ATC130513: Report of the Portfolio Committee on Trade and Industry on Budget Vote 36: Trade and Industry, dated 10 May 2013

Trade and Industry

Report of the Portfolio Committee on Trade and Industry on Budget Vote 36: Trade and Industry, dated 10 May 2013

Report of the Portfolio Committee on Trade and Industry on Budget Vote 36: Trade and Industry, dated 10 May 2013

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’s (DTI) budget of 2013/14 offers the committee an opportunity of assessing the progress it has made in overcoming the challenges it faced in 2009 and achieving its strategic objectives. Among the challenges in 2009 were a declining clothing and textile sector with its associated job losses, local companies in distress and the risk of deindustrialisation and a decline in trade partly due to the lack of competitiveness and the global financial and economic crisis. This compelled the government to implement interventionist policies and to accelerate industrialisation of South Africa .

This decision in 2009 to accelerate industrialisation in the economy was reinforced in the 2013 State of the Nation Address (SONA) by President J Zuma, who has called on the public and the private sector to work together to create a productive, investment-friendly environment. The government’s R827 billion infrastructure investment over the next three years [1] will facilitate serious private sector productive investment. This is expected to accelerate industrialisation, generate a pool of strategic skills and boost much needed job creation [2] .

Three key issues of the SONA that relate directly to DTI’s mandate are [3] :

· The high rate of unemployment , particularly among the youth in the country .

· The need for participation by black South Africans and women in economic activity Industrial Development, and

· Strengthening the country’s economic and investment ties with other regions and specifically African countries through regional integration.

In line with the priorities of SONA, the DTI has implemented the Industrial Policy Action Plan (IPAP II), the 2013 iteration, is seen as a vehicle to accelerate economic transformation through the re-industrialisation of the South African economy. The IPAP II is the flagship programme by the Department of Trade and Industry to enforce the priorities of the country. The IPAP II, iteration in 2013, streamlines the activities of the Department under four pillars, namely: the promotion of labour-absorbing industrialisation, increasing competitiveness, broadening participation, and creating a regulatory environment that will promote investment and ease of doing business.

To promote labour-absorbing industrialisation, the Department of Trade and Industry has developed a strategy for the promotion of industrial development as the part of its core business. In line with the country’s industrial development objectives, the Department funds the country’s manufacturing sector (a sector that has been identified a as labour-absorbing sector) through a pool of incentives including the Manufacturing Competitiveness Enhancement Programme (MCEP), the Clothing and Textile Competitiveness Improvement Programme (CTCIP), and the Support Programme for Industrial Innovation (SPII). The decline in clothing industry has been stemmed and other distressed companies, etc. Furthermore, the Department has undertaken the initiative to perform feasibility studies to determine other areas of development in the country through the Special Economic Zone (SEZ) Programme.

These programmes are intended to promote investment in beneficiation activities to add value and diversify output and to expand downstream and upstream value-chains. Beneficiation is critical in that the country needed to shift away from imported goods and rely on locally produced goods. As a result of the change in demand from our traditional trading partners, South Africa had to diversify its output and reduced exports that have not been beneficiated. Therefore, the transformation from a consumption driven to a production-driven economy to reduce the current account deficit was paramount.

South Africa , as part of the continent, is deepening regional integration, which has also reduced the impact from the European Union economic decline, which has led to the decline of South African exports. The decision to find new markets in the South and the East can be commended, notwithstanding the imbalance in some of these trading relationships, in particular with the export of raw materials. The Department’s strategic trade policy developed in 2010 has facilitated the goals of job creation, industrialisation and to further economic development. The DTI’s International Trade and Economic Development Division (ITED) has facilitated the strengthening and renewing economic ties and relationships within the African Union, the Southern African Development Community (SADC) and the Southern African Customs Union (SACU); nurturing South-South cooperation specifically relationships with India and Brazil; and increasing South Africans’ understanding of the BRICS [4] formation.

The Department seeks to broaden participation in the economy through a regulatory framework. Within this framework, the DTI implements legislation, including the Broad-based Black Economic Empowerment and Cooperatives Act, that creates opportunities for previously disadvantaged citizens to participate in economic activities by means of business ownership and employment in cooperatives and small, medium and micro enterprises (SMMEs). In this regard, the DTI offers a range of incentives including the Black Business Supplier Development Programme (BBSDP), the Co-operatives Investment Scheme (CIS) and the Technology and Human Resources for Industry Programme (THRIP). The DTI has programmatically linked youth employment with the priority of creating jobs. It is also intent on establishing an environment that encourages competition which in turn will expand the creation of jobs, economic growth and development. This will feed into a Youth Enterprise Development Strategy. [5]

Furthermore, the promulgation of the Intellectual Laws Amendment Bill, which seeks to protect traditional knowledge and geographic indicators, has been delayed, as the President referred his reservations regarding the legislation back to Parliament. The Bill has subsequently been retagged and is awaiting approval by the National Assembly.

The important catalytic role industrialisation plays in our developmental economy relies upon 18 departments working more closely together to ensure a cohesive implementation in an integrated National Industrial Policy Framework. This overview provides the economic platform for the committee’s budget oversight to ensure the accountability of the Executive and the Accounting Authorities within a good governance framework that serves the people.

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). In addition, the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) also require committees to consider and report on their department and entities’ strategic plans. Portfolio committees may also advise the Committee on Appropriations in the National Assembly regarding possible amendments within a budget vote for its consideration. In its oversight of policy implementation into legislation, the committee must ensure that robust, sound and implementable legislation is developed and can stand the constitutional muster. Every endeavour is made to ensure that legislation is transformational and constitutionally sound.

1.2. Purpose

The purpose of this report is for the Portfolio Committee on Trade and Industry to report on its consideration of the DTI’s strategic plan and budget vote, as well as the strategic plans of its entities. As the committee covers 14 entities, it had made a strategic decision to annually select a number of entities to consider ensuring more robust oversight over these. During this budget oversight process, the committee selected the following seven entities to oversee their budgets and strategic plans:

· Companies and Intellectual Property Commission,

· Export Credit Insurance Corporation of South Africa ,

· National Consumer Commission, and

· The technical infrastructure institutions, namely:

- National Metrology Institute of South Africa ,

- National Regulator of Compulsory Specifications,

- South African Bureau of Standards, and

- South African National Accreditation System.

The DTI budget of R9.6 billion has broadly been allocated in terms of industrial development (74.7 per cent), trade, investment and export promotion (5.3 per cent), broadening participation (10.1 per cent), regulation (2.7 per cent) and administration (7.2 per cent) [6] . The Companies and Intellectual Property Commission and Export Credit Insurance Corporation of South Africa are self-funded, while the technical infrastructure institutions receive a proportion of their budgets from the DTI. The National Consumer Commission was the only entity of the seven that received its entire operational budget from the DTI.

The selection of the technical infrastructure institutions was linked to their strategic importance in supporting the manufacturing sector and exports and protecting consumers from unsafe or poor quality products and services. These institutions ensure the maintenance of quality standards, compulsory specifications, accredited testing facilities and measurement units.

Furthermore, the committee has committed to monitoring the development of the Companies and Intellectual Property Commission (CIPC) and National Consumer Commission (NCC), as these had been recently established and had experienced significant teething challenges. These commissions provide critical regulatory functions to businesses and consumers respectively. The Companies Act, underpinning the creation of the CIPC, has been lauded as a landmark piece of legislation, creating an appropriate regulatory environment for companies and business, as well accommodating the development of SMMEs.

The Export Credit Insurance Corporation (ECIC) had also been selected, as it provides services to potential exporters or domestic investors intending to transact abroad for medium to long term projects. These activities enable the country’s objectives of supporting regional development through infrastructure and other projects. Thus, increasing demand for South African skills.

1.3. Process

Oversight over Vote 36 involved a robust engagement with the Minister, Dr Rob Davies, and the Director-General, Mr Lionel October. During this engagement, the budget was unpacked against the DTI’s strategic plan and the priorities of SONA within the prevailing economic climate. This required the committee to evaluate the alignment of industrial financing, incentives and other instruments to industrial policy objectives to ensure a labour-absorbing economy.

The committee met on 23 April 2013 to consider the DTI’s Medium Term Strategic Framework 2013/14 – 2015/16. The Minister and Director-General provided the context within which the DTI’s Medium Term Strategic Framework had been developed and presented its Annual Performance Plan.

The committee further engaged with the abovementioned entities regarding their strategic plans and budgets for the 2013/14 financial year on 16 – 18 April 2013 in line with the noted objectives.

2. Department of Trade and Industry

The Director-General’s briefing outlined the strategic objectives and key interventions as described in the Medium-Term Expenditure Framework (MTEF) for 2012 – 2015. The five intervention areas or themes are [7] :

· 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 are to [8] :

· 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.

