ATC121130: Preliminary report of the Portfolio Committee on Trade and Industry on the implementation of the Industrial Policy Action Plan with specific reference to the state of the manufacturing sector, dated 29 November 2012
report of the Portfolio Committee on Trade and Industry on the implementation
of the Industrial Policy Action Plan with specific reference to the state of
the manufacturing sector, dated 29 November 2012
The Portfolio Committee on Trade and Industry having
considered the progress report on
the implementation of the Industrial Policy Action Plan for
2011/12, and having conducted public hearings that focussed on the challenges,
constraints and contribution it is expected to make on employment creation
through beneficiation and manufacturing, prepared a preliminary report as
Industrial Policy Action Plan is a priority policy instrument of Government
over which the Committee has exercised its oversight vigorously since August
2009. This influences a more focussed IPAP2 that was more tightly aligned with
the New Economic Growth Path and finally IPAP3 which prioritised core
industries and manufacturing enterprises to accelerate the employment creation
and economic growth in
revised Industrial Policy Action Plan (IPAP2) was a radical shift to grow a
developmental economy by ensuring that investment targets productive sectors of
the economy to arrest the decline in manufacturing and accelerate employment
creation. Within the context of the New Growth Path, IPAP2 focused on value-added
sectors with the potential for high employment creation and growth multipliers.
IPAP also correctly identifies that monopolistic pricing of certain minerals
and most semi-processed raw materials such as steel and chemicals in the form
of import parity pricing has negatively affected the development of industry within
global recession of 2008 had a negative impact on the manufacturing sector
which led to massive job losses in the sector. Currently,
recent Purchasing Managers Index registered a three year low indicating declining
business confidence and a contraction in the manufacturing sector. Recent data
indicates a sharp rise in imports which is at the expense of jobs with exports
moving on a flat trajectory.
administered prices have contributed to
line with its oversight responsibility, the Committee received regular updates
on the implementation of IPAP.
In order to ascertain whether IPAP has been the
catalyst for growth in the productive sectors of the economy and/or whether
impediments exist within the economy that could undermine the rationale of
IPAP, public hearings were scheduled on the state of the manufacturing sector.
Committee invited the following economists: Dr Simon Roberts on the state of
the economy and the impact of electricity on manufacturing, and Professor Ben
Turok (MP) on beneficiation.
government departments and an entity, namely the Departments of Trade and
Industry and of Public Enterprises and the South African Local Government
Association (SALGA), were invited to comment on the impact of administered
prices on the manufacturing sector. The National Electricity Regulator of South
Africa was also invited to comment on the issues before the Committee. The South
African Maritime Safety Authority commented on the potential and opportunities
for the maritime industry in relation to industrial development with specific
focus on the boat building. State-owned companies (SOC) such as Eskom and the Transnet
National Ports Authority were also invited to comment on the issues before the
other stakeholders and companies that were sensitive to changes in electricity
tariffs were invited to the public hearings These included the Manufacturing
Circle, the Energy Intensive User Group of Southern Africa (EIUG), Free State
Gold Fields Chamber of Commerce (FSCC), the National Foundry Technology Network
(NFTN), Silicon Technology,
Metals Group, the
Apparel Manufacturers of South Africa (AMSA), the Eastern Cape Socio Economic
Consultative Council (ECSECC), National Association of Automobile Manufacturers
of South Africa National (
), National Association
of Automobile Component and Allied Manufacturers (
Ford Motor Company of South Africa, and
The perceived negative impact
transition to a cost-reflective pricing regime
on the economy despite
efforts to increase
tariffs at a lower rate than initially indicated.
The DPE and Eskom
explained that the lack of infrastructure investment in prior years led to aged
infrastructure, if not adequately maintained and replaced, could lead to energy
Other cost drivers
related to the production of electricity included the cost of coal which has
been increasing significantly above inflation.
Concerns were raised with regard to the widening differential
between Eskom and municipal electricity tariffs.
concerned that the current and future municipal tariffs would threaten the
viability of the manufacturing sector, particularly energy-intensive
There was a need for all energy consumers to shift towards
more energy efficient usage.
According to the National Port Authority, the lack of
infrastructure investment contributed to the deterioration of port facilities.
Therefore port infrastructure needs upgrading which would be partially funded
through higher port charges.
High port charges have increased transport costs for exports
and imports which could contribute to decline in the competitiveness of the
There were general challenges to attract future investment
from especially multinationals, as
Investment by local suppliers was limited due to uncertainty
regarding future, particularly long-term, local procurement possibilities.
Local investors were reluctant to obtain the necessary
international quality assurance certification to qualify to be included in
multinationals global value chains because of the time and effort required to
Where the promotion of black suppliers is imperative, the
DPE and other stakeholders had raised the need for on-going direct support as a
constraint to ensure the delivery of quality products that are delivered on
The promotion of an interface which benefits
the national interest is required. This should include pricing arrangements
between the mining and manufacturing sectors, limited protectionist
arrangements, skills development, positive procurement measures that favour
domestic industry and clear taxation policies that would encourage localisation.
The Minerals and Petroleum Resources Development Act section 26(3) requires
that any person who intends to beneficiate any mineral mined in the Republic
Preliminary position of the Committee on IPAP3
Committee continues to monitor the impact of the steel price on manufacturing
and is awaiting a report from an Inter-departmental Committee set up to unpack
the impact of the steel price on manufacturing. However, as indicated in the
introduction we have begun to dig deeper into other constraints, challenges and
impediments while exploring opportunities to overcome these.
most recent constraint or impediment to the manufacturing sector appears to be relatively
high administered prices, particularly electricity and port tariffs. The
increase in bulk energy cost by Eskom, as well as the high port charges, has a
negative impact on consumers. The high electricity tariff increases implemented
by municipalities appear to be cross-subsidising other municipal activities.
relatively high administered prices contributed to the loss of many small entrepreneurial
businesses, especially in the manufacturing sector, which resulted in the
retrenchment of thousands of workers
the Independent System and Market Operator Bill (ISMO) is before Parliament
which seeks to establish an independent structure that is responsible for
system operations, the purchase of electricity from electricity generators and
selling electricity to distributors and large customers at a wholesale tariff.
a result of the complex nature of the issues and divergent information provided
by participants, the Committee wanted to develop a deeper understanding of the
issues before submitting a
definitive report on the
hearings on the state of manufacturing sector and making recommendations for
the House to consider.
Committee will therefore schedule a colloquium from 29 31 January 2013 with
all stakeholders to determine the way forward.
to be considered.
No related documents