good Practice has been completed and will be gazetted pending Presidential Council Endorsement. The Saldanha Industrial Development Zone (IDZ) project is at an advanced staged with the objective to launch within the new financial year. Through the Enterprise Investment Programme (EIP), 689 SMME projects were supported with an investment value of R8.9 billion and the potential creation of 15 000 jobs.

 

In creating a fair regulatory environment that enables investment trade and enterprise developments in an equitable manner, the DTI informed the Committee that it had completed a first draft of the Investment Bill [1] as well as a policy discussion paper in this regard. Legislation with respect to Cooperatives, Special Economic Zones (SEZ) and BBBEE had been submitted to Cabinet. The Cooperatives Amendment Bill has been approved and will be tabled in Parliament for consideration, while the BBBEE Amendment Bill and the SEZ policy and bill had been approved for public comment. The National Lotteries Policy Framework and Bill had been drafted and will be submitted for approval. At the completion of the Committee’s process with respect to the Gambling Review Report, the DTI will finalise its review of Gambling legislation. The Intellectual Property Laws Amendment Bill was adopted by Parliament but not yet promulgated.

 

2.2 Department of Trade and Industry’s Strategic Plan and Budget

 

The Director-General’s briefing outlined the strategic objectives and key interventions as outlined in the Medium-Term Expenditure Framework (MTEF) for 2012 – 2015. The five intervention areas or themes are [2] :

 

· Industrial Development,

· Trade, Investment and Exports,

· Broadening Participation,

· Regulation, and

· Administration and Coordination.

 

In order to ensure alignment of the DTI’s programmes to government-wide priorities and outcomes, the Department identified key strategic outcome-orientated goals. These outcome-orientated goals are to [3] :

 

· Facilitate transformation of the economy to promote industrial development, investment, competitiveness and employment creation;

· Facilitate broad-based economic participation through targeted interventions to achieve more inclusive growth;

· Build mutually beneficial regional and global relations to advance South Africa ’s trade, industrial policy and economic developmental objectives; and

· Promote a professional, ethical, dynamic, competitive and customer-focused working environment that ensures effective and efficient service delivery.

 

2.2.1 Key interventions for 2012/13 period

 

During the 2011/12 financial year, measures were put in place to address the decline and shedding of jobs as a result of the global financial crisis. Steps taken by government have stabilised the economy but challenges within the manufacturing sector remain. Targeted industrial support has borne fruit with particular successes in the Automotive; Clothing, Textiles and Leather and Footwear; and Business Process Services sectors.

 

To build on these successes and to reverse the de-industrialisation trend, targeted interventions crucial for job creation and economic growth will be implemented in the current financial year through the IPAP. These include:

 

· The announcement of the designation of a further three subsectors for local procurement under the Preferential Procurement Policy Framework Act.

· Support for the technical competencies via the Technology and Human Resources for Industry will continue in the chemical, information and communication technology (ICT), metal and minerals, agriculture, biotechnology and energy sectors.

· The support of 20 new projects to the value of R36 million through the Support Programme for Industrial Innovation (SPII).

· The introduction of the Manufacturing Competitiveness and Enhancement Programme (MCEP), as announced by the Minister of Finance in his Budget Speech, to provide adequate support for the manufacturing sector.

 

With respect to trade, investment and exports, the DTI intends to finalise the negotiation of the Economic Partnership Agreements during the MTEF period. In addition, the DTI is committed towards a developmental approach for regional and continental integration.

 

The DTI has set clear targets with respect to small business support with the establishment of 44 incubators during this financial year. This includes incubators that will be established in partnership with other major private sector companies. The Enterprise Investment Programme will provide assistance to the small business sector with the Tourism Support Programme supporting the tourism sector with an expected investment of R6.3 billion and R4.2 billion respectively. The DTI will implement an approved action plan developed as a result of the SMME review report.

 

With regard to broadening participation, the DTI is in the process of finalising the National Strategic Framework on Gender and Women Economic Empowerment. In addition, it seeks to support 60 new projects linked to women-owned enterprises through the Isivande Women’s Fund. The up-scaling of the Cooperative Inventive Scheme is underway with clear targets set. These schemes target the informal sector or the second economy. The DTI also announced that they would be finalising the informal sector strategy and developing specific programs to support the informal sector. The DTI also recognised the importance of developing a specific programme targeting youth unemployment and intend to finalise a strategy around youth enterprise development in this financial year.

 

2.2.2 Overall departmental budgetary allocation

 

The Department of Trade and Industry has been allocated a total budget of R9.1 billion for the 2012/13 financial year, R10.4 billion for the 2013/14 financial year and R11.1 billion for the 2014/15 financial year. The 2012/13 budget represents a nominal increase of R2.2 billion or 32.2 per cent compared to the 2011/12 financial year. In real terms, this increase reflects a R1.7 billion or 24.9 per cent increase. Furthermore, the DTI’s budget will increase by 13.9 per cent and 7.4 per cent in nominal terms during the 2013/14 and 2014/15 financial years respectively. The total share of the DTI’s budget allocation is 0.9 per cent of the total government’s budget of R969.4 billion for the 2012/13 financial year compared to 0.8 per cent in the 2011/12 financial year [4] .

