ATC130527: Report of the Portfolio Committee on Trade and Industry on the implementation of the Industrial Policy Action Plan with specific reference to the state of the manufacturing sector, dated 24 May 2013
Report of the Portfolio Committee on Trade and Industry on the
implementation of the Industrial Policy Action Plan with specific reference to
the state of the manufacturing sector, dated 24 May 2013
The promotion of a more labour-absorbing
industrial strategy with the emphasis on traceable labour absorbing goods and
services and economic linkages to promote job creation is the cornerstone of
Industrial Policy Framework (NIPF). Government recognised that a revised Industrial
Policy Action Plan (IPAP2) could be the catalyst that would set the country on
a new path of industrialisation. The IPAP2 reflects governments objectives of
stimulating long-term industrialisation and industrial diversification beyond
the current reliance on commodities and non-tradable services. The focus has
been on addressing overarching areas, as well as targeting specific productive
sectors in the economy, particularly those with high employment and/or economic
growth potential that could promote the local manufacturing of value-added
products for both domestic and export markets.
The manufacturing sector
is also critical as it creates upstream and downstream linkages. On the one
hand, it requires a number of inputs and services to produce goods; while, on
the other hand, its goods may feed into other manufacturing processes and/or be
consumed locally or be exported. It may also lead to the demand for other
related services. These linkages are also known as the multiplier effect.
The purpose of this
report is for the Portfolio Committee on Trade and Industry to highlight its
findings and make recommendations regarding its:
Consideration of the progress report on the implementation
of the 2011/12 IPAP2,
Public hearings conducted in November 2012 on the challenges
and constraints experienced by the manufacturing sector,
Colloquium which was held on 6 March 2013, which focused on
the impact of the continual increases in administered prices on the
manufacturing sector and the measures to mitigate against its impact on the
countrys manufacturing sector, and
Subsequent engagements with the National Cleaner Production
Centre and BHP Billiton.
In line with its
oversight responsibility, the Committee has received regular updates on the
implementation of IPAP since August 2009. Each year, the Committee focussed on
different IPAP-related issues, beginning with the cost of steel as an essential
input to industrialisation then infrastructure broadly. In 2012, the Committee
focussed on the constraints posed by high and rising electricity, ports and
other administered prices on the manufacturing sector and IPAP2, as well as the
critical need for beneficiation. This included a consideration of current
measures that had not been implemented and measures that may require
Committee invited the following
economists to engage it on matters related to the manufacturing sector and
IPAP2 during its public hearings:
Dr Simon Roberts on the state of the economy and the impact
of electricity on manufacturing, and
Professor Ben Turok (MP) on beneficiation.
The following public
institutions were also invited to comment on the impact of administered prices
on the manufacturing sector:
The Department of Trade and Industry (DTI),
The Department of Public Enterprises (DPE),
The South African Local Government Association (SALGA),
The National Electricity Regulator of
The Transnet National Ports Authority (TNPA), and
The Ports Regulator.
The South African
Maritime Safety Authority specifically commented on the potential and
opportunities for the maritime industry in relation to industrial development
with specific focus on the boat-building industry.
stakeholders and companies that were sensitive to changes in electricity
tariffs were invited to the public hearings, including:
The Energy Intensive User Group of
Free State Gold Fields Chamber of Commerce (FSCC),
The National Foundry Technology Network (NFTN),
Scaw Metals Group,
The Apparel Manufacturers of
The National Association of Automobile Manufacturers of
The National Association of Automobile Component and Allied
The Ford Motor Company of
Subsequent to the public
hearings, the Committee decided to schedule a colloquium on the impact of
administered prices on the manufacturing sector, with specific reference to
high electricity prices and port tariffs on 6 March 2013. The following key
stakeholders were invited to engage the Committee on possible short and medium
The Department of Energy,
Further engagements were
scheduled to address the challenges relating to the promotion of energy
efficiency as an instrument to foster industrial efficiency and
competitiveness, the pricing arrangements with suppliers of electricity, as
well as on beneficiation and the challenges associated with it. The following
stakeholders were invited in this regard:
The National Cleaner Production Centre,
Mr Andreas Künne, from the German Embassy,
The global recession of
2008 had a negative impact on the manufacturing sector which led to massive job
losses in the sector. The recent Purchasing Managers Index registered a three
year low indicating declining business confidence and a contraction in the
manufacturing sector. Furthermore, recent data indicates a sharp rise in
imports which is at the expense of jobs with exports moving on a flat
High administered prices,
such as electricity tariffs and port charges, have further contributed to
The primary sector can
play a lead role in enabling
addition, the IPAP2 emphasises the need to attract investment into the
manufacturing sector to reverse the declining trend in the sector and to ensure
an increase in employment creation. Value-adding sectors which create the
highest opportunities for employment are being earmarked.
