Economic Sectors, Employment and Infrastructure Development Post – SONA Cluster Media Briefing


28 Feb 2017


The Economic Sectors, Employment and Infrastructure Development Cluster held a media briefing to provide insight on the implementation of the cluster programme of action for the year, following the 2017 State of the Nation Address. Through the implementation of the country’s Nine Point Plan the cluster has begun to lay the ground work to accelerate the pace of transformation in the economy. The cluster is confident that the Nine Point Plan is diligently setting in place conditions to meet the National Development Plan goals of poverty reduction, economic growth and job creation.

The briefing was attended by cluster, Minister of Labour, Mr Rob Davies; Minister of Rural Development and Land Reform, Mr Gugile Nkwinti; Minister of Energy, Ms Joemat Petterson; Minister of Science and Technology, Mrs Naledi Pandor; Deputy Ministers, Director-Generals, Senior Managers, and Members of the Media.

Questions and Answers:

Journalist: One understands the fiscal constraints, but there seems to be little alignment between radical economic transformation announced by the President in the SONA and little or nothing is given to the black industrialists programme, and very little to small business development. How does one accelerate radical economic transformation without funds?

Journalist: The media statement stated it was classified confidential, what is the reason for that classification?

Journalist: On the industrialisation of infrastructure one of the programmes is very clearly guided by renewable energy. Over the years, a number of investments were made with regard to wind power and some of those have deteriorated. Now they hear that they will continue that policy of industrialisation of infrastructure which must take into account that investors are worried about investing in localisation space. Can the Minister give them assurance that the renewable energy programme is now fully on track? There is no mention of great infrastructure on the brief statement, which is a major gap at the moment, not only on renewable energy but also on future gas space development. How are you going to close the credibility gap around localisation and the fact that these programmes are infrastructure and actually moving ahead as planned?

Secondly, I would like to understand what the South African approach is to a section of certain industries where jobs are at risk, particularly in the poultry and steel sectors. Other countries have taken rapid steps, especially in the skills environment, to address this challenge. How is government going to address the skills challenge in these sectors?

Minister Gugile Nkwinti: The confidentiality is not applied in this briefing. It was applied before they came to the briefing.

Minister Davies: the statement that was made by the President in the SONA about renewables where he indicated that the Institute for Research on Public Policy (IRPP) was very much in force and that the commitments made in the last window need to be followed through. I think that is a very important statement of certainty. I know that the Minister of Energy can give more details of the discussions that have been going on in terms of implementing that. I will acknowledge the uncertainty that it has a wobble in the industry. The good news is that the new integrated resource plan envisages a higher level of renewable energy in the next IRPP period. And this should enable us to understand that renewable will be an important part of the energy mix, and that within renewable we need to have industrialisation and components that can support the generation of wind and solar power. And those components or a proportion of them need to be localised in this country. So, we will be working to try to ensure that there is certainty in this regard and Minister Joemat-Pettersson can speak more about that.

Minister Davies: On the other question, we are aware of a number of inconsistencies in the application of localisation. One of the targets we will be setting for ourselves as a Department this year is to ensure

that we iron out issues so that where a localisation decision is taken by government that localisation decision is followed through. We know that there are cases even from the work done by the Portfolio Committee where black industrialists have found themselves not getting access to the contracts, and some of those contracts are given to people that are not producers and industrialists. So, we need to make sure that these things do not happen and use procurement as a tool to support productive players in the economy, particularly industrialists.

Minister Davies: The other question about poultry and steel:  both have abnormal circumstances in the trade environment, it is not a normal situation we are confronting. Poultry is an issue we highlighted on a number of occasions that there is a consumption pattern in a developed world which consumes higher proportions of the white meat and it all generates a surplus of wings and legs for brown meat. There are attempts over time, and this has happened in a number of cases of countries with the surplus of brown meat to try to export it. The marginal costs of getting there in terms of contribution to revenue are better than the next alternative. In a previous speech I made reference to the experience of the ‘90s of Ghana and Ivory Coast and Cameroon, which countries had their local poultry industry decimated as a result of this. So, our position is that we see an abnormal inflow of this brown meat. We introduced a provisional safeguard measure towards the end of last year and requested International Trade Commission of SA (ITAC) to come up with a longer-term figure and they will come back in July with the level of safeguard. We also had lot of discussion with the EU about that because the safeguard measure has become available more as a result of the Industrial Policy Action Plan, (IPAP). The overall perspective is that we will not see the local poultry decimated. We do acknowledge that there are productive issues, issues of competitiveness that we have to address, which is why we have a task team in place. But we can not allow the industry to simply disappear as a result of these imports and the surge of imports particularly, we can not allow that to happen.