Table 1: Budget allocations and per centage changes of the budget estimates from 2011/12 to 2012/13 (R million)

Programme

Budget

Budget Share (%) 2011/12

Budget Share (%) 2012/13

Nominal Per centage change in 2012/13

Real Per centage change in 2012/13 [5]

R million

2011/12

2012/13

Administration

659.3

608.7

9.6

6.7

-7.67

-12.82

International Trade and Economic Development

144.8

133.5

2.1

1.5

-7.83

-12.94

Broadening Participation

865.7

879.9

12.6

9.7

1.64

-4.02

Industrial Development: Policy Development

1 311.0

1 482.9

19.1

16.3

13.10

6.81

Consumer and Corporate Regulation

229.7

244.7

3.3

2.7

6.55

0.60

Industrial Development: Incentive Administration

3 320.9

5 437.6

48.3

59.8

63.74

54.62

Trade and Investment South Africa

345.1

304.8

5.0

3.4

-11.68

-16.60

TOTAL

6 876.5

9 092.1

100

100

32.2

24.85

Source: National Treasury (2012a) and own calculations

 

The 2012/13 allocation increase of R2.2 billion is primarily due to additional allocations in terms of incentives linked to industrial development. These include the manufacturing development incentives [6] (an additional R1.4 billion is allocated), the capital investment incentives for special economic zones (an additional R500 million is allocated) and the clothing and textile production incentive (an additional R150 million is allocated). [7]

 

In terms of the economic classification, the Department has allocated 85.5 per cent (R7.8 billion) of the R9.1 billion to transfers and subsidies, a nominal increase of 40.5 per cent since 2011/12. The current payments’ allocated share of the total budget allocation has declined from 18.8 per cent (R1.3 billion) of the 2011/12 budget allocation to 14.3 per cent (R1.3 billion) of the 2012/13 total budget of R9.1 billion, while payments for capital assets only received 0.2 per cent (R14.1 million) of the budget allocation compared to 0.48 per cent of the budget allocation (R32.9 million) in 2011/12. [8]

 

Spending on consultants for business and advisory services, as well as professional services, is expected to increase from R102.2 million in 2011/12 to R107.9 million in 2014/15, at an average annual rate of 1.8 per cent. Consultants are appointed to provide legal services, research and incentive reviews. However, this allocation declines in the 2012/13 and 2013/14 financial years to R95.2 million and R95.1 million respectively. [9]

 

The Department’s programmes/divisions have been slightly reorganised this financial year. Firstly, the Communications and Marketing Division was merged with the Administration programme. Secondly, the Industrial Development Division (IDD) and The Enterprise Organisation have been reorganised and renamed as the Industrial Development: Policy Development and Industrial Development: Incentive Administration Divisions respectively. Thirdly, the Empowerment and Economic Development Division was renamed as the Broadening Participation Division.

 

In terms of allocations to various divisions, the Industrial Development: Incentive Administration Programme/Division is allocated the largest share of the budget (R5.4 billion or 59.8 per cent of the total budget allocation). The second largest share is allocated to the Industrial Development: Policy Development Programme/Division (R1.5 billion or 16.3 per cent of the total budget allocation) followed by the Broadening Participation Programme/Division with a share of R879.9 million or 9.3 per cent of the total budget allocation. These three programmes combined constitute 85.8 per cent of the total budget allocation while the remaining four programmes share 14.2 per cent of the total budget allocation.

 

The spending focus over the medium term period is aligned to the broader government priority outcomes of decent job creation and economic development through industrial development as included in the New Growth Path. Other national priorities which the Department contributes towards include inter alia: development of productive infrastructure; investment priorities; developmental trade strategies; inclusive economic growth; promotion of alternative (energy) technologies and increased competitiveness. The above issues will be discussed below within the context of the respective divisions responsible for these.

 

2.2.3 Industrial Development

 

The DTI’s Industrial Development theme is now clearly reflected by the new divisions/programmes Policy Development (formerly the Industrial Development Division) and Incentive Administration (formerly The Enterprise Organisation). The Industrial Development theme is allocated 76.1 per cent of the total departmental budget allocation. The Incentive Administration Programme is allocated 78.6 per cent of this budget allocation while the Policy Development Programme is allocated 21.4 per cent of this budget allocation.

 

Industrial development expenditure increased from R2.8 billion in 2008/09 to R4.6 billion in 2011/12, an average annual rate of increase of 18 per cent. [10] This growth was mainly due to the introduction of incentive support programmes for the clothing and textile, and automotive sectors. The incentives increased expenditure on Industrial Development in general such that the Policy Development programme grew from R418.7 million in 2008/09 to R1.3 billion in 2011/12, an average annual rate of 46.3 per cent, and the Incentive Administration programme also grew from R2.4 billion to R3.3 billion over the same period at an average annual rate of 11.4 per cent. [11] The theme’s budget allocation is expected to grow over the medium term to R8.6 billion, at an average annual rate of 23.1 per cent, mainly as a result of additional allocations for incentive programmes, which are discussed below.