from the public hearings
There was an overall
concern regarding the South African manufacturing sectors ability to maintain
its competitiveness. There was a perception that there were general challenges
to attract future investment, from especially multinationals, as
In particular, the following
issues emerged from the public hearings held in November 2012:
A number of issues arose
in relation to electricity tariffs, namely that:
There was a perceived negative impact due to Eskoms
transition to a cost-reflective pricing regime on the economy despite Eskoms
efforts to increase tariffs at a lower rate than initially indicated.
The lack of infrastructure investment in prior years has led
to aged infrastructure, which if not adequately maintained and replaced, could
lead to energy supply constraints in the near future.
There were other production factors, including the cost of
coal which has been increasing significantly above inflation, which has been
increasing the cost of producing electricity.
The widening differential between Eskom and municipal
electricity tariffs was a concern for industrial users who were unable to
select their service provider.
The current and future municipal tariffs could threaten the
viability of the manufacturing sector, particularly for energy-intensive
There was a need for all energy consumers to shift towards
more energy efficient usage.
Whether the negotiated pricing agreement existing between BHP
Billiton and Eskom is available to other stakeholders in the manufacturing
The following issues were
raised in relation to port tariffs:
According to the TNPA, the lack of infrastructure investment
contributed to the deterioration of port facilities. Therefore, port infrastructure
required to be upgraded, which would be partially funded through higher port
High port tariffs have increased the costs of transporting
both exports and imports which could contribute to the decline in the
competitiveness of the manufacturing sector.
Status of local procurement
Stakeholders raised the
following concerns in relation to local procurement:
Investment by local suppliers was limited due to uncertainty
regarding future, particularly long-term, local procurement possibilities.
Local investors were reluctant to obtain the necessary
international quality assurance certification to qualify to be included in
multinationals global value chains because of the time and effort required to
Where the promotion of black suppliers is imperative, the
DPE and other stakeholders had raised the need for ongoing direct support as a
constraint to ensuring the delivery of quality products that are delivered on
In terms of beneficiation,
the key issues emerging were that:
The promotion of an interface which benefits the national
interest is essential. This should include (i) pricing arrangements between the
mining and manufacturing sectors, (ii) limited protectionist arrangements,
(iii) skills development, (iv) positive procurement measures that favour
domestic industry and (v) clear taxation policies that would encourage
The implementation of the provision in the Minerals and
Petroleum Resources Development Act, namely section 26(3), that requires any
person who intends to beneficiate any mineral mined in the
The necessary skills required to successfully implement a
beneficiation strategy, which would result in job creation and the
The availability of
competitively priced electricity, for the production of beneficiated goods is
paramount. In the 1990s, Eskom had extensive excess generating capacity. This
led to contracts being signed with high industrial energy users to ensure that
excess capacity was utilised for economic development rather than wasted.
However, the Committee
was concerned about the rationale behind entering into new contracts in 2003/4,
while it was known that future supply of electricity would be constrained. The
Committee was of the view that failure to supply electricity at a rate that
supported industrialisation could derail the productive capacity of the economy
and that government had a responsibility to secure the supply of energy.