2.1. Achievements during the 2012/13 financial year

At the end of March 2013, the DTI achieved the following according to the four quarterly reports for the 2012/13 financial year. These are grouped according to the DTI’s focus areas, namely industrial development; trade, investment and exports; broadening participation; and regulation. [9]

Industrial Development

· Designated products : The DTI had submitted sector designation templates to the National Treasury for set-top boxes for digital television, oral dosage tender for pharmaceutical products and school and office furniture.

· MCEP : The programme was launched in May 2012; 189 enterprises were approved for grants valued at R992.2 million and 33 551 jobs are expected to be retained.

· THRIP : The THRIP had approved support for 1 257 students (57.2 per cent of the target) and 609 researchers (71.6 per cent of the target).

· Kuvusa investment : The DTI facilitated the setting up and launch of the first small scale milling plant which will see the maize meal at a price being reduced by up to 20 per cent for South African households in the area. The SMMEs and Co-operatives have always been recognised as a vehicle for small-scale manufacturing. This has been exemplified with the establishment of the Kuvusa Mills in KwaZulu-Natal in order to reduce input cost such as transportation and the creation of jobs locally.

· SPII : Funding was approved for 53 projects to the total value of R203.5 million, where the SPII contribution was R109 million and the industry’s contribution was R94.5 million.

Trade, Investment and Exports

· BRICS : Participated in the 3 rd Contact Group on Economic and Trade Issues ( CGETI ) meeting in Delhi , India to refine Terms of Reference (ToR) and action plans for the BRICS work programme on economic and trade issues.

· Trade promotion : Organised 22 National Pavilions, most of which were on new high growth markets such as Asia, Africa, South America, the Middle East and large markets such as Europe and North America . Organised five International Trade Initiatives (ITIs) in Brazil , Russia , India , Democratic Republic of Congo and Zimbabwe .

· National Exporter Development Programme ( NEDP ) : The NEDP was presented and endorsed by the Economic Sectors and Employment Cluster (ESEC) of Cabinet.

· Investment promotion : Recorded R53.5 billion in the pipeline of investments in sectors such as manufacturing, automotives, agro-processing and mining; steel and cement, renewable energy as well as services in particular business process outsourcing (BPOs).

· Export Market and Investment Assistance ( EMIA ) scheme : Assistance was provided to 1 084 enterprises.

Broadening Participation

· Cooperatives : The Cooperatives Amendment Bill was adopted by the National Assembly. In addition, 314 enterprises were also approved for the CIS.

· New programmes : Aquaculture Development and Enhancement Programme ( ADEP ) and Incubator Support Programme ( ISP ) launched.

· Broad Based Black Economic Empowerment ( B-BBEE ) : The B-BBEE Amendment Bill was approved by the Cabinet and introduced into Parliament. The B-BBEE Codes of Good Practice were also gazetted for public comment. Furthermore, 1 213 enterprises were approved for the BBSDP.

· Small business development : Hosted together with private sector partners the International Small Business Congress in September 2012. The Small Enterprise Development Agency’s ( SEDA) Technology Programme established 10 new incubators ; supported 1 258 SMMEs and approved 376 SMMEs for assistance. In addition, the DTI implemented some of the recommendations contained in the SMME Review Report .

· Women empowerment : 31 new projects were approved for the Isivande Women’s Fund ( IWF ). Furthermore, the National Strategic Framework on Women‘s Economic Empowerment was finalised and was awaiting presentation to Cabinet.

· Competitiveness improvement : 83 new contracts with new companies participating in the Workplace Challenge Programme ( WCP ).

· Informal sector : The Informal Sector Strategy draft has been developed and the Reference Group has been established with the support of the International Labour Organisation.

· Youth development : The Youth Enterprise Development Strategy ( YEDS ) was approved by the Minister.

Regulation

· Intellectual property : Final Policy Framework on Intellectual Property produced incorporating the recommendations from the Copyright Review Commission Report.

· Legislation : The Draft Policy Framework and Draft Bill on the Business Reform Registration have been developed. The Draft Policy and Bill for Licensing of Businesses has been developed and presented to Cabinet for wider consultation process. In addition, the Regulatory Impact Assessments (RIA) on the National Credit Act and Business Act Review had been developed.

2.2. Key strategic interventions for 2013/14 period

The IPAP II will remain the instrument for re-industrialisation going forward for the ultimate goal of creating labour-absorbing economy. For further build on the successes of the past financial year, the Department has identified key areas of interventions crucial for job creation and economic growth that will be implemented in the 2013/14 financial year through the IPAP. These include [10] :

· Upscaling industrial policy by tabling the annual rolling IPAP aimed at achieving economic growth and job creation. Through this it would enhance competitiveness and achieve government’s objective of decent employment through inclusive growth.

· Developing three sector specific action plans to influence and respond to the changing economic environment to enhance the country’s manufacturing potential.

· Submitting designation templates to the National Treasury for two subsector/sectors for local procurement under the Preferential Procurement Policy Framework Act.

· Undertaking two key research projects that would facilitate the development of interventions to expand value-added activities in existing and new sectors of the economy including beneficiation.

· Implementing the Special Economic Zones (SEZ) programmes to strengthen industrialisation through the spread of economic opportunities.

· Continuing support for technical competencies via the Technology and Human Resources for Industry Programme (THRIP) in the chemical, information and communication technology (ICT), metal and minerals, agriculture, biotechnology and energy sectors.

· Supporting 20 new projects to the value of R43 million through the Support Programme for Industrial Innovation (SPII).

· Supporting students enrolled for the tool-making apprentice and industrial upgrading programmes.

· Approving 940 enterprises to participate in the Export Marketing and Investment Assistance (EMIA) scheme.

With respect to trade, investment and exports, the DTI intends to [11] :

· Conclude the negotiation of the SADC-EU (European Union) Economic Partnership Agreement (EPA) , the SACU -India Preferential Trade Agreement ( PTA ), the TFTA [12] and produce a status report on progress towards the conclusion of trade negotiations.

· Produce a report on the progress of implementing the agreed programmes and projects for priority development areas in SACU, SADC FTA and Spatial Development Initiative (SDI) infrastructure projects.

The Committee looks forward to the speedy and successful conclusion of these negotiations, especially with respect to the EPAs.

With regard to broadening participation, the DTI will [13] :

· Set aside R119 million to support existing incubators and small, medium and micro enterprises (SMMEs) with a performance monitoring report to be produced on its progress.

· Submit the National Strategic Framework on Gender and Women Empowerment for cabinet approval. A phased-in implementation report will be produced .

· Seek the approval of the business cases for the establishment of the Co-operative Development Agency, as well as the Co-operative Tribunal.

· Finalise the informal sector and the youth enterprise development strategies

2.3. Overall departmental budgetary allocation

The Department of Trade and Industry’s expenditure has been increased by an average annual growth rate of 11.9 per cent between the 2009/10 and the 2012/13 financial years. In the 2010/11 financial year, expenditure declined from R5.9 billion in 2009/10 to R5.7 billion in 2010/11. However, expenditure has been on an upward trend since the 2011/12 financial year increasing to R6.8 billion and to R8.3 billion in the previous financial year. In the current financial year, expenditure is expected to be R9.6 billion, increasing from R8.35 billion in 2012/13, a real increase of 8.55 per cent. The Department’s expenditure is forecasted to reach R11.4 billion by the 2015/16 financial year. [14]

The Department’s expenditure between the 2009/10 and 2015/16 financial year is depicted in the graph below.

The Department of Trade and Industry’s budget is divided among its seven programmes, namely:

· Administration,

· International Trade and Economic Development,

· Broadening Participation,

· Industrial Development: Policy Development,

· Consumer and Corporate Regulation,

· Incentive Development: Incentive Administration, and

· Trade and Investment South Africa .

Figure 1: DTI’s budget share per programme (2013/14)

Source: Own calculations based on National Treasury (2013a)

Over the medium term, the Department’s spending will be centred on the implementation of policies, strategies, programmes and incentives aimed at promoting industrial development and broadening participation in the economy. These are implemented through the Industrial Development: Incentive Administration and the Industrial Development: Policy Development programmes, which use the bulk of the Department’s allocation over the medium term (approximately 75 per cent of the total budget) (see Figure 1).

The largest share of the budget amounting to R5.5 billion (58 per cent of the total budget) is appropriated to the Industrial Development: Incentive Administration Programme. This is followed by the Industrial Development: Policy Development Programme (R1.6 billion or 17 per cent of the total budget) and the Broadening Participation Programme (R 968.3 million or 10 per cent of the total budget). The lowest allocations were to the International Trade and Economic Development programme (R138.6 million or 1 per cent of the total budget) and the Consumer and Corporate Regulation programme (R256.2 million or 3 per cent of the total budget).