 

2.2.3.1 Policy Development Programme

 

This programme focuses on developing and implementing policies, strategies and programmes aimed at growing manufacturing and related sectors of the economy and thereby contributing to the direct and indirect creation of decent jobs, value addition and competitiveness in domestic and export markets. The Industrial Policy Action Plan (IPAP) is the Department’s flagship to contribute to the mandate of decent employment through inclusive economic growth.

 

The programme’s budget allocation will mainly be spent on transfers, namely 92.8 per cent or R1.4 billion of the budget allocation. This includes transfers to support the standards, quality assurance and accreditation institutions, about R413.5 million. This is distributed as follows:

 

· South African National Accreditation System (SANAS) – R30.3 million (47.1 per cent increase since 2011/12).

· National Metrology Institute of South Africa (NMISA) – R76.5 million (22.3 per cent increase since 2011/12).

· National Regulator for Compulsory Specifications (NRCS) – R78.1 million (110.1 per cent increase since 2011/12).

· South African Bureau of Standards (SABS) – a R180.5 million contribution towards research (-0.53 per cent decrease since 2011/12) and R48 million for infrastructure investment (48.5 per cent decrease since 2011/12).

 

Other significant transfers include:

 

· The Clothing and Textile Production Incentive, which is administered by the Industrial Development Corporation (IDC). The incentive is allocated R750 million, an increase of 25 per cent since 2011/12.

· The National Foundry Technology Network, which is administered by the Council for Scientific and Industrial Research (CSIR), is allocated R21 million, an increase of 200 per cent since 2011/12. In addition, the Intsimbi National Tooling Initiative is allocated R49.2 million, an increase of 36.6 per cent since 2011/12.

 

2.2.3.2 Incentive Administration Programme

 

The Incentive Administration Programme has been created to design and implement programmes that support investment, competitiveness, employment creation and equity. It consists of a range of incentives focused on broadening participation, manufacturing investment, services investment, infrastructure development support, product and systems development and business development and after care.

 

Due to the nature of this programme, 97 per cent of the allocation is transferred to public corporations or private enterprises. Manufacturing Development Incentives have been allocated R3.2 billion or 59.4 per cent of the programme’s budget allocation. The main sub-programmes within this incentive are [12] :

 

· Manufacturing Competitiveness Enhancement Programme, which is being launched this financial year: R1.2 billion

· Automotive Production and Development: R1 billion

· Enterprise Investment Programme: R800 million

· Small and Medium Enterprise Development Programme: R190 million.

 

The overall allocation for Industrial Development Zones (IDZ) has decreased by 0.94 per cent since 2011/12. However, the Coega IDZ’s allocation has increased from R387 million in 2011/12 to R417.9 million in 2012/13 (or an 8.9 per cent increase). Furthermore, the programme has introduced an incentive for Special Economic Zones (SEZs), a new model which will include IDZs. Capital investment incentives for SEZs is allocated R500 million from 2012/13, which will increase to R1 billion in 2014/15. SEZs will allow provinces in the country that do not have access to a sea port or airport to develop a regional economic zone to promote domestic and export production capacity. The specific allocations to existing IDZs will discontinue after 2013/14. The other infrastructure development incentive, the Critical Infrastructure Programme, is allocated R182 million for 2012/13, a 53.5 per cent increase since 2011/12.

 

The Services Sector Development Incentives is allocated R439 million, an increase of 31.7 per cent compared to 2011/12. This consists of the [13] :

 

· Business Process Outsourcing Programme: R209 million

· Film and Television Production Incentive Scheme: R233.4 million.

 

The Broadening Participation incentives is allocated R135 million in 2012/13, an increase of 14 per cent compared to 2011/12. This consists of the [14] :

 

· Black Business Supplier Development Programme: R90 million

· Cooperatives Incentive Scheme: R45 million.

 

2.2.4 Broadening participation

 

The Broadening Participation Programme drives the development of policies and strategies that create an enabling environment for small, medium and micro enterprises (SMMEs) and cooperative enterprises, and the enhancement the competitiveness of local and provincial economies for inclusive economic growth and job creation. The allocation to this programme for the year 2012/13 has increased by R14.2 million (1.64 per cent compared to 2011/12) in nominal terms. However, in real terms, the programme’s allocation decreased by R34.8 million or 4.02 per cent.