Minister Davies: As far as steel is concerned, we have in fact taken a number of measures to support the primary steel makers in South Africa. We introduced quite a number of tariffs. We also changed designation of local skills for localisation requirement in infrastructure built programme. We had to do this against the background of competition findings about collusion on price. So, we have been seeking a price regime with the largest steel maker in the country. But we are aware of the fact that the downstream industry is also important and effective, in fact the downstream industry is more job rich than upstream steel manufacturing. But if we do not have upstream primary steel manufacturing in South Africa we will have a terrible disruption to the industrial sector. For example, if we make a choice it will be a stupid choice as a country seeking to beneficiate, but if we decide that we are going to let the primary steel go in South Africa we do not have the capacity in our ports to import the volumes of steel that will be required for the downstream.  But I am happy to say the last few tariffs that I signed off they are probably not yet enforced, they still had to go to the South African Revenue Services (SARS), and be put in books. These were tariffs for the downstream to manufacturers and others. I think we try to have an all industry whole value chain approach so that we reduce the number of contracts that are between upstream and downstream by having an approach which looks at the entirety of the value chain. These are not easy choices, there are other applications before ITAC, they have to observe with propriety and move on those.

Minister Davies: Lastly, on the issue of resources, I can say that the black industrialists programme has got resources and of course if we got more we could do more, but we do understand that there are fiscal constraints they have to operate in. But they are not stopping us from doing what the Director General announced a few weeks ago on the first phase of the black industrialist programme, which envisages supporting 100 black industrialists over the Medium Term Framework (MTF) period, over three years. And from the document it indicates that we supported 27 so far in this financial year, which is not yet over. And three others will be supported, which makes a total of 30 black industrialists supported for this financial year. But they said instead of supporting 70 more over two years they will support 70 more over one year. So, that target has been set for us now and we are accelerating the rollout of the programme. In the Portfolio Committee later on, I will try to demonstrate that these are actually serious significant industrialists and will try to profile two or three of them because they are people who have taken risks, and this is the industrial activity we are supporting, which is a programme of quality.

Minister Joemat Petterson: We had several engagements with Eskom and the Department of Public Enterprises on the Renewable Energy Independent Power Producer Programme. We have agreed that the costs for Independent Power Producer Programme are in line with Multi-Year Price Determination (MYPD) methodology. The costs recovery mechanism will be dealt with through the Regulatory Clearing Account of Eskom. The decision of the Gauteng High Court with regard to Eskom’s recovery of its funds through the Regulatory Clearing Account has made it difficult for us to give Eskom an additional budget. This is because Eskom has repeatedly mentioned that they thought the renewable energy programme was unaffordable, and there needed to be a mechanism for them to recover the costs.

We have through the National Energy Regulator of SA (NERS)A and the Multi Year Price Determination (MYPD) 3 there is cost recovery for them. Last week NERSA also announced that if there were any implications for financial sustainability of Eskom because of the renewable energy programme, Eskom could make an application to NERSA which could explain the financial risks to Eskom, and NERSA would consider this at a later stage. So, we are convinced that the impasse between the Renewable Energy Independent Power Producer Programme and Eskom deadlock has been broken. We are confident that the gas ILPP programme is well on track and will be launching that soon. Eskom has repeatedly said that it will not delay the implementation of base load, and that will include coal, gas and any renewable energy programme which included base load.

Minister Zulu: As a Department of Small Business Development we are confident that we can try and use the budget optimally that we have received, and also basing ourselves that we are not isolated from the overall government’s budget and other departments. There has been a haircut for almost everybody and we as a department are also affected. There was a nominal increase and we had a budget cut of R30.6m and increased by 6% to counter inflation. Having said that, we must also look broadly to the fact that the budget for small and medium enterprises is not about just what you see within the department. In almost all the departments you will find that a lot can be accessed by small and medium enterprises as well as co-operatives.

Our responsibility as a department, looking at the legislative environment, the regulations, co-ordination between the three spheres of government is to look into all the budgets and see what’s in there for small and medium enterprises, and the opportunities that present themselves in all the different departments. I am on record from the very beginning when I started in this department to say that I do not only look at my budget for increasing and upscaling the support of small and medium enterprises, but I also look at the entire government. And the fact that we got this 30% procurement, what we need to change particularly as a department is to say how do we ensure that is implemented throughout the three spheres of government, but even then, how do SMMEs access that, where are the SMMEs, what is the capacity of the SMMEs. If we talking black empowerment where in particular are your black small and medium enterprises and co-operatives, how do you harness them and make sure they are ready for the 30% procurement?

Minister Pandor: I want to respond to the notion that the budget announced last week does not respond to the key priorities articulated by President Zuma. Yes, it does, if one were to itemise and extract all the economic objectives that were indicated in the SONA address you will identify that land distribution and land reform in an enhanced fashion is dealt with in the budget. The provision for skills development in education has been dealt with in a manner which I think is very responsive to the public demand that we had in the past two years. On expanding basic agriculture through drawing in smallholder farmer producers there has been movement there, and again their budget seeks to support this. The Youth Work Opportunity Fund responds to a need to increase youth employment in our country. The on-going implementation of the black industrialists programme is part of what is supported through the resources we have available in government. And then of course the Presidential Infrastructure Coordinating Commission (PICC) projects for strategic infrastructure, projects which are significant contributor to job creation and business development in the country.

Minister Nkwinti: I would like to thank all who attended the media briefing.

The briefing adjourned.