Industry concurred that
the supply of electricity underpins industrialisation. The supply of energy
should be cost effective to ensure
4. Colloquium on the impact of administered prices on the
manufacturing sector in
The DTI had identified
high electricity tariffs and port tariffs as the key factors that impact
negatively on competitiveness and the viability of the manufacturing sector. The
DTI asserted that
In an economy with a
growing demand for affordable electricity and an increasingly costly supply of
electricity, finding alternatives to better mitigate the impact of increasing
prices particularly on the manufacturing sector is critical. However, there is minimal
flexibility in factors determining the cost of electricity, whose prices are
also tending to increase.
The colloquium therefore was
an attempt to find short-term solutions to stem the further decline of the
manufacturing sector by seeking alternative measures to mitigate against the impact
of increasing electricity and port tariffs.
4.1 Electricity tariffs
4.1.1 Department of Energy
energy sectors objectives as outlined in the White Paper published in 1998
require that the provision of electricity should (i) be equitable taking into
account the needs of the lower income group, (ii) be effective and competitive
in the provision of reasonable priced power to all sectors of the economy, and (iii)
facilitate participation of the private sector in power generation. These are
the factors that should be taken account of when developing an electricity
Department of Energy acknowledged that the energy sector was facing a number of
challenges in that the current electricity production capacity should expand by
two thirds, and Eskoms infrastructure backlog should be addressed. Although
there was no disagreement that Eskoms infrastructure build programme must be
funded, there is a concern regarding whether this should be through tariff
increases or borrowing.
current approach of using tariffs to address these challenges comes at a
significant cost to consumers. However, a balance must be found to ensure the
acceleration of development within the energy sector, maintain the
competitiveness of the industry, and achieve a reasonable tariff. One of the
factors that could lower the pressure on Eskom is the efficient use of electricity.
Inefficient electricity usage would have a negative impact on price and could
lead to load shedding.
main areas of concerns remain, namely the cost of the Eskom build programme and
how it will be funded, the efficient use of energy and where energy should be
sourced from. The DOE was of the view that various supply options should be
considered in order to achieve the best economic outcome as well as an
affordable price for the supplier and the consumer. The burden to the fiscus
should be limited which makes the financial viability of the electricity sector
4.1.2 Department of Trade and Industry
competitiveness within our manufacturing sector is critical for the development
of the South African economy. According to the DTI, the IPAP has improved
competitiveness within the automotive sector, as the KPMG survey
protracted global recession has led to decreased demand from our traditional
trading partners and together with the escalating administered prices contributed
to the contraction within the manufacturing sector. The result thereof is a
decline in job creation, exports and investment in the productive sector of the
policy requires inter-departmental coordination and cooperation with sector
specific policies and interventions to have a significant impact. Therefore,
despite the DTIs rigorous implementation of sector specific policies and
interventions that fall within its mandate, the industrial policy can be adversely
affected by other line departments policies and interventions due to a lack of
understanding of their impact on the re-industrialisation of
supply of affordable electricity to the manufacturing sector is essential for
the re-industrialisation of the South African economy.
The DTI, as well as the Committee, is of the
view that the significant electricity tariffs disparities existing between
Eskom and especially among municipalities contribute to the decline of the
manufacturing sector. The Committee is concerned that the impact of high
electricity tariffs could lead to further job losses and increasing poverty
which contradicts governments national objectives.
Eskom, in its
presentation, informed the Committee that empirical studies have shown that
sectors likely to suffer from a price increase are mining and manufacturing.
Although this may be the case, Eskom is of the view that there is considerable
variation in the vulnerability of different sub-industries and firms within
this very diverse sector. According to Eskom, industry is more concerned with
securing a steady supply of electricity rather than the price. The
manufacturing sector is too diverse to make generalisations about the
vulnerability of the sector to rising electricity prices. This perception
raised serious concerns with the Committee as inputs from stakeholders during
the public hearings held in 2012 suggested that the continuous rise in
electricity tariffs has a severe impact on the viability of their operations.