 

In terms of the economic classification, R789.4 million (or 89.7 per cent) of the programme’s budget is allocated to transfers and subsidies and 54.2 per cent of transfers is allocated to the Small Enterprise Development Agency (SEDA). SEDA’s Technology programme is allocated R113 million (or 14.3 per cent) of the transfer allocation. The remainder of the transfer budget is mainly allocated to National Research Foundation’s Technology and Human Resources for Industry Programmes (THRIP), Productivity South Africa’s Workplace Challenge Programme, which finances and supports world class manufacturing and value chain efficiency improvements in South African companies, and IDC’s Support Programme for Industrial Innovation (SPII). Given the emphasis on the important contribution of SMMEs, skills and innovation play in developing the economy and inclusive economic growth, the mostly low or negative nominal increases accompanied by negative real per centage changes for most sub-sections of this programme could have a negative impact on broadening participation and limit support for SMMEs and especially cooperative development.

 

2.2.5 International Trade and Economic Development (ITED)

 

The International Trade and Economic Development Programme plays a critical role in facilitating international and African bilateral and multilateral trade relations and agreements. The budget allocation for the 2012/13 financial year was R133.5 million, which decreased by R11.3 million (-7.8 per cent) from the previous year’s allocation of R144.8 million. The ITED programme has two sub-programmes namely the International Trade Development and African Economic Development. The Africa Economic Development sub-programme’s proportion of the programme’s budget allocation has decreased from 48.2 per cent in 2011/12 to 38.3 per cent in 2012/13, as well as a decline of 26.8 per cent compared to the 2011/12 budget allocation. This is reported to be due to the shifting of the Tripartite Summit of the Common Market for East and Southern Africa , the East African Community and the Southern Africa Development Community from the 2012/13 financial year to the previous financial year (i.e. 2011/12) [15] .

 

In terms of economic classification, current payments are allocated about R97.8 million (73.3 per cent) of the programme’s budget allocation. This is constituted by compensation of employees (R74.5 million or 76.2 per cent of the current payments’ allocation) and goods and services (R23.3 million or 23.8 per cent of the current payments’ allocation). Transfers and subsidies is allocated R35.4 million (or 26.5 per cent) of the programme’s budget allocation. This is mainly for memberships and/or contributions to international organisations (R15.9 million or 47.7 per cent of transfers), such as the World trade Organisation, and regional spatial development initiatives that the Development Bank of Southern Africa (R18.5 million or 52.3 per cent of transfers) administers.

 

2.2.6 Trade and Investment South Africa

 

Trade and Investment South Africa (TISA) is responsible for increasing export capacity and supporting direct investment flows through strategies for targeted markets and an effectively managed network of foreign trade offices. Expenditure increased from R310.2 million in 2008/09 to R345.1 million in 2011/12, at an average annual rate of 3.6 per cent, and is expected to increase to R378.3 million over the medium term, at an average annual rate of 3.1 per cent. This programme is allocated R304.8 million in 2012/13 compared to R345.1 million allocated in the 2011/12 financial year and this indicates a real decrease of R57.3 million and a negative real percentage change of 16.6 per cent. Transfers and subsidies is allocated R120 million (39.4 per cent) of the programme‘s budget allocation. This is mainly for the Export Credit Insurance Corporation’s interest make-up scheme (81.4 per cent of transfers). This contribution has decreased by 19.7 per cent compared to 2011/12.

 

2.2.7 Consumer and Corporate Regulation

 

The Consumer and Corporate Regulation Division plays a critical role in d eveloping and implementing regulatory solutions to facilitate easy access to redress and efficient regulation within the economic environment. The Division’s allocation has increased by 6.6 per cent compared to 2011/12. The largest proportion of this budget (69.2 per cent) is allocated to transfers to the regulatory entities responsible for enforcing regulation and providing services to the public. Most entities have received a nominal increase in their allocations with the exception of the Companies and Intellectual Property Commission (CIPC) and the new Companies Tribunal. The CIPC is expected to be self-funded but has been receiving a relatively small allocation to assist its transition from the former Companies and Intellectual Property Registration Office. The National Credit Regulator’s allocation is also effectively showing a negative real per centage change of 2.8 per cent since 2011/12.

 

In general, there has been a call for regulatory entities to focus on enforcement and compliance with legislation by relevant stakeholders, as well as for increased research, awareness and education. In this regard, the real increases within areas of gambling and consumer protection is crucial.

 

2.2.8 Administration

 

The Administration Programme ensures the successful implementation of the Department’s mandate through sustainable and integrated, customer centric resource solutions and services. In the 2012/13 financial year, the former Communication and Marketing programme has been incorporated into this programme under two new sub-programmes, namely Media Relations and Public Relations, and Communications to better align the department’s activities and programmes. The allocation for the year 2012/13 is R608.7 million which amounts to 3.4 per cent of the total budget. The largest allocation (58 per cent of the programme’s allocation) goes to the corporate services sub-programme. This sub-programme provides human resource management, information and communication technology, corporate governance, legal services and facilities management support.

 

Expenditure in this sub-programme increased from R245.6 million in 2008/09 to R408.2 million in 2011/12, at an average rate of 18.5 per cent, and is expected to decrease to R402.5 million over the medium term, at an average annual rate of 0.5 per cent. The main cost drivers are compensation of employees and goods and services, such as advertising costs, consultants and professional services, and lease payments. As the activities of the Communication and Marketing programme will be incorporated into this programme over the MTEF period, funding will be directed at increased coverage and promotion of the department’s activities and services offered, and extensive coverage of international missions in both domestic and international media.