The increase in the Department’s budget for the 2013/14 financial year was mainly as a result of real increases in the Trade and Investment South Africa and the Industrial Development: Incentive Administration programmes’ budget allocations which increased in real terms by 26.1 per cent and 15.1 per cent respectively. The allocations for the other programmes decreased in real terms. (See Table 1)

Table 1: Budget Summary – Department of Trade and Industry

Programme

Budget

Nominal % change

Real % change [15]

R million

2012/13

2013/14

2014/15

2015/16

2012/13-2013/14

Administration

697.2

690.1

720.6

748.3

-1.02

-6.27

International Trade and Economic Development

134.7

138.6

150.7

156.9

2.90

-2.56

Broadening Participation

940.0

968.3

1 004.0

1 054.9

3.01

-2.45

Industrial Development: Policy Development

1 492.7

1 606.5

1 771.3

2 049.8

7.62

1.92

Consumer and Corporate Regulation

248.1

256.2

248.2

258.3

3.26

-2.21

Industrial Development: Incentive Administration

4 560.9

5 543.1

5 645.7

6 704.1

21.54

15.09

Trade and Investment South Africa

277.5

369.7

417.4

432.4

33.23

26.16

TOTAL

8 351.1

9 572.5

9 957.9

11 404.7

14.63

8.55

Source: National Treasury (2013a)

In terms of the economic classification, the majority of the DTI’s budget (84.2 per cent) consists of transfers mainly through incentives to businesses or to its entities, compared to 82.2 per cent in the 2012/13 financial year. The DTI’s transfers also grew in real terms by 11.2 per cent since 2012/13. The DTI has decreased its budget share allocated to current payments from 17 per cent in 2012/13 to 15.6 per cent in 2013/14. This share has increasingly been dominated by compensation to employees (R854.2 million in 2013/14, which grew in real terms by 9.9 per cent). However, payments on goods and services declined in real terms by 11.8 per cent since 2012/13.

A brief budget analysis per programme follows based on the tables listed in Appendix A:

Programme 1: Administration

The Administration programme provides strategic support and management to the Department and its agencies. The programme also ensures successful implementation of the Department’s mandate.

The programme has six sub-programmes, namely, the Ministry, the Office of the Director General, Corporate Services, Office Accommodation, Financial Management, Media Relations and Public Relations, and Communications.

In the 2013/14 budget, the Administration programme accounted for 7 per cent of the Department’s total budget with a value of R 690.1 million. The budget allocation decreased by 6.3 per cent in real terms from R697.2 million in 2012/13 to R690.1 million in 2013/14 (see Table 1). The decrease in the programme is mainly as a result of a decrease in the corporate services sub-programme associated with reduced spending in goods and services, such as advertising services, contractors and printing services. The Committee welcomes the efficient budget allocation by DTI which focus on its core mandate of industrial development and broadening participation compare the decrease in the administration programme.

Within the Administration programme, the largest appropriated sub-programme is the corporate services accounting for 54 per cent of the Administration budget allocation with a value of R372.5 million. However, the Corporate Services budget decreased by 13.9 per cent in real terms since the 2012/13 financial year. The Financial Management sub-programme and the Communications sub-programme are the second and third largest appropriated sub-programmes accounting for 14 per cent and 12 per cent of the total Administration programme budget respectively. (See Table A.1)

The largest increases in sub-programmes were increases in the Financial Management sub-programme and the Office Accommodation sub-programme. In the 2013/14 budget, the Financial Management sub-programme increased by 83.8 per cent in real terms and the Office Accommodation sub-programme by 67.5 per cent in real terms.

Programme 2: International Trade and Economic Development

The International Trade and Economic Development (ITED) programme provides direction on national trade policy to promote economic development; build an equitable multilateral trading system; strengthen trade and investment relationships; and promote African development.

The ITED programme is the smallest of the Department’s programmes based on its appropriation. With a budget of R138.6 million, the programme accounts for 1 per cent of the Department’s total budget. The programme’s budget has increased from R134.7 million in the 2012/13 financial year to R138.6 million in the 2013/14 financial year. However, in real terms the budget has decreased by 2.56 per cent.

The programme has two sub-programmes, namely International Trade Development and African Economic Development . In the 2013/14 financial year, the International Trade Development sub-programme accounts for 68 per cent while the African Economic Development sub-programme accounts for 32 per cent of the total programme budget. (See Table A.2)

In terms of the economic classification, ITED has allocated 70.5 per cent of its budget for current payments and 29.1 per cent for transfers. The main contributions to current payments are compensation for employees (79.1 per cent of current payments) and travel and subsistence (16 per cent of current payments). Transfers will mainly be towards the Regional Spatial Development Initiative being administered by teh Development Bank of Southern Africa (46 per cent of transfers) and the membership fees for the World Trade Organisation (24.8 per cent of transfers).

Programme 3: Broadening Participation

This programme aims to develop policies and strategies to create an enabling environment for SMMEs, and to improve the competitiveness of local and provincial economies to achieve equity, growth and job creation. The Broadening Participation Programme has three sub-programmes which are: the Enterprise Development, Equity and Empowerment, and Regional Economic Development .

The Broadening Participation Programme is the third largest programme of the Department by appropriation. In the 2013/14 financial year, with a budget of R968.3 million, the programme accounts 10 per cent of the Department’s total budget. The programme’s budget has increased from R940 million in the 2012/13 financial year. However, in real terms, the budget has decreased by 2.45 per cent. This is as a result of decreases in the Enterprise Development sub-programme budget of 2.15 per cent in real terms and the Regional Economic Development sub-programme of 12.72 per cent in real terms while the Equity and Empowerment sub-programme increased by 5 per cent in real terms. The Enterprise Development sub-programme accounted for the largest share of appropriation in the programme with more than 90 per cent of the total programme’s budget. (See Table A.3)

The Broadening Participation programme intends to spend R861 million or 88 per cent of its allocation on transfers in 2013/14. The transfers included R484.5 million to the SEDA, as well as R119.2 million for the Technology Programme SEDA administers on behalf of the DTI; R160.6 million for the THRIP) administered by the National Research Foundation; and R53.9 million for the SPII administered by the Industrial Development Corporation (IDC). It should be noted that the SEDA is responsible for providing non-financial support to SMMEs while the Small Enterprise Finance Agency (SEFA), located within the mandate of the Economic Development Department, provides financial support to SMMEs.

In addition, this programme will be overseeing the establishment and functioning of the Cooperatives Development Agency and Tribunal, as well as the Broad-based Black Economic Empowerment Commission over the medium term, once their respective establishing legislations come into force [16] . At this stage, it is not clear whether financial provision has been made in the existing budget for the requisite financial resources to establish and fund these entities once the legislation is promulgated.

Programme 4: Industrial Development: Policy Development

The Industrial Development: Policy Development Programme is responsible for the design and implementation of policies, strategies and programmes to develop the manufacturing and related sectors of the economy with the aim of contributing to the creation of decent jobs, adding value to manufactured products and enhancing competitiveness in the domestic and export markets.

This is one of the main programmes of the Department, and takes up the second largest share of the Department’s budget despite having just two sub-programmes: the Industrial Competitiveness and the Customised Sector Programmes. The programme’s budget has increased from R1.49 billion in the 2012/13 financial year to R1.6 billion in the 2013/14 financial year, an increase of 1.92 per cent in real terms (see Table A.4). In the 2013/14 financial year, an amount of R60 million will be transferred by the Department to the National Metrology Institute of South Africa, this amount has increased by R35 million from the initial transfer of R25 million made in the 2012/13 financial year. This has contributed greatly to the increase in this programme’s budget.

The programme allocated 92.3 per cent of its budget for transfers. This mainly consisted of (percentage share of the programme’s budget):

· Clothing and Textile Production Incentive administered by IDC: R758.3 million (47.2 per cent)

· Research Contribution to the South African Bureau of Standards: R 205 million (12.8 per cent)

· National Regulator for Compulsory Specifications: R103 million (6.4 per cent)

· National Metrology Institute of South Africa : R85.9 million (5.3 per cent)

· National Metrology Institute of South Africa for infrastructure: R60 million (3.7 per cent)

· Customised Sector Programmes administered by IDC: R68 million (4.2 per cent)

· Intsimbi National Tooling Initiative: R54.4 million (3.4 per cent)

· National Cleaner Production Centre administered by the Council for Scientific and Industrial Research: R43.7 million (2.7 per cent)

· South African National Accreditation System: R33.5 million (2.1 per cent)

Incentives and other financial measures to promote industrialisation are also provided by the IDC through industrial financing. The committee welcomed the IDC’s support in this regard.

Programme 5: Consumer and Corporate Regulation Programme

The Consumer and Corporate Regulation Programme is aimed at increasing opportunities for previously disadvantaged South Africans by attracting both domestic and foreign investment; increasing investor confidence through developing world class regulatory frameworks for monitoring, compliance and enforcement; and creating competitive, fair and efficient markets by having effective financial, economic, governance and related regulatory institutions. Policy and Legislative Development, Enforcement and Compliance, Regulatory Services are sub-programmes of the Consumer and Corporate Regulation Programme.