There is significant
scope for energy efficiency gains especially in the non-metallic mines, mining
and quarrying, agriculture, paper and basic metals sectors. If
4.1.4 National Energy Regulator of
NERSA is the official
energy regulator of
NERSA is responsible for
issuing licences to electricity suppliers, setting tariffs, determining
conditions of supply and demand, monitoring compliance with licence conditions,
investigating complaints, and acquiring and safeguarding industry information. NERSA
reported that Eskom had applied for a 16% increase in electricity tariffs for
the next five years from 2013. However, after careful consideration of public
comments from the public hearings on Eskoms application, NERSA decided to
recommend an 8% increase rather than the 16% increase request. NERSA cited
unaffordability to the public, as its reason for declining the 16% tariff increase
4.1.5 South African Local Government
informed the Committee that an important principle around electricity tariff
design is ensuring that tariffs are adequately priced to ensure total cost
recovery of the utility. Currently, there are 189 utilities with unique electricity
tariff designs. This was in terms of the financial requirement relating to their
cost structure, sale volumes and types, and cost of networks of distributors,
and the varying socio-economic requirements of a particular area of
municipalities purchase electricity from Eskom transmission at prices
comparable to what Eskom offers its direct customers with similar user patterns.
This occurs despite the fact that Eskom operates under separate distributing
licensing conditions. This current practice necessitates that municipalitys
electricity tariffs will always be higher than what Eskoms direct customers receive.
to SALGA, municipalities funding partly comes from services, with consumers
supplied by municipalities contributing to socio-economic development by contributing
to the general electricity grid account. Consumers supplied by Eskom do not
contribute to socio-economic development and consumers supplied by
municipalities cross-subsidise low income households also in areas supplied by
appears that municipalities are reliant on electricity income therefore no
incentive exists to promote energy efficiency, as this would impact negatively
on its revenue. Submissions by stakeholders concur with this view that
municipal electricity tariffs are a contributing factor to the decline in the
manufacturing sector, but that discussion on the funding model for
municipalities is essential.
role-players must work together to mitigate against the effect of rising prices
on consumers, especially manufacturers. The current unemployment rate is of
great concern to the Committee and this is being exacerbated by a decline in
the manufacturing sector which is a major contributor to employment.
further concern for the Committee, as well as the DTI, is that more cost
increases by municipalities would jeopardise the re-industrialisation
initiative. The current monopolies, like Eskom and the municipalities, in the
absence of competition, must be regulated and keep prices below inflation.
4.1.6 National Cleaner Production Centre
sets out governments industrial policy and implementation plans to create
critical platforms that are used as a basis for scaling up key strategic
sectors. The improvement of the resource efficiency of existing industries by
building their productive capacity in partnership with stakeholders is critical
for industrial development, especially when faced with resource scarcity and
consequent, rising prices. One of the mandates of the National Cleaner
Production Centre (NCPC), located within the DTI, is to promote energy
efficiency as an instrument to foster industrial efficiency and
competitiveness. The NCPC informed the Committee that in collaboration with the
CSIR it is developing mechanisms to ensure that industry focuses on energy and
resource efficiency as well as on cleaner production.
NCPCs current focus is on energy efficiency, waste management, water
efficiency and on industrys response to the challenge of climate change. The
NCPC adopted the Resource Efficiency and Cleaner Production (RECP) programme to
enhance the manufacturing industrys competitiveness through the use of renewable
energy; and water, materials and energy efficiency mechanisms. This contributes
to industrial development, localisation, economic growth and job creation. The
RECP attempts to mitigate against the decline in the manufacturing sector
specifically in IPAP2 aligned priority sectors, such as clothing and textile,
agro-processing, chemicals, automotives, pulp and paper, metals and
engineering, tourism and hospitality, the built environment and mining sectors.
associated benefits to industry are the reduction in cost of doing business
through reduced wastage of energy, water and materials among other things. This
contributes to a competitive manufacturing industry which is resource
efficient, increases market access, growth and sustainability of businesses, as
well job retention and creation.