 

 

3. Key issues raised by the Committee during its deliberations

 

Consumer Protection: During its deliberations, the Committee raised the issue of the protection of consumers during major transactions – such as Walmart - and whether the DTI’s budget makes provision for the protection of consumers in its budgetary allocation. In response to the matter raised, the Minister informed the Committee that consumer matters were not raised as part of the Walmart transaction as mergers are primarily considered to be a competition matter and is dealt with by the Competition Authorities.

 

Steel Price : The Committee expressed its concern with regard to the absence of a resolution regarding the steel price. Steel is a critical input into the industrialisation process, which is a key tool of government to address poverty, unemployment and sustained economic growth. The inter-departmental committee established to address the steel issue has not yet reported on its findings. The Committee was informed that there are ongoing negotiations to ensure compliance with the agreement reached between government and AMSA/LNM Holdings during the unbundling of Iscor.

 

Budget allocations: The Committee requested more detail with respect to the Intsimbi National Tooling Initiative programme as an amount of R49.2 million had been allocated to it in the 2012/13 financial year. Furthermore, the administrative programme reflects a decline in the next financial year from R659.3 to R608.7 million with a sharp increase reflected in the outer year (2014/15) to the amount of R722.2 million. The Committee enquired what had informed this fluctuation in administrative cost. With respect to the Intsimbi National Tooling Initiative the Committee was informed that it is a skills development programme to enhance and redevelop skills within the tooling industry to ensure manufacturing competitiveness.

 

NCC Budget: Views were expressed in the Committee that the NCC should be adequately funded in order to fulfill its mandate. The Committee was informed that the DTI supports the NCC but that the budget decision was a collective decision of Government through the budgetary process to support the productive sectors of the economy. The DTI is not opposed to increasing resources allocated to the NCC; however, a robust discussion is essential to ensure that the NCC is compliant with all financial requirements as stipulated in the Public Finance Management Act (No. 1 of 1999).

 

North/South Corridor: The Committee enquired about the current status of development of the corridor and timeframes attached to its implementation as the project is relevant to the current infrastructure drive. The Minister informed the Committee that a number of projects have been identified as priorities of which the corridor is one. Most of the projects are outside South Africa but there is recognition that support for spatial development initiatives is essential to build intra-regional trade.

 

Code of Conduct for Business : The Committee enquired whether a code of conduct exists for South African companies doing business in Africa as a number of complaints and comments were received regarding South African companies behaviour in Africa and abroad. The Committee was informed that the Minister would support the idea of a Code of Conduct for South African companies as conduct by companies may impact on South Africa ’s foreign and trade relations.

 

Film Incentives: The DTI was commended by the Committee on the impact of the incentives on the film industry. The Committee enquired whether further tax incentives are being considered to develop and support the local film industry holistically given its labour intensity and the potential for foreign revenue/earnings.

 

 

4. National Consumer Commission’s Strategic Plan and Budget

 

The 2011 Estimates of National Expenditure (ENE) reflect an allocation of R32.9 million to the NCC. In the absence of the necessary financial management systems, as required by the PFMA, the money could not be transferred to the newly established NCC. The PFMA requires any government entity to establish financial systems and infrastructure, as well as produce cash flow and budget projections to achieve its mandate as reflected in its strategic plan before any funds can be transferred to it. Until the NCC had these systems in place, the DTI administered the funds of the NCC to the amount of R10.9 million from 1 April to 30 September 2011. This was administered through a Memorandum of Understanding between the NCC and the DTI. At the end of September 2011, the DTI transferred the first tranche of R19.8 million into the NCC’s account.

 

As part of its ongoing oversight responsibilities, the Committee engaged with the NCC throughout the 2011/12 financial year to ensure that the NCC received the necessary support during its establishment phase. During these engagements, the NCC attempted to elicit support for additional funds notwithstanding any unspent amounts. During these engagements, it was not clear that there were sufficient internal control mechanisms in place with regard to the financial and performance management systems.

 

The NCC presented their strategic plan for the period 2012 to 2017. The strategic objectives identified were to:

 

· Protect consumers from hazards through advocacy, education and awareness;

· Improve consumer redresses envisaged in the Consumer Protection Act;

· Protect consumers from unethical business practices and misconduct through law enforcement and compliance;

· Conduct research for policy, legislative and regulatory improvement;

· Meet consumer and stakeholder expectations as well as those of standing advisory committees;

· Ensure the establishment of a functional organisation;

· Achieve the mandate of the NCC with an optimal staff complement;

· Implement an organisation-wide performance management system;

· Create the brand of the NCC as a voice for South African consumers;

· Provide an effective ICT infrastructure and network; and

· Implement an effective and efficient financial management system.