The programme’s budget has increased from R248.1 million in the 2012/13 financial year to R256.2 million in the 2013/14 financial year. However, in real terms, the programme’s budget has decreased by 2.2 per cent. At a sub-programme level, expenditure for the Policy and Legislative Development sub-programme’s budget decreased by 10.9 per cent; the Enforcement and Compliance sub-programme increased by 12.9 percent; and the Regulatory Services sub-programme budget decreased by 2.21 per cent in real terms for the 2013/14 financial year. (See Table A.5)

The Regulatory Services sub-programme budget of R206.5 million is to be transferred to regulatory agencies including the National Credit Regulator (29.4 per cent), National Gambling Board (13.4 per cent), National Consumer Tribunal (17.5 per cent), National Consumer Commission (21.5 per cent), and the Companies Tribunal (5 per cent). The real decrease in this sub-programme is a concern as the cost of ensuring compliance and enforcement for these regulatory agencies are increasing.

Programme 6: Industrial Development: Incentive Administration Programme

The Industrial Development: Incentive Administration Programme is responsible for improving the Department’s incentive administration by designing and implementing incentives and programmes that support investment, competitiveness, employment creation and equity. This programme, in conjunction with the Industrial Development: Policy Development programme, form the basis for support to implement IPAP II.

In the 2013/14 budget, the Incentive Administration Programme is the largest expenditure programme accounting for 58 per cent of the Department’s total budget with a value of R 5.5 billion. The programme’s budget is also the second fastest growing programme budget after the Trade and Investment South Africa programme at 15.09 per cent growth in real terms.

As a result of cash flow challenges related to disbursing incentives, the DTI has moved towards broadly grouping related incentives. This has enabled it to more easily move funds between the incentives to accommodate unforeseen peaks and troughs in the submission of incentive claims.

At a sub-programme level, the Manufacturing Investment Incentives sub-programme takes up the largest share of the programme budget and has the largest sub-programme budget increase. The Manufacturing Investment Incentives budget increased from R2.8 billion in the 2012/13 financial year to R3.6 billion for the 2013/14 financial year, an increase of 18.4 per cent in real terms. The Infrastructure Development Support sub-programme takes up the second largest share of the budget with R1.1 billion and a 12.15 per cent real growth.

The Broadening Participation Incentives sub-programme is the only sub-programme to have a budget decrease. This sub-programme’s budget declines by 11.7 per cent in real terms from R179.7 million in the 2012/13 financial year to R167.5 million in the 2013/14 financial year. (See Table A.6)

The programme intends to transfer 96.7 per cent of its budget to public corporations and private enterprises in 2013/14. This has increased from 95.9 per cent since 2012/13. Compensation to employees is the next largest contribution to the budget at 2.6 per cent. Expenditure on goods and services will only be 0.6 per cent of the budget and has decreased in real terms by 10.2 per cent.

Programme 7: Trade and Investment South Africa Programme

This programme is aimed at increasing the quality and quantity of domestic and foreign direct investment; promoting South African products in high growth markets; facilitating markets for South African manufactured products and services; and enhancing the ongoing promotion of exports and investment.

With a programme budget of R369.7 million for the 2013/14 financial year, the Trade and Investment South Africa Programme accounts for 4 per cent of the Department’s budget. Its budget has increased by 26.16 per cent in the 2013/14 financial year from R277.5 million in the 2012/13 financial year.

At a sub-programme level, the Export Development and Promotion sub-programme increased by 61 per cent in real terms followed by the International Operations sub-programme with an 18.82 per cent increase while the budget for Investment Promotion and Facilitation sub-programme decreased by 17.41 percent.

The 61 per cent increase in the Export Development and Promotion sub-programme is as a result of the Department’s aim to increase exports and improve the Government’s interaction with the private sector in the 2013/14 financial year.

The Trade and Investment South Africa Programme will spend 64.3 per cent of its budget on current payments and 35.3 per cent on transfers. In terms of current payments, compensation of employees forms the bulk of expenditure (60.3 per cent of current payments), followed by subsistence and travel (14.2 per cent of current payments) and operating leases (9.5 per cent of current payments). Transfers are mainly to the Export Credit Insurance Corporation for the Interest Make-Up Fund (84.5 per cent of transfers), followed by the Proudly South African Campaign (8.1 per cent of transfers).

3. Key issues raised by the Committee during its deliberations

The Committee raised a number of concerns during its deliberations including:

3.1 Budget allocation : The committee enquired whether the DTI’s budget allocation over the Medium Term Expenditure Framework (MTEF) was skewed towards industrial development with a small percentage allocated towards trade promotion and if this implied that industrial development was the department’s priority. The Minister in his response informed the committee that budget allocations are not indicative of priorities but rather the nature of DTI programmes. The majority of DTI’s budget was transferred to support various incentive programmes, especially those contributing towards industrial development. For South Africa to trade, it must produce goods but more importantly more value-added goods to develop its export base. The Minister informed the committee that the DTI actively partakes in trade promotion initiatives especially with regard to the promotion of exports and foreign direct investment. A clear indication of this is the recent appointment of the Chief Director of World Association of Investment Promotion Agencies as the Vice President of the International Body on Investment Promotion. The Director-General further indicated that funds are also utilised to support companies undertaking trade initiatives.

3.2 Trade relations with Zimbabwe : During its deliberations, the Committee raised the issue of the nature of South Africa ’s relations and whether it is currently pursuing any new trade agreements with Zimbabwe . Currently, South Africa and Zimbabwe has a new trade agreement in place since 2008. The Minister informed the committee that Zimbabwe has requested the delay in implementation of some aspects of the agreement, particularly in relation to market access. Currently, South Africa is in discussion with Zimbabwe regarding textile products.

3.3 Manufacturing of mining equipment: The committee expressed concern with regard to the production of mining equipment as South Africa used to be, in collaboration with its institutions of higher learning, on the forefront of mining equipment development. With the challenges facing the manufacturing sector as it relates to the cost and supply of electricity, how does South Africa become a viable producer and supplier of mining equipment? How does South Africa regains its competitive advantage in this industry? The DTI has recognised the importance of mining equipment and are in the process of looking at ways to bring companies like Bell and DEZZI into the Automotive Production Development Programme. The infrastructure roll-out should stimulate demand for mining equipment and is part of the beneficiation strategy to stimulate industrialisation.

3.4 NCC Budget: Views were expressed in the Committee that the NCC should be adequately funded in order to fulfil its mandate. It would appear that the staff complement of the NCC consisted of less than 30 per cent of the approved organisational structure and due to financial constraints this would only reach 30 per cent by the end of this financial year. The committee was of the view that this would compromise the NCC in performing its task of protecting the consumer. The Committee was assured that the DTI has been supporting the NCC, however, its additional budgetary requirement can only be addressed through the MTEF once the NCC develops a credible track record regarding its spending patterns. Despite this condition, the DTI would accommodate a shortfall, if necessary. The NCC has been stabilised and a process of addressing the vacancies is being embarked on.

4. Companies and Intellectual Property Commission

The CIPC presented its strategic plan for 2013 - 2018 as well as its annual performance plan. The CIPC is still in its transformational phase, establishing itself as a regulator and improving its credibility among stakeholders and customers. This required the CIPC to understand the needs and expectations of its customers, 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 2013/14 financial year to achieve its vision and mission, namely to [17] :

· 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 its reach.

The revised and updated strategic plan identifies four strategic focus areas for the CIPC. These are ensuring information reliability and the integrity of the database, to improve the relevance of the CIPC to its customers, to enhance the ease of doing business, and to demonstrate the CIPC’s economic impact.

The CIPC has been reviewing its structure and working processes, reviewing its service delivery model and aligning it strategically. Currently, the CIPC is involved in two projects, namely data cleansing to ensure the integrity of the information on its database and ensuring the establishment of the call-centre. The CIPC is working closely with the South African Revenue Services and the Department of Home Affairs to ensure greater verification capability and integrity of information.

4.1. Budget allocation

The CIPC’s strategic plan is aligned with its budgeted expenditure through the programmes listed in Table 2.

Table 2: Budget Summary

Programme

Budget

Nominal % change

Real % change

R million

2012/13

2013/14

2012/13-2013/14

Business Regulation and Reputation

248 084.0

282 484.0

13.87

7.83

Innovation and Creativity Promotion

139 900.0

178 300.0

27.45

20.69

Service Delivery and Access

65 600.0

78 200.0

19.21

12.89

TOTAL

453 584.0

538 984.0

18.80

12.53

Source: Own calculations based on CIPC (2013b: 19)

4.2. Key issues raised by the Committee during its deliberations

The committee welcomes the successes achieved by the CIPC with the International Monetary Fund and the World Bank ranking South Africa 35 th in the world for “ease of doing business”, as it recognised the need to make it easier for business to register. The committee enquired whether the CIPC has a project to simplify the registration process by developing a “one-stop shop” to decrease the time needed to complete all the necessary inter-agency requirements for registration, as well as to limit the number of businesses being deregistered.