Industrial Energy Efficiency (IEE) Improvement Project was introduced in 2010
to increase efficiency in the targeted industrial sector. This was expected to alleviate
the countrys acute power shortage while simultaneously improving productivity,
competitiveness and reducing CO
omissions. The IEE project is a
collaborative initiative between the South African Government (represented by
the DTI and the Department of Energy), the Government of Switzerland, and the
United Kingdom Department for International Development. The IEE project runs
for four years and will contribute to the sustainable transformation of
industrial energy usage. This will be achieved through the support for local
industries such as automotive, agro-processing, chemicals and liquid fuels,
metals and engineering, and mining sectors in their efforts to reduce cost,
increase profitability and minimise their carbon footprint through the
introduction of sustainable energy management practices. At the completion of
the four year period, the IEE project will be integrated with the NCPC to
ensure the continuation of its output.
NCPC informed the Committee that the IEE project objective is to stimulate the
demand for energy efficiency service within the current policy framework for
implementing and monitoring industrial energy efficiency in
project also aims to improve local capacity through training in energy
management systems (EnMS) implementation as energy efficiency can be achieved at
minimal costs through changes in energy management.
4.1.7 Engagement with BHP Billiton
The impact of
administered prices on the productive sectors of the economy, its potential
impediment to the promotion of industrialisation and beneficiation, as well as
the creation of jobs, are critical factors for the Committees consideration.
BHP Billiton, as a major player within the platinum group metals (PMG) sector
producing aluminium among other products, had been invited to engage the
on the impact of administered
prices on beneficiation and the strategic importance of industrialisation, as
aluminium was an important input into the manufacturing sector
The Committee expressed a
strong opinion that it did not intend to comment on the recent decision by the
Supreme Court of Appeal regarding the negotiated pricing agreement with Eskom
but would focus on the impact of administered prices on BHP Billitons operations
and their contribution to downstream economic activity. The Committee was of
the view that companies enjoying a competitive price advantage must also utilise
this to contribute to the strategic objectives of job creation, skills
development and economic growth.
BHP Billiton informed the
Committee that, since the early 1970s, it had responded to investment
incentives and encouragement by Government to promote development of the
economy and contribute to the industrialisation of
In addition, it supports
governments beneficiation strategy through the investment of R1 billion to
build the M14 manganese furnace, which has been designed to reduce emissions.
This is the largest new investment in the manganese industry and supports
governments initiative of proliferating beneficiation in
The Committee welcomed
the investments as the export of raw minerals undermines governments
industrialisation objectives. The Committee was of the view that the IPAP calls
for a shift in mineral development towards investment to maximise long-term
growth beneficiation projects, enhancing the value of exports, increasing local
content and the creation of sustainable jobs. The Committee also welcomed BHP
Billitons focus on more energy efficient production processes but were of the
opinion that the mining industry should contribute more to job creation and the
development of the necessary skills required by the economy.
The Committee enquired
whether BHP Billiton contributed to institutions of higher learning, especially
the historical disadvantage institutions, financially to ensure that the
requisite skills were maintained and developed. This would assist in preventing
a skills shortage at a critical phase of the countrys industrial development
or the loss of existing skills, as the current group of engineers near
retirement. The Committee probed whether BHP Billiton had a plan to address the
skills shortage and to ensure skills transfer. Furthermore, the Committee
enquired whether they have a similar arrangement with the Ports Authority to
ensure the export of beneficiated goods at a competitive price.
4.1.8 Proposals in mitigating against the impact of high
In order to address the
dual challenge of high electricity and port tariffs, stakeholders put forward
short-term policy options for consideration to mitigate the impact of high
administered prices on the manufacturing sector. These proposals are captured
DTI proposed that:
The Manufacturing and Competiveness Enhancement Programme
(MCEP) should be strengthened through an increase in the capex cap for energy
efficiency projects and/or an increase in the matching grant formula with the
DTIs contribution increasing.
There should be increased support offered to the NCPC in
both energy audit implementation under the MCEP and in training private sector
An amendment to the 12i incentive should be made to upscale
support for cleaner production and energy-efficient project development and
There was a need for an appropriate strategic approach and
institutional location to scale up and expedite implementation of Eskoms
Integrated Demand Management (IDM) with an explicit prioritisation of the most
vulnerable and strategic industrial sectors.