 

The budgeting process of the government requires entities to produce a record of efficient utilisation (expenditure) of the previous allocated budget and to ensure that there are sound financial management controls in place before additional allocations will be considered. In terms of the 2012 Estimates of National Expenditure, the NCC has been appropriated R41.6 million below the requested R98 million. This was primarily as a result of the perceived failure on the part of the NCC to implement the necessary financial control management systems as required by the PFMA. Currently, the NCC’s internal control mechanisms are under review by the Auditor-General’s office.

 

The NCC acknowledged that compliance with relevant legislation such as the PFMA and the Public Service Act are essential for it to fulfil its mandate. Therefore, establishing and developing the critical policies and standard operating procedures are essential to establish a well-functioning organisation. Securing the necessary funding to achieve its mandate is therefore subject to developing proper financial control mechanisms. The absence of these fiduciary requirements is a concern for the Committee as it potentially can hinder the NCC from achieving its strategic objectives in an accountable and transparent manner. The expenditure projections for the outer years raised concerns as it may jeopardise implementation of the ICT infrastructure required to automate certain consumer related processes and procedures to improve the effectiveness and efficiency within the organisation. Given the important role of the NCC in the protection of consumers, especially the poor, a lack of adequate internal controls and budgetary constraints should not hamper its effectiveness.

 

The role of consumer protection practitioners in provinces and the process with respect to the selection of industries to be investigated annually still require clarification. It is important for the NCC to establish relationships with other entities responsible for compliance to ensure that consumer products comply with all relevant standards to protect consumers. The categorisation of various customers for the NCC is important but protection of the historical disadvantaged should be paramount.

 

Threats of budgetary cuts to essential programmes such as consumer awareness programmes and research, and comprising the implementation of the necessary ICT infrastructure should not be taken lightly. An engagement between the NCC and the Department is needed to engage on their budgetary requirements and the submission of a properly motivated budget request that could be considered during the adjustment budget process. The Department ensured the Committee of its commitment to fund entities for them to fulfil their mandates subject to a properly motivated budget request and the required underlying financial infrastructure and processes, as required by law, being in place.

 

 

5. National Credit Regulator

 

The National Credit Regulator (NCR) aims to ensure that the credit industry is efficient, professional, equitable and lawful. The NCR has raised the bar concerning the enforcement of credit legislation in South Africa , and has successfully changed the behaviour of credit providers through its enforcement actions in both the courts and at the National Consumer Tribunal. The NCR has an integral role to play in ensuring a financially strong, well-governed and viable credit sector in South Africa ’s financial services landscape. The recently appointed board members and the dedicated staff of the NCR must continue then to release the seed of creative energy within it to meet this challenge.

 

The credit industry in South Africa has faced unprecedented challenges as a result of the global financial crisis and its impact on South Africa caused a massive contraction in the granting of credit, and resulting in greater stress to over-indebted consumers. In South Africa , the build-up in mortgage arrears continues, coupled with the continued contraction in the granting of housing loans. This resulted in not only fewer buyers and debt-stressed borrowers being unable to sell their properties, but more significantly, a decline in housing construction negatively impacting on housing delivery. A shift from housing lending to consumer credit is being experienced. Currently, South African credit providers extend more consumer credit than housing loans, although the former still remains a relatively small portion of total credit in South Africa . This may have alarming implications for South Africa ’s future economic growth, particularly given the possibility of a double dip recession elsewhere in the world.

 

A concern for the NCR is the sharp rise in unsecured lending and that the total value of unsecured loans by the third quarter of 2011 rose by 53 per cent to R101.1 billion from the previous year. This represents 8 per cent of all lending in South Africa , and is up from 5.7 per cent in 2010. A further concern is that secured credit accounts dropped by one per cent, and unsecured accounts rose 31 per cent in the twelve months up to September 2011. Almost 75 per cent of unsecured credit consisted of loans of more than R15 000, and more than 60 per cent of those loans went to people earning less than R10 000 a month.

 

The NCR has created an orderly mechanism for over-indebted consumers to restructure payment of their debt. More than 2 000 debt counsellors were registered and the process of establishing a functional debt counselling system with a full set of guidelines is underway. The NCR noted that amendments to the National Credit Act are required to strengthen the ability of the NCR to regulate the process of debt counselling.

 

The NCR presented their strategic plan for the period 2012/13 – 2016/17. The strategic objectives identified were to:

 

· Promote increased access to credit through responsible credit granting;

· Protect consumers from abuse and unfair practices in the consumer credit market; and

· Address over-indebtedness.