In response to the issue of simplification of the registration process, the Commissioner informed the committee that currently they were in on-going discussions with other departments and agencies to facilitate the “ease of doing business” by developing an integrated service from different points. For example, the South African Revenue Service may register companies as part of the VAT registration process and also allow companies to submit their registration documents for CIPC simultaneously. An IT system should then be developed that would enable agencies to access and pass-on the required information. This will be an attempt to enhance compliance and verification of information.

The CIPC informed the Committee that it was not in a position to provide accurate figures with respect to de-registered companies and would address the matter to provide an accurate figure. At the time, the CIPC had been dealing with the last bulk de-registration process with the intention to do this on a monthly basis in future.

The committee raised a concern with respect to the call-centre and the percentage of unanswered calls and the accessibility of the CIPC to stakeholders. The CIPC acknowledged that one dropped call was one too many but that one should be realistic on how a higher answering rate could be achieved. It assured the committee that improved accessibility to the public was being prioritised. During the last engagement with the committee, the CIPC shared its intentions to follow the Swedish Model for its call centre. This should have been in operation by the end of January 2013. However, due to the call centre licences only being received in March 2013, the system had been upgraded in April 2013 and was expected to be in full operation in May 2013.

5. Export Credit Insurance Corporation (ECIC)

The Acting Chief Executive Officer’s briefing outlined the mandate and key strategic goals aligned with government’s objectives in its Strategic Plan 2013/14 – 2015/16. The ECIC’s mandate is to facilitate export trade and cross-border investments between South Africa and the rest of the world in line with its enabling legislation, the Export Credit and Foreign Investments Insurance Act (No. of 1957) as amended. The ECIC is a public company, established in terms of the Companies Act. It therefore pays tax, is subject to the Public Finance Management Act, and is designated as a section 3B entity.

The ECIC [18] is driven by five strategic goals which are to:

· Facilitate export trade and investments outside South Africa .

· Build mutually-beneficial local, regional and global strategic relations to advance South Africa ’s trade and economic development objectives.

· Promote a professional, competitive and customer-focused workforce that ensures an effective and efficient service to its customers.

· Create enterprise-wide risk awareness and effective corporate governance and risk management practices.

· Consistently utilise sound business environment and social principles by applying international best practice.

The ECIC’s strategic goals are aligned with the DTI’s objectives to build mutually beneficial regional and global relations, to advance South Africa’s exports, and to promote a professional, competitive and customer-focused working environment that ensures effective and efficient service delivery.

The current global economic environment and the depressed economic outlook of South Africa ’s traditional trading partners highlight the importance of export facilitation and investment into new markets. As a result of the global environment, African countries have become competitive in the global arena looking for growth and investment opportunities. Africa as a growth node presents opportunities in mining, infrastructure, and industrial projects for South Africa . In addition, its membership of BRICS presents new opportunities for value-added products. However, a closer collaboration between the public and private sector is needed to enhance the country’s competitiveness.

The ECIC highlighted South Africa ’s competitive advantage as follows:

· Its capacity to underwrite large transactions on a long-term basis.

· Interest make-up support for competitive pricing.

· South Africa ’s technological and technical capabilities in mining and engineering.

· Its strong financial banking sector with its footprint in Africa .

· ECIC insurance is seen as guaranteed by the South African government.

The ECIC informed the committee that it is working closely with the Industrial Development Corporation to offer performance bond insurance for SMME exporters. In line with the IPAP, the ECIC also offers special products for boat-builders such as the provision of insurance for advance payment guarantees required by overseas buyers, and insurance for a working capital facility offered by a bank during the boat-building phase.

One of the key goals of the ECIC is to facilitate export trade and investment outside South Africa which is in line with the National Development Plan’s objective to increase intra-regional trade in Southern Africa as well as with its regional neighbours. However, there were challenges facing the organisation that raised the riskiness of underwriting transactions in the region, such as the political instability in sub-Saharan Africa , inefficient border management, and poor regulations.

5.1. Budget Allocation

The ECIC informed the committee that it did not receive any funds from the fiscus and that it was financially self-sustainable. However, it administered the Interest Make-Up Fund, an export incentive scheme, on behalf of the Trade Investment South Africa Programme. This amounted to R 110.3 million in 2013/14 from R24.6 million in 2012/13 [19] . The ECIC also indicated that to fund and enhance its capacity to implement its projected growth strategy, it has increased its operating costs and staff complement.

5.2. Key issues raised during the deliberations

The committee enquired about the level of debt and defaults associated with the ECIC. The ECIC responded that it has an obligation to pay claims but this is paid over a period of time so that it does not compromise the financial stability of the organisation. It is important to pay claims to maintain credibility in the market in which the ECIC operates and to comply with insurance related legislation.

The committee enquired how the ECIC deals with fraudulent claims. The ECIC adopted the equator principle which introduced cross-cutting international standards used by international financial institutions such as the World Bank. South Africa has also adopted some conventions with respect to anti-bribery and projects supported by the ECIC must comply with the equator principles. Furthermore, South Africa had adopted the OECD conventional anti-bribe measures for all projects to check compliance with international organisations. The ECIC informed the committee that this is not a risk free environment and when companies breach the terms of the contract, it would be terminated and the ECIC would be obliged to report it to the relevant law enforcement authorities.

The communication strategy of the ECIC is critical in reaching all stakeholders. The issue of advocacy is critical and how it ensures that ordinary citizens know of its existence. It is not clear from the presentation how big its footprint in South Africa and Africa is and whether its advocacy is only focused on big cities. The ECIC recognised that its advocacy has been limited, which contributed to its low corporate profile. Traditionally, it has been dependent on its relationships with the financial sector but had embarked on a marketing campaign to increase its profile among existing and potential clients.

The committee enquired about the impact of the BRICS partnership on the ECIC’s growth potential. It confirmed that the BRICS partnership provides numerous opportunities for collaboration among its partners. Recent examples were in Sierra Leone and Mozambique where investments by Brazil and China provided infrastructure development opportunities for South African companies to build railways and locomotives.

6. National Consumer Commission (NCC)

The Acting Commissioner outlined the revised strategic plan (2012/13 – 2016/17) and the annual performance plan and the rationale for the revision of its strategic plan. He highlighted that the NCC, during the first two years, was purely focusing on complaints resolution without establishing the appropriate corporate governance mechanisms and the necessary financial management systems to ensure compliance with the relevant legislation. It would also appear that the NCC has been acting ultra vires as the Consumer Protection Act (CPA) (No. 68 of 2008) stipulates that the NCC “is responsible to … promote the resolution of disputes arising in terms of this Act, but it is not responsible to intervene or directly adjudicate such dispute”.

The Acting Commissioner informed the committee that the strategic framework had not been aligned with the CPA, and that the previous strategic plan and annual performance plans submitted had been ambitious given limited financial resources and appropriate skills to implement the plans. It was against this background that the NCC had revised its strategic and annual performance plans to ensure that the institution is well established, while meeting existing stakeholder expectations and demands . In line with its new strategic approach, the NCC [20] informed the committee that:

· Conciliations would be shifted to the respective industry bodies through a process of accreditation of ombud schemes;

· The NCC would cease conciliations incrementally as the alternative conciliation mechanisms became operational; and

· The NCC will approach the provincial consumer protection authorities to prepare to deal with consumer disputes that arise within their respective provinces.

6.1. Budget Allocation

In the 2012/13 financial year, the NCC received R48 million from the DTI. The expected appropriation for 2013/14 was R44.5 million, a 7.27 per cent decrease. According to the 2013 Estimates of National Expenditure, 75 per cent of this budget would be spent on meeting the NCC objective to promote compliance with the CPA and 25 per cent on achieving a well governed and capacitated organisation.

One of the key risks that will apply pressure on the budget will be legal costs to deal with on-going and new court cases and cases brought before the National Consumer Tribunal. This is expected to reduce over time from R2.6 million in 2013/14 to R1.1 million in 2015/16 [21] . It is expected that there should be fewer court challenges as precedence related to the CPA is set by the National Consumer Tribunal and courts.

6.2. Key issues raised by the Committee during its deliberations

It appeared that once the NCC phased out conciliations, it would mainly act as a vehicle that refers consumer complaints to provincial consumer bodies and ombud schemes. In this regard, the committee asked for clarity regarding this incremental approach adopted by the NCC. The NCC informed the committee that it has the responsibility to facilitate the amicable resolution of complaints received from consumers, so it would be important to empower these identified institutions and ensure that they have the capacity to deal with complaints once it is referred. It has developed referral protocols with the provinces and is currently in the process of engaging industry associations and ombud schemes to determine an appropriate process. This approach is dependent on how soon ombud schemes would be in operation. During this period, the NCC would continue addressing complaints.

The committee welcomes the announcement by the DTI of the establishment of a consumer ombudsman to address complaints resolutions. However, it requested that the relevant contact details of the body are accessible to the general public.