Rolling out and localisation of Smart Grid and Smart
Metering technology was an urgent priority, with conditional localisation
components through designation to improve efficiency and billing systems.
SALGA; Metros and Municipalities with significant numbers of
vulnerable and strategic sectors should be engaged to encourage a coordinated
approach to assist these sectors and to encourage moderation of municipal
tariff increases under the current circumstances.
Eskom proposed that an
inter-governmental task team should be established to:
Identify and develop measures to protect specific sectors of
the economy in line with the National Development Plan and IPAP. The sectors
identified should include sectors where
Develop measures that would align municipal tariffs and
Eskom tariffs that would level the playing field in the manufacturing sector.
This should be done by ensuring that there is sufficient fiscal support for the
municipalities to maintain infrastructure and to support other social services.
Develop a national cross-subsidy framework in line with
Governments economic policy. The policy must include the funding of subsidies
and criteria for subsidisation of municipal services.
concerns regarding the price of electricity and its adverse impact on the
industry as well as on households. In this regard, NERSA proposed that a new
funding model for municipalities needs to be developed, as the current model
places increasing reliance on revenue generated from electricity.
The price of municipal
provided electricity comprises of two components, namely the price from Eskom
(actual electricity price) and the additional amount added by municipalities
(service charge). The electricity that is being provided by Eskom is provided
on a cost reflective basis; while service charges are the costs of providing
electricity to the final consumers, such as wages and maintenance of the
infrastructure. The Eskom component is too rigid for municipalities and forms
the bulk of the cost. However, the municipal service costs vary from
municipality to municipality as a result of factors such as:
The location of the electricity consumer in relation to the
location of a power station. The larger the distance between a consumer and a
power station or between one consumer and another, the higher the cost of
providing electricity to those consumers.
The periods in which electricity is used (peak periods are
more costly than other periods), using electricity at certain times requires
more resources than would have been the case at other times when there is less
pressure on the infrastructure that is used to provide electricity.
The size of demand, as higher demand services are tailored
to the needs of the individual therefore are more expensive.
4.2 Port tariffs
Currently the tariffs for
the import of bulk commodities, primary commodities and of manufactured goods
are priced below those required for exports of tradable goods. This contradicts
government policies which support the export of manufactured goods for greater
economic benefits. These policies require that these manufactured goods should
be price competitive. Therefore, other policies, such as those related to port
tariffs, should facilitate trade by promoting the price competitiveness of more
highly beneficiated exports rather than exports of raw materials.
According to Transnet,
the strategy that has been used to determine port tariffs was formulated in
2002. This strategy was outdated and stakeholders had voiced their concerns
with regard to this strategy. Among the concerns from the ports regulator, the DPE,
cargo owners, shipping lines and terminal operators were that:
The tariffs were subjective, unjustified, and do not promote
efficient operation of ports,
The port tariffs were not aligned to their influence in the
Given the services provided, the port tariffs were too high,
The lease agreements were not being enforced by the port
According to Transnet, a new
strategy has been developed to address the concerns of the stakeholders. This
strategy is aimed at ensuring that:
There are set rules that will allow efficient regulation and
oversight of the ports,
Cargo charges are in favour of highly manufactured South
Cargo charges are reduced to support
Transnet becomes a reliable business partner in doing
business with the leases; this will result in longer term investment planning.
The Committee, as well as
the DTI, welcomed Transnets proposals with respect to tariff restructuring as
well as its Beneficiation Promotion Strategy.
In engagements with the TNPA with regards to port
tariffs, Transnet acknowledged that some of the stakeholders had concerns,
among which the high port tariffs was the most prominent. Currently, Transnets
tariff structure is shared between shipping lines, cargo owners and tenants on
a 20%, 61% and 19% basis respectively. In its proposed alternative strategy, Transnet
is set to restructure tariffs. The new proposed tariff structure will be shared
between shipping lines, cargo owners and tenants on a 21%, 46% and 33% basis
respectively. The proposal is aimed at ensuring that tariffs are aligned to
international standards and increasing
Transnet also proposed the
Beneficiation Promotion Programme. It seeks to promote increased beneficiation
of goods, labour-intensive sectors, economic growth, and improvements in the
Through this programme,
Transnet proposes that cargo charges for labour-intensive products and value-added
products are reduced according to the various stages of beneficiation. The most
beneficiated products would therefore pay the lowest cargo charge. This will
promote local beneficiation.