 

The rise in unsecured lending to finance consumption and its inflationary impact is a concern as it could jeopardise the recovery of the economy and be a threat to financial stability. The education of consumers about the dangers of unsecured lending is key to addressing this trend. Financial literacy is crucial so as to avoid the debt-trap and the role of the education authorities should not be underestimated in this regard. Access to credit remains targeted to the well-resourced and the high cost associated with loans for higher risk groups means that the historically disadvantaged group are further marginalised. The continued advancement of the consumer credit market regulatory system and the promotion of access to credit through responsible credit granting are essential for the maintenance of financial stability. In this regard, the Committee held a further meeting on unsecured lending to determine the severity of the trend with the major stakeholders, namely the NCR, the Banking Association and the SA Reserve Bank. None of the stakeholders regarded the growth in unsecured lending as a threat to the stability of our banking system, nor considered it likely to create a “bubble”. However, the NCR confirmed that the trend would be continuously monitored to ensure that this remained the case.

 

 

6. Companies and Intellectual Property Commission

 

The Companies and Intellectual Property Commission (CIPC) presented their strategic plan for 2012/13-2016/17 and provided the policy context. The CIPC is responsible for the enforcement of various pieces of legislation and must explore the synergy that exists between various broad areas of law covering corporate regulation and intellectual property rights. Given this context and its broad legislative mandate, there was a need to realign the institution. This requires the CIPC to understand the needs and expectation of the customer, as well as the global environment it operates in. Although the CIPC is accountable to the DTI, its activities overlap with the mandates of various other departments such as Arts and Culture, Science and Technology and Economic Development.

 

The CIPC identified three key strategic objectives for the 2012/13 financial year to achieve its vision and mission, namely to:

 

· Improve the competiveness of the South African economy by enhancing the reputation of South African businesses and the South African business environment;

· Contribute to a knowledge-based economy and competitive local industries by promoting creativity and indigenous cultural expressions and knowledge; and

· Promote broader formal economic participation by enhancing the service delivery and extending the reach of the CIPC.

 

In its presentation, the CIPC highlighted the synergies it explored through its diverse mandate in that the formalisation of businesses and their identity – which is trademarks (Intellectual Property) – and the brand and reputation of the business (corporate regulation) are grouped together in terms of its objectives and goals. One deals with formulisation of business and the other one deals with maintenance of high standards of corporate governance.

 

Through its second strategic objective, it strives to promote the protection and commercialisation of innovations, with the specific focus on innovation in key sectors in the economy where there are comparative advantages. Furthermore, the protection of our cultural heritage and to support a strong and competitive South African creative industry is of paramount importance.

 

In order to achieve its third strategic objective, the CIPC identified the following critical areas to enhance service delivery and extend the CIPC’s reach:

 

· Easy access to credible, reliable and relevant information and advice;

· Secure value-added services to registered entities and rights holders;

· An enabling and intelligent working environment; and

· An improved reputation, as well as improved organisational performance of the CIPC.

 

The CIPC is self-funded through mainly administrative fees. The CIPC is allocated R4.2 million from the DTI and has indicated that it is able to sustain its operating cost for this financial year.

 

Table 2: CIPC’s budget breakdown for period (R million)

Programme

2012/13

2013/14

2014/15

2015/16

2016/17

Business Regulation and Reputation

134.8

150.9

174.6

188.4

208.6

Innovation and Creativity Promotion

62.5

70.7

80.5

87.9

102.2

Service Delivery and Access

251.3

255.2

271.1

282.9

293.4

Total operational expenditure

448.6

476.8

526.2

559.2

604.2

Special initiatives*

100

50

20

-

-

Total expenditure

548.6

526.8

546.2

559.2

604.2

Projected revenue

361.9

366.8

399

414.8

413

Reserves

186.1

142.4

134.6

114.4

142.7

Projected revenue from fee increases

 

17.6

12.6

30

48.5

Total funds available

548

526.8

546.2

559.2

604.2

Source: CIPC (2012)

 

The issue of registration of businesses in relation to the informal economy was raised. Registration with the CIPC is not compulsory but the associated benefits received on registration are not well understood in the industry. Other forms of registration are compulsory, such as municipal approval and licences (Business Act), if one wants to establish a liquor business. The issue of compliance is a concern. The formalisation of small businesses through the registration process should be encouraged and an action plan should be developed to facilitate this process. The establishment of a one-stop shop that would facilitate the registration of business process is important to address shortcomings and increase South Africa ’s competitiveness globally.

 

 

7. Conclusion

 

The Committee welcomed the Auditor-General’s report which was generally positive on all entities with the exception of NCC and noted the concerns raised. The Committee, while acknowledging the substantive increase in budget for incentives related to IPAP sectors, is also of the opinion that for the IPAP to be an effective tool to drive industrialisation thereby addressing poverty and unemployment will require a further increase in its budget allocation. Furthermore, the Committee believes that the IPAP should be more focused on the comparative advantage that South Africa has to accelerate industrialisation. In order to succeed in the global market, measures should be implemented to acquire additional strategic skills to strive to innovate.

 

The following challenges still remain a concern for the Committee:

 

· The Lotteries Act, as well as the National Gambling Act, requires substantive legislative amendments including the incorporation of recommendations made by the Committee in its report tabled on the Gambling Review Commission Report.

· The Intellectual Property Laws Amendment Bill has not yet been enacted. This may have negative consequences for the very indigenous communities it intends to assist.