The NCC’s 2013/14 annual performance plan indicated a target to register and analyse 50 per cent of complaints and the other 50 per cent would be referred. A concern for the committee would be the mechanism to determine on what basis the other 50 per cent of complaints would be referred and to which bodies as there appears to be limited accredited consumer protection bodies. The NCC informed the committee that the intention would be that at least 50 per cent of the complaints received would be analysed within 8 days to determine whether it should referred or investigated.

Recent reports with respect to vacation clubs whose vigorous methods entrap people to purchase products remained a concern. The NCC informed the committee that currently approximately eight investigations were underway with regard to vacation clubs and its practices which are against the spirit of the CPA.

The committee commends the Acting Chairperson and the NCC’s staff for stabilising the NCC but seeks clarity with regard to the ICT structures and the mechanisms in place to address this shortcoming. The NCC acknowledged that their ICT remains inadequate to support sufficient operations at the Commission. The acquisition, implementation and maintenance of ICT infrastructure will be critical to enhance and ensure service delivery.

Furthermore, the committee is concerned about the apparent differing interpretations of the CPA and whether staff members in the NCC have a common understanding of the Act and the NCC’s mandate. The NCC informed the committee that the differing interpretations were associated with the industry and that no common case law existed in South Africa .

7. National Metrology Institute of South Africa (NMISA)

The main mandate of the NMISA is contained in the Measurement Units and Measurement Standards Act (No. 18 of 2006). This is to provide for the:

· Use of measurement units of the International System of Units (SI) and certain other measurement units;

· Designation of the national measurement units and standards;

· Keeping and maintenance of the national measurement standards and units and

· Establishment and functions of the NMISA.

NMISA published its Annual Performance Plan for the period 2013 to 2015. Its five strategic objectives of NMISA are to [22] :

· Ensure that South Africa maintains national measurement standards; and demonstrates their comparability to other national and international standards and measurements.

· Build and maintain an internationally recognized national metrology system as the foundation for the South African measurement system.

· Strengthen the metrology system as a key component of the Technical Infrastructure that is aligned with international best practice.

· Provide essential support to South African enterprises competing in a fast-paced global economy and provide appropriate assistance to SMMEs to enable their acceptance in the formal supply chain.

· Provide essential support for public policy objectives with regards to measurement compliance issues in terms of health, safety and the environment.

NMISA’s strategic objectives are in line with the twelve national outcomes as well as the Industrial Policy Action Plan (IPAP). According to NMISA, the Agency’s activities underpin a comprehensive standards, quality assurance, accreditation and metrology (SQAM) environment to ‘lock out’ unsafe and poor quality imports and ‘lock in’ access to increasingly demanding export markets; to support successful law enforcement; and to protect the environment and consumers. [23]

7.1. Budget Allocation

In the 2013/14 financial year, NMISA’s projected income amounts to R157.8 million, increasing by R64.5 million from its 2012/13 income. The DTI provides the largest proportion of the entity’s income accounting for 93 per cent of the income with R145.9 million for the 2013/13 financial year. In the 2013/14 financial year, the grant from the DTI increased by 69 per cent in real terms since the 2012/13 financial year. Income from services rendered at R10.6 million declines by 4.4 percent in real terms. [24]

Table 3: Budget allocation in relation to the strategic goals

Strategic Goal

Resource Allocation (R ’000)

Internationally benchmarked and accepted measurement standards in support of competitive economic infrastructure and an improved quality of life

57 862

Traceability, measurement expertise and services disseminated to South African commerce and industry through certified reference materials, appropriate technology and skills transfer.

23 315

Requisite expertise and competencies established and maintained according to internationally acceptable standards

35 798

Upholding the principles of good corporate governance and compliance to regulatory frameworks

27 874

Source: NMISA (2013: 55-57)

NMISA’s annual performance plan outlines the Agency’s outcomes and performance indicators as well the budget for the financial year 2013/14. The performance outcomes are linked to the budget for the same period. (see Table 3)

7.2. Key issues raised by the Committee during its deliberations

The committee welcomed NMISA’s ability to address its budget constraints through research contracts and providing access to its facilities in the absence of the Chief Executive Office and a Chief Financial Officer. NMISA informed the committee that the position of the CFO has been filled with only the position of the CEO being vacant. NMISA welcomed the increase in its budget and that most of the funding would be utilised for the private-public partnership project with the rest of the funds used for the recapitalisation of the organisation. Furthermore, challenges highlighted by NMISA are in relation to its employment equity profile as well as the ability of NMISA to contribute towards the growth of new businesses given the current constraints associated with equipment.

A concern for the committee is the need for NMISA’s technical infrastructure to be upgraded, particularly given its contribution to the energy efficiency agenda. NMISA is currently considering replacing old equipment which has been an on-going process in securing the necessary funds from the National Treasury in this regard. NMISA informed the committee that it must establish the national measurement standard and put the necessary infrastructure in place to ensure that it will be able to measure energy efficiency.

8. National Regulator for Compulsory Specifications (NRCS)

The NRCS is a national regulatory agency, established through the National Regulator for Compulsory Specifications Act (No. 5 of 2008). The Agency is mandated to promote the safety of the public and protect the consumer by developing and enforcing compulsory specifications in the interest of public safety and health or for environmental protection [25] . It also regulates imported and locally manufactured products and issues health guarantee certificates for fishery products destined for the EU and the Far East .

In its Annual Performance Plan for the period 2013 to 2015, the NRCS identified five strategic objectives to achieve its mandate, which are:

· To utilise a risk-based approach to maximise the potential compliance with all specifications and technical regulation falling under the mandate of the NRCS.

· To optimise the scope of the NRCS’ regulatory activities to protect people in South Africa and the environment.

· To inform and educate industry and consumers regarding their rights and obligations with respect to specifications and technical regulations.

· To ensure that highly engaged, competent people are in the right place at the right time to enable effective execution of the NRCS strategy.

· To ensure that the NRCS is a capable organisation with “fit for purpose” resources available to support decision making and action.

According to IPAP II, “the technical infrastructure institutions” will continue to reprioritise their activities to support the development, accreditation and enforcement of standards that can create, scale-up and resuscitate industries, while simultaneously contributing to broader social benefits”. In this regard, the NRCS supports:

· the identification of industries such as Agro-processing and “green” energy;

· the strengthening of enforcement of existing and new compulsory specifications for IPAP sectors;

· the strengthening of the South African technical infrastructure to support industrial development;

· the updating of the National Building Regulations and Building Standards Act; and

· the transition from Trade Metrology to Legal Metrology.

In its engagement, the NRCS informed the committee that in executing its functions of protecting the consumer and environment, it will focus on the enforcement of technical regulations with the emphasis of “locking out” non-compliant goods. In addition, through its regulatory function, it addresses failures in the market system whereby businesses may produce, import or sell products or services that may harm the consumer and/or the environment or may fall short of what is promised in terms of quantity or safety (trade metrology) [26] . The NRCS acknowledged the need to balance the burden of overregulation with the benefits of pragmatic, focused regulation. It would be critical for the NRCS to develop market-related intelligence capacity and to establish closer relations with other regulatory entities to enhance its functional capacity.

8.1. Budget Allocation

The Agency’s income is divided into five income groups. These are:

· Services/Assessment

· Levies for compulsory specifications

· Levies (prior year)

· Core funding from the DTI

In the 2013/14 financial year, the Agency budgeted for an income of R265.9 million, an increase from the previous financial year’s income of R244.9 million. The DTI was the single, largest source of funding for the NRCS. For the 2013/14 financial year, according to estimates, the DTI would fund the NRCS with an amount of R103 million. This amount makes up 39 per cent of the NRCS’ operating income. The largest share of the Agency’s revenue income is acquired from services sundered by the NRCS, levies for compulsory specifications with an amount of R123.9 million and acquired through the provision of accreditation services assessment revenue amounting to R35.5 million.

8.2. Key issues raised during the deliberations

The committee welcomed the balanced approach adopted by the NRCS with respect to regulation in that it encouraged entrepreneurship.

During the committee’s engagement with the SABS it highlighted the fact they have the necessary laboratory capacity to check for foreign proteins in meat products which are currently under-utilised due to lack of standards or compulsory specifications. With regard to meat products, the NRCS informed the committee that it was in the process of developing the compulsory specifications. With the finalisation of the specifications for meat products, the NRCS would utilise the SABS’ laboratories for testing.

Furthermore, the committee enquired whether products entering South Africa are compliant. The NRCS informed the committee that it has been piloting a border enforcement project to ensure that products entering the country are compliant with South Africa ’s compulsory specifications.

The committee enquired to how the system of testing can be more effective and the role NRCS plays with respect to government procurement. The NRCS responded that its role is guided by its mandate. The NRCS only provides technical support where a tender process involves an area which falls under its regulatory authority.

The committee enquired who is responsible for regulatory standards of products within the building industry. Building regulations remain the competency of the municipality with the NRCS’ role only required during dispute resolutions with regard to specifications of building material.