Although the Committee welcomed
the proposals presented by TNPA regarding the reduction of port charges, it was
concerned that it appears that the cost was being shifted.
The proposal with respect to the
beneficiation programme, although still under discussion, where imports would
cross-subsidise exports, with potentially up to 80% discount for vehicle
exports was also welcomed.
The Committee welcomed
the support for local manufacturing and beneficiation through the lowering of
At present, government is
subsiding the mining sector through the current port tariff structure at the
expense of other sectors such as manufacturing and agriculture, sectors that
have contributed the most jobs.
In response to a question
whether South African ports would be more efficient if cities or regional
authorities managed these, the TNPA was of the view that it is difficult to
compare South African
ports with their
international counterparts, as Transnet is not subsidised by provincial or
national government. This was due to the different institutional arrangements
used globally, where some ports are being subsidised to lower costs.
Having considered the
inputs from stakeholders during the public hearings in November 2012, the
colloquium held on 6 March 2013 and subsequent meetings, the Committee has
reached the following conclusions:
IPAP is intended as an instrument to align the line
departments in support of the countrys accelerated industrial objective. In
spite of existing fora to promote co-ordination among these line departments,
it appears that a disjuncture in policy alignment and coordination among these
different departments and state owned entities associated with administered
prices remains, contributing to the uncertainty and challenges faced by the
manufacturing sector. Thus, negatively impacting on governments priorities of
job creation and economic growth.
High electricity and port tariffs have contributed to the
decline in the competitiveness of the manufacturing sector therefore finding a
solution to high administered prices is essential.
All factors associated with the determination of
administered prices must be investigated so as to ensure that the determination
of these prices is evidence based, and to stem the decline of the manufacturing
sector as well as reducing the negative impact on SMMEs.
The current legislative and regulatory environment must be
reviewed to curtail the power of state monopolies in the determination of
administered prices to ensure a developmental pricing regime aligned to the
strategic objectives of government.
NEDLAC as an institution should be more effective and should
consider investigating the impact of high administered prices, skills
shortages, low productivity levels and the perceived restrictive labour
environment on the manufacturing sector and the economy as a whole.
An engagement between National Treasury and
the Department of Co-operative Governance is critical to discuss the funding of
local governments, as well as the extent to which municipalities are charging
exorbitant electricity surcharges to raise revenue. The Committee may consider
holding a colloquium with the relevant stakeholders to find a solution to this
Strategic and appropriate skills are required to grow
domestic industrial capabilities; however, currently a misalignment of skills
produced by institutions of higher learning and those required by industry
exists. The committee is of the view that large manufacturing and mining
companies should, in conjunction with institutions of higher learning, avail
and expand their training facilities to smaller manufacturing enterprises to
develop these skills and close the skills gap.
The committee acknowledges that although the focus was on
administered prices, specifically electricity and port charges, other input
costs also impact negatively on the manufacturing sector.
The necessary regulatory environment and a developmental
pricing regime should be created to encourage the beneficiation of its mineral
resources and other primary products.
The Committee would like to than
for their valuable contributions.
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
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. The committee appreciate the contribution and co-operation from
the DTI during this process.
Informed by its deliberations, the
Committee recommends that the House requests that:
Minister of Trade and Industry, in consultation with other Ministries, should
consider the formation of a cost reduction committee to co-ordinate efforts
across departments and state owned entities to reduce administered prices. This
committee should include the Ministers of Trade and Industry, of Public
Enterprises, of Energy, of Transport and of Finance, as well as the Chief
Executive Officers of Eskom, of Transnet and of SALGA.
Report to be considered.
KPMG Global Automotive Executive survey, 2013
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