· The inter-departmental report on the steel price has not been concluded. The Committee implores its completion as the steel price has a major impact on industrialisation.

· Compliance with the relevant legislation such as the PFMA and the Public Service Act with respect to the NCC has not yet been fully achieved and the Committee is engaging both the NCC and the Department in this regard. The Committee acknowledges that the NCC may not be adequately funded; however, it encourages the NCC to fully comply with these legal requirements for accountability and transparency to secure any additional funding it may require.

 

The Committee welcomes the considerable progress made by the CIPC in restoring South Africa ’s credibility in the registration of companies, as well as the maintenance of its register. The Committee will continue with its ongoing engagement and monitoring of new entities, such as the NCC and the CIPC, to ensure that they are able to fulfil their mandates.

 

Furthermore, it commends the Department on its successes achieved with respect to the strategic trade relations such as BRICS and maintaining its links with its traditional trade partners, especially the European Union. It also welcomes the extension of its footprint into the African continent. The Committee welcomes the progress made towards the establishment of the tripartite free trade area among the member states of COMESA, EAC and SADC. It also urges the Department, in collaboration with its regional partners, to support the removal of non-tariff barriers related to the movement of goods and business persons in the region and on the continent. In addition, the issue of counterfeit goods should be more effectively addressed at the border posts through the South African Revenue Service and its counterparts. At the multilateral level, the Committee strongly supports the conclusion of the Doha Development Round.

 

Given the imperative of climate change and its cross-border nature, the Committee urges the Department to place emphasis on the implementation of joint continental and sub-continental projects on energy, climate change and food security.

 

The Committee was of the view that trade promotion efforts in established and new markets should be intensified, both from the point of view of the Department’s management support as well as the funding for fairs or exhibitions in these markets. Additional trade missions or targeted trade promotion activities should be considered in the future, especially in growing emerging markets.

 

The Committee, through further engagement with the NCR, the Banking Association South Africa, and the South African Reserve Bank, is satisfied that the recent sharp increase in unsecured lending does not constitute an impending risk to increased indebtedness and financial instability. However, the Committee strongly advocates that the NCR continues to monitor the situation and ensure the protection of the poor and vulnerable in the provision of finance.

 

Overall, the Committee commends the Minister, the Director-General and the Department for the effective implementation of policy.

 

 

8. Acknowledgements

 

The Committee would like to thank participants from the Ministry of Trade and Industry, the DTI and its entities at the meeting. The Committee also wishes to thank its Committee support staff in particular the Committee Secretary, Mr A Hermans, the Content Advisor, Ms M Herling, and the Researcher, Mr Z Ngxishe, 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.

 

 

9. Recommendation

 

The Portfolio Committee on Trade and Industry having considered the 2012 proposed Budget Vote 36: Trade and Industry recommends that the House approves the said Budget Vote in terms of the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) (the Money Bills Act).

 

 

 

Report to be considered.

 

 

 

 

References

 

CIPC (2012) The CIPC Strategic Plan 2012-2012

Department of Trade and Industry (2012a) Annual Performance Plan 2012/13.

 

Department of Trade and Industry (2012b) Budget in programmes 2012-13.

 

Department of Trade and Industry (2012c) Strategic Plan 2012/13 – 2016/17.

 

National Treasury (2011) Estimates of National Expenditure: Vote 36: Trade and Industry.

 

National Treasury (2012a) Estimates of National Expenditure: Vote 36: Trade and Industry.

 

National Treasury (2012b) Budget Review.

 

NCC (2012) January to March 2012 Management Accounts.

 

Presidency (2010) Monitoring and Evaluation of Delivery Agreement between the president and the ministers - for outcome 4: Decent employment through inclusive growth.

 

United Nations (2012) World economic situation and prospects. Available online: www.un.org/en/development.

 

Zuma, J.G. (2011) State of the Nation Address. Parliament of the Republic of South Africa, 11 February .

 

Zuma, J.G. (2012) State of the Nation Address. Parliament of the Republic of South Africa, 9 February .

 

 

 

 


[1] The Investment Bill will provide legislation in terms of bilateral investment treaties.

[2] DTI (2012a)

[3] The DTI: Annual Performance Plan – 2012-2015

[4] National Treasury (2012a) and own calculations.

[5] Real values are based on an estimated consumer price index ( CPI) of 5.9% for 2012/13 (National Treasury 2012b).

[6] The manufacturing development incentives consist of a group of incentives focused on the manufacturing sector. This includes the new Manufacturing Competitiveness Enhancement Programme, the Automotive Production and Development Incentive, the Enterprise Investment Programme and other smaller incentives.

[7] National Treasury (2012a) and own calculations.

[8] Ibid

[9] National Treasury (2012 a )

[10] National Treasury (2012 a: 810-14)

[11] Ibid

[12] DTI (2012b) Budget in programmes 2012-13.

[13] Ibid

[14] Ibid

[15] National Treasury (2012a: 817)

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