A concern for the committee was the NRCS’ high employee costs. The NRCS noted the concerns with regard to its staff complement and informed the committee that it made use of interns to assist with the enforcement of compliance to compulsory specifications. The current structure presents a medium to long term vision of the organisation. In respect of employees’ costs, the NRCS informed the committee that it is complying with the approved policies as well as going through a grading exercise to address disparities within the organisation which will unfortunately contribute to high cost.

9. South African Bureau of Standards (SABS)

The SABS’ legislative mandate is established under the Standards Act, 2008 (Act No. 8 of 2008). The Agency is mandated to:

· Develop, promote and maintain South African National Standards (SANS);

· Promote quality in connection with commodities, products and services; and

· Render conformity assessment services and assist in matters connected therewith. [27]

The SABS’ strategic objectives are centred on themes aligned to four perspectives, namely: growth, customer centricity, productivity and competent and empowered employees [28] . In its engagement with the committee, the SABS highlighted its strategic objectives, which are to:

· Increase the use of standardisation services by broadening the geographic footprint, as well as the scope of the services offered to the South African economy.

· Improve customer and stakeholder relations by focusing on delivery of standardisation solutions aligned to their needs.

· Increase and improve the operational performance of the SABS to enable delivery of quality outputs for customers.

· Deliver and retain a competent workforce that is aligned with the organisational mandate.

For the 2013/14 financial year, the SABS informed the committee that it intends intensifying its economic impact of standardisation, and implementing a laboratory improvement plan to establish world class laboratories whose revenue is sufficient to meet overheads.

9.1. Budget allocations

The agency’s budget is divided into five groups from which income is acquired. The income groups are as follows: testing, certification, training, standards, rental and core funding.

In the 2013/14 financial year, the SABS projected income of R823.6 million. The largest share of the entity’s income amounting to R306.2 million will be acquired through the provision of product and system certification services followed by the testing services with an income of R266.1 million. The DTI is the third largest source of income with a projected amount of R179.8 million to be transferred by the Industrial Development: Policy Development programme.

9.2. Key issues raised by the Committee during its deliberations

In its interaction with the SABS, the committee wanted to ascertain how the SABS monitored testing by independent stakeholders serving the industry. Currently, the SABS does not have the necessary capacity to do all testing, as standards are voluntary. In order to build confidence in a product, even if it is not a regulated product, companies request that their products are tested to provide the necessary assurance to the consumers that the product is safe.

The committee enquired whether SABS’ laboratories would be able to handle increased volumes if additional testing is required and what strategies are in place for increased volumes of testing. The SABS informed the committee that for any products to receive the SABS mark of approval, products would have gone through multiple and continuous tests. Once a product has been SABS approved, samples are collected at random times and are tested bi-annually to ensure that it remains compliant with industry standards. It is critical that the SABS responds to the policy imperatives and drivers of government to ensure that it will be able to test products. With respect to genetically modified organisms (GMOs), the SABS have been proactive and bought the necessary instruments to test products and ensure that it is ready when legislative and regulatory requirements are in place to test products for GMOs. It would appear that a disjuncture exists between the market and a clear regulatory environment.

The committee enquired whether the SABS supports SMMEs and co-operatives in providing testing facilities with respect to products which are critical for the development of the economy. The SABS engaged the Technology Innovation Agency (TIA) to assist SMMEs with regard to testing, but this support will only be available when the SMME’s product is aligned with the sectors it supports. Currently, the SMMEs are not assisted with regard to standardisation.

A concern for the committee is that consumers do not clearly understand the mandate of the SABS, whether it is accessible to the general public, and whether its communication strategy is effective. The SABS acknowledged that since 2008 the market still does not understand its mandate and that it is not a regulatory body.

The committee enquired whether the SABS has any responsibility to ensure that products being sold by street vendors are safe for public use and consumption. It also asked what enforcement tools were available to the SABS to ensure that standards were adhered to, promoted and maintained in the industry. As the SABS is not responsible for surveillance, the NRCS would be responsible to ensure that products sold by street vendors meet the standards. The SABS’ mandate limits it to complaints about products with the SABS mark that do not comply with the relevant standards. It is government that determines when standards are voluntary or not and if it affects the safety of consumers, compulsory specifications apply. Only when a product has a SABS mark would SABS be in a position to ensure compliance with standards. The SABS advised the committee that it would not be feasible for every standard to become a compulsory specification due to monitoring and surveillance difficulties. Products that are a risk to the safety and health of society should have compulsory specifications.

10. South African National Accreditation System (SANAS)

The SANAS is a national accreditation body aimed at providing an effective accreditation system that is internationally recognised and providing a good laboratory compliance and monitoring system. It is mandated to:

· Accredit or monitor organisations within its scope of activity for Good Laboratory Practice (GLP) for compliance purposes.

· Promote accreditation to facilitate international trade and enhance the country’s economic performance and transformation.

· Promote the competence and equivalence of accredited bodies.

· Promote the competence and equivalence of GLP-compliant facilities. [29]

SANAS published an Annual Performance Plan for the period 2013/14 to 2015/16. Its strategic objectives to:

· Improve its operational efficiency to deliver services with a spirit of excellence.

· Provide accreditation support for industrial development and the protection of the health and safety of the South African public and the environment.

· Promote the acceptance of SANAS-accredited results among global partners to advance South Africa ’s trade and economic development objectives.

· Support regional integration and relations to advance South Africa ’s trade, industrial policy and economic development objectives.

10.1. Budget Allocation

Its budget is divided into five groups from which income is acquired, namely revenue from accreditation provision and knowledge transfer (research and development), the transfer from the DTI, interest earned and sundry income.

In the 2013/14 financial year, the Agency projected an amount of R76.1 million, an increase from the previous financial year’s income of R64.9 million. The largest share of the Agency’s income amounting to R35.2 million was acquired through the provision of accreditation services. The DTI was its second largest source of income, in the 2013/14 financial year; it is projected that the DTI will transfer R32.6 million. Other sources of income for the 2013/14 financial year are research and development (R5.9 million), interest (R1.0 million) and sundry income (R254.7 million).

The Agency’s budget is divided into six expenditure groups. The groups are:

· Administration

· Accreditation Provision

· Marketing and Communication

· Regional Development

· International trade facilitation

· Research and Development

The largest share of the budget amounting to R31.1 million is spent on providing accreditation services. This is followed by administration expenses (R20.7 million), research and development (R 7.5 million), and marketing and communication (R 2.9 million).

10.2. Key issues raised by the Committee during its deliberations

Clarity was sought on the role SANAS played in ensuring that imported products are compliant with local specifications. SANAS recognised that it should proactively contribute to IPAP II by ensuring that the required standards are developed and that the necessary skills are available to perform accreditation functions in alignment with the IPAP outcomes. This should be done in collaboration with other technical infrastructure institutions with regard to accreditation and verification.

The committee is concerned with the vacancy rate currently within SANAS given its critical role in facilitating the accreditation of testing agencies to conduct conformity testing of manufacturers and exporters’ goods to international standards so that the results are credible and internationally accepted. At present of a staff complement of 72, only 57 staff members were full time employees. SANAS is in the process of addressing its racial profile with respect to specialised areas such as assessors and methodologists who in the past were predominately white males. Women represent 65 per cent of the staff complement at SANAS.

The committee further enquired whether SANAS was in the process of recapitalising its capital assets given the variation in figures. SANAS informed the committee that it was in the process of procuring a building hence the variation as it also reflected debt servicing costs.

With regard to the verification of transport parts, SANAS informed the committee that the transport industry was still in its infant stages in terms of testing components. Currently, the SABS was dealing with new standards with respect to the transport industry.

11. Conclusion

Having considered the information shared and reports from the DTI and its entities with respect to their strategic and annual performance plans, the committee has reached the following conclusions:

11.1 The National Industrial Policy Framework remains one of government’s main instruments to facilitate the transformation of the economy and set South Africa on a value-added, labour-intensive and environmentally sustainable growth path. This is critical to achieve the objectives as outlined in the President’s 2013 State of the Nation Address as it underpins the National Development Plan (NDP) objectives of employment creation, trade facilitation, broadening participation, and fostering relationships with countries in the African continent.

11.2 The DTI, through its implementation of IPAP II, seeks to accelerate industrialisation the country through the promotion of value-added products that can compete in the export market and against imports. Furthermore, this state-led industrial policy will address challenges facing strategic industries to promote industrial development and job creation. Support for core productive and labour-absorbing activities of the economy such as manufacturing, mining and agricultural value chains is therefore critical.

11.3 IPAP II is also linked to the broadening of economic participation of the historically disadvantaged and the marginalised regions of the industrial economy to redress the inequalities of the past. The committee welcomed the support of small-scale manufacturing, particularly in agro-processing, as it can be catalyst for rural development and job creation. However, high administered prices, wild cat strikes and interruptions to the infrastructure build programme could pose a threat to the sustainability of the manufacturing sector.

11.4 Beneficiation of minerals, agricultural commodities and other goods presents a great opportunity for industrialisation in that it has the potential to deepen and extend upstream and downstream value-chains and stem the loss of other linkages and broader manufacturing capabilities, such as research and training. Africa’s upward economic growth path would also accelerate the demand for commodities in the future which would present further opportunities for South Africa .

