SONA & Budget as it relates to Department: Minister briefing; DTI & EDD 2019/20 Quarter 3 performance

Meeting report

The Chairperson opened the meeting.

Apologies were tendered on behalf of the Deputy Minister Gina and two members.

The purpose of the meeting was to get a briefing by the Minister on the SONA & Budget as well briefings by the Department of Trade & Industry and the Department of Economic Development on their third quarter report.

The agenda was moved by Mr S Mbuyane (ANC), second by Ms N Motaung (ANC).

The Chairperson ceded to the Minister on how the department would help national strategic priorities, recalling that the restructured Department of Trade, Industry & Competition (DTIC) was roughly a month away.

Briefing by Minister

Minister Patel began the presentation on the extent to which SONA and the Budget would impact the Department of Trade & Industry and Competition (DTIC). He noted that Deputy Ministers Gina and Majola were both attending a Cabinet meeting and thus could not be present. 

The presentation topic chosen by the Committee was how the vision set out by the President would be supported in the Department’s work. The Committee would see in the following quarter’s report some of the interventions of the President would begin to filter through. The Minister wanted to engage in a high-level discussion on how the SONA would set the DTIC’s work and how its work would support SONA. The Department had to capture the SONA and Budget in a programmatic sense and allocate budget for their priorities.

There were three direct impacts of the SONA on the DTIC

1. Core programmes driven by department itself, including:
   1. Investment promotion
   2. Industrial Masterplans
   3. The African Continental Free Trade Area (AFCFTA)
   4. Competition and opening
   5. Spatial development through Special Economic Zones
   6. Ease of doing business through company registrations
2. Cross-cutting work where departments had to collaborate
   1. Compacting and partnerships to promote growth
   2. Transformation with special focus on youth and women
   3. Green economy
   4. Digital economy
   5. District Development Model
3. Areas where the Department was affected and could play a supporting role
   1. Infrastructure with a focus on ports and energy
   2. Skills development
   3. Policy initiatives of departments and opportunities for localisation
   4. The Sovereign Wealth Fund

Core programmes

Regarding dealing with investment promotion, the President talked at length about investment and the Investment Conference, mentioning pledges of R664bn. The DTIC’s job was to land these investments, holding companies’ hands between announcement and implementation. Some investments were on pause and needed to be unblocked. These had to be unblocked from an intention to a reality. Unblocking could involve water licenses, protests, work permits, land issues, monitoring deadlines and so on. When one wanted to land a multibillion project there was a lot of complexity. The DTIC had to help to create an environment for investment so it could secure additional commitments in the coming November summit.

On Industry Masterplans, 7 Masterplans had been driven by the DTIC: 3 were complete (Automotive, Clothing & Textile and Poultry). The DTIC now needed to ensure implementation. The agreement was only the beginning of the work. Clothing & textiles was an example, it was necessary to implement commitments to ensure incentives for industry and crack down on illegal imports. Retailers, manufacturers and unions all had commitments too. In the automotive sector, there was the issue of expanding the domestic market and improving localisation. There had to be work on infrastructure, for instance getting a car from Tshwane to the port and out to the global export market. South Africa had to be building 21st century cars. There was a need to develop labour so South Africa was not a cheap labour destination, but rather a highly skilled producer. Another masterplan was almost complete (Sugar), in its last 3-4 weeks to land the plan and get players to agree. The Steel masterplan was being fast-tracked. Two others were in early stage development: Furniture and Chemicals & Plastics. The DTIC hoped to help the creation of Master Plans in 8 other areas where there would be time, energy and resources committed by DTIC to help other departments. It was also looking at a broader green economy Master Plan.

In terms of the AFCFTA, the DTIC would spend a lot of time in 2020 building institutions including the secretariat, working with every other African country. South Africa would host the Extraordinary Summit of Heads of State in May where the AU Heads of State would converge to finalise the terms of the CFTA. The DTIC was working on industrial products, which products it would commit to liberalising, finalising what was regarded as a Made in Africa product, and looking at deeper trade. The Department would also look at the integration of the services sector. It then had to look at protocols. The departmental budget would begin to reflect this as it shifted more resources to this sector over the coming years.

Competition had a long work programme. Major initiatives included market enquiries and their launch and implementation, including those on data costs, the grocery and retail market (exclusive leases). The DTIC was also looking at a code of conduct for big retailers interacting with small businesses, new regulations on price discrimination and abuse of market power, strengthening of the Competition Commission and the implementation of Phase 3 of Competition Amendment Act

The Tshwane Auto Special Economic Zone (SEZ) was an experiment led by the DTI Director General. SEZ models the DTI had in past have had limited impact. The DTI was working closely with Tshwane local government, the Gauteng Provincial Government and the national government. As a model was found, it had to be rolled out to the battling SEZs in Richards Bay, Saldanha and Maluti-a-Phofung.

Regarding ease of doing business, the President had praised the new BizPlatform of the CIPC. The DTI had done a soft launch. As it became more confident, the DTI would roll out the platform properly, with more communication and promotion. This may include improving the system and migrating to the cloud.

This concluded the core areas where the DTIC would be driving the programme.

Cross cutting areas

Partnerships and social compacts were the strength of South African participatory democracy. This had to be taken into the economy, building a consensus with business and labour. The DTIC was pushing to say everybody had to do more; government, business and labour. There had to be more give if one wanted to change the country. Masterplans were the DTIC’s key initiative in this regard

On transformation, the President spoke about a Procurement Bill to be introduced in Parliament. The DTIC’s job was to complement transformation in government. The Department did not want to end up only giving contracts to smaller companies where they had no support ecosystem. The Department was looking at getting larger companies to mentor smaller ones and include them in their supply chain. The DTIC was also investigating integrating its BEE initiatives, and youth as a specific area. The IDC would get a target for the next 5 years. The Business Services programme of the DTIC would be a way to bring young people into the economy. This would mobilise R10bn of own and partner funding. The Department would monitor this – not asking for a report once a quarter, but sitting and keeping track of it. All of this would be in partnership with the IDC.

Regarding the District Development Model, could the Department take every area and say what impact initiatives would have by district? It would take many months to develop a useable dashboard and capability. This programme would launch at beginning of FY20/21 and the Department would build on this.

How best could the Department integrate the green economy? The Department had hosted the Vice President of the European Union, Frans Timmermans, on the green economy in South Africa. Talking about opportunities in this regard, the Department noted that South Africa is a producer of quality vanadium – which used to be used only for steel production. However, now the DTIC was looking at it for grid energy batteries for renewable energy storage. It would take an enormous amount of hard work to land this kind of project.

Supporting

If South Africa was to build a manufacturing economy of the future, it had to build skills of the future. Work would be done on the Sovereign Wealth Fund in the long term, giving South Africa the resource base to attract investment, and to allow the economy to moderate the commodity-based cycle.

Given the budget challenges mentioned by Minister Mboweni, departments have had to bear their share of reductions. The DTIC’s overall budget was to be reduced from R11.7bn to R11bn in FY20/21, reduced to R10bn in FY 21/22, recovering to R10.5bn in 22/23. The Department had to internally focus on how it could get more from its money. The DTIC had to keep on making the point about the growth-inducing approach to dealing with economic challenges. There was a need to ensure reductions did not hit the muscle of the department. Within its work, how would it ensure its core commitments were not reduced or undermined?

In summary, the framework for the DTIC’s work was set by SONA. The