11.5 South Africa needs to strengthen regional economic integration to achieve more balanced global trading relations. The correlation between structural unemployment, industrialisation and trading practices compels our government to develop and contextualise its trade policy to achieve government’s broader economic development vision. The imperatives of the National Industrial Policy Framework also drive strategic trade policy.

11.6 In pursuit of new markets, South Africa will maintain its links with its traditional trading partners, such as the EU and the United States , while building new partnerships with the South, specifically BRIC countries, and strengthening and expanding its footprint in Africa . Regional integration is imperative for the long-term growth with the Southern African Customs Union and the Southern African Development Community. Together with the Tripartite Free Trade Agreement, these regional arrangements are the vehicles to achieve economic integration and the expansion of South Africa ’s footprint into Africa .

11.7 The committee was of the view that the DTI needed to establish a permanent presence in foreign missions in strategic locations.

11.8 The technical infrastructure regulatory regime requires alignment to enhance the implementation of IPAP II. The credibility of these technical infrastructure institutions in relation to setting standards, developing compulsory specifications, assessing conformity with standards and compulsory specifications, maintaining national measurement standards, and accrediting competence of various role-players is of critical importance to the economy.

11.9 The committee was of the view that the NCC is inadequately funded given its mandate.

12. 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, Ms Z Madalane, 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.

13. Recommendations

The Portfolio Committee on Trade and Industry, having considered the 2013 proposed Budget Vote 36: Trade and Industry, recommends that:

13.1 The Minister should consider increasing the budget for the Trade Investment South Africa Programme to establish and fund a presence in strategic foreign missions.

13.2 The Minister should consider increasing the allocation to the Consumer and Corporate Regulation Division programme, particularly to the National Consumer Commission, and the possibility of new agencies being created in the near future.

13.3 The Minister should consider the establishment of a single board responsible for all technical infrastructure institutions to enhance co-ordination among these institutions.

13.4 The House approves Budget Vote 36 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

· Companies and Intellectual Property Commission (2013a) Strategic Plan 2013 – 2018.

· Companies and Intellectual Property Commission (2013b) Annual Performance Plan 2013/14 – 2015/16.

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

· Department of Trade and Industry (2013a) Annual Performance Plan 2013/14 – 2015/16.

· Department of Trade and Industry (2013b) Presentation to the Portfolio Committee on Trade and Industry: the dti’s 2012/13 Third Quarter Report. 24 April 2013.

· Department of Trade and Industry (2013c) Third Quarter Report for the 2012/13 Financial Year: 01 October – 31 December 2012.

· Department of Trade and Industry (2013d) Presentation to the Portfolio Committee on Trade and Industry: the dti’s 2013/14-2015/2016 Annual Performance Plan. 23 April 2013.

· Export Credit Insurance Corporation (2013) Presentation to the Portfolio Committee on Trade and Industry: ECIC Corporate Strategic Plan 2013/14 – 2015/16. 18 April 2013.

· National Consumer Commission (2013a) Presentation to the Parliamentary Portfolio Committee: Trade and Industry: Strategic and Annual Performance Plans of the National Consumer Commission-2013/14. 18 April 2013.

· National Consumer Commission (2013b) Annual Performance Plan (2013/14 to 2015/16).

· National Metrology Institute of South Africa (2013) Annual Performance Plan 2013 – 2015.

· National Regulator for Compulsory Specifications (2013a) NRCS Strategic Plan & Annual Performance Plan. 17 April 2013.

· National Regulator for Compulsory Specifications (2013b) Annual Performance Plan for the Fiscal Years 2013 – 2016.

· National Treasury (2013a) Estimates of National Expenditure: Vote 36: Trade and Industry.

· National Treasury (2013b) Budget Review.

· National Treasury (2013c) 2013 Budget Speech. 27 February 2013.

· South African Bureau of Standards (2013) Corporate Plan (2013/14 – 2015/16).

· South African National Accreditation System (2013) Annual Performance Plan 2013/14 – 2015/16.

· Zuma, J. (2013) State of the Nation Address. Joint sitting of Parliament of the Republic of South Africa , 14 February 2013.


Appendix A: List of budget tables per programme

Table A.1: Administration sub-programmes

Programme

Budget

Nominal % change in 2013/14

Real % change in 2013/14

R million

2012/13

2013/14

Ministry

37.4

39.4

5.35

-0.24

Office of the Director General

84.5

84.6

0.12

-5.19

Corporate Services

409.6

372.5

-9.06

-13.88

Office Accommodation

5.2

9.2

76.92

67.54

Financial Management

49.2

95.5

94.11

83.81

Media Relations and Public Relations

11.0

14.1

28.18

21.38

Communications

100.3

74.8

-25.42

-29.38

TOTAL

697.2

690.1

-1.0

-6.27

Table A.2: International Trade and Economic Development Programme

Programme

Budget

Nominal % change in 2013/14

Real % change in 2013/14

R million

2012/13

2013/14

International Trade Development

83.9

85.6

2.03

-3.38

African Economic Development

50.8

53.0

4.33

-1.20

TOTAL

134.7

138.6

2.9

-2.56

Table A.3: Broadening Participation Programme

Programme

Budget

Nominal % change in 2013/14

Real % change in 2013/14

R million

2012/13

2013/14

Enterprise Development

847.9

876.1

3.33

-2.15

Equity and Empowerment

38.5

42.8

11.17

5.27

Regional Economic Development

53.6

49.4

-7.84

-12.72

TOTAL

940.0

968.3

3.0

-2.45

Table A.4: Industrial Development: Policy Development Programme

Programme

Budget

Nominal % change in 2013/14

Real % change in 2013/14

R million

2012/13

2013/14

Industrial Competitiveness

508.1

589.6

16.04

9.89

Customised Sector Programmes

984.6

1 016.9

3.28

-2.20

TOTAL

1 492.7

1 606.5

7.6

1.92

Table A.5: Consumer and Corporate Regulation Programme

Programme

Budget

Nominal % change in 2013/14

Real % change in 2013/14

R million

2012/13

2013/14

Policy and Legislative Development

27

25.4

-5.92

-10.91

Enforcement and Compliance

20.3

24.2

19.21

12.89

Regulatory Services

200.9

206.5

2.78

-2.7

TOTAL

248.1

256.2

3.26

-2.21

Table A.6: Industrial Development: Incentive Administration Programme

Programme

Budget

Nominal % change in 2013/14

Real % change in 2013/14

R million

2012/13

2013/14

Broadening Participation Incentives

179.7

167.5

-6.79

-11.73

Manufacturing Investment Incentives

2 878.6

3 600.3

25.07

18.44

Services Investment Incentives

508.1

600.2

18.13

11.86

Infrastructure Development Support

963.9

1 141.5

18.43

12.15

Product and Systems Development

13.3

15.1

13.53

7.51

Business Development and After Care

17.2

18.6

8.14

2.40

TOTAL

4 560.9

5 543.1

21.5

15.09

Table A.7: Trade and Investment South Africa Programme

Programme

Budget

Nominal % change in 2013/14

Real % change in 2013/14

R million

2012/13

2013/14

Investment Promotion and Facilitation

61.0

53.2

-12.79

-17.41

Export Development and Promotion

100.6

171.2

70.18

61.15

International Operations

115.8

145.3

25.47

18.82

TOTAL

277.5

369.7

33.2

26.16



[1] National Treasury (2013c)

[2] DTI (2013a)

[3] Zuma (2013)

[4] Brazil , Russia , India , China and South Africa

[5] DTI (2012)

[6] National Treasury (2013a)

[7] DTI (2012)

[8] DTI (2013a)

[9] DTI (2013b and 2013c)

[10] DTI (2013d)

[11] DTI (2013d)

[12] The TFTA is a negotiation between the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and SADC.

[13] DTI (2013d)

[14] National Treasury (2013a)

[15] The real percentage change calculations are based on an estimated 2013 Consumer Price Index of 5.6 per cent (National Treasury 2013b: 6).

[16] The Cooperatives Amendment Bill is awaiting debate by the National Council of Provinces while the Broad-based Black Economic Empowerment Amendment Bill is currently being considered by the portfolio Committee on Trade and Industry.

[17] CIPC (2013a)

[18] ECIC (2013)

[19] National Treasury (2013a)

[20] NCC (2013a)

[21] NCC (2013b: 14)

[22] NMISA (2013)

[23] NMISA (2013)

[24] NMISA (2013: 55)

[25] These mandates are expressed in a number of pieces of legislation including the Trade Metrology Act (No. 77 of 1973), the National Building Regulations Standards Act (No. 103 of 1977), and the Foodstuffs, Cosmetics and Disinfectants Act (No. 54 of 1972).

[26] NRCS (2013)

[27] SABS (2013)

[28] SABS (2013)

[29] SANAS (2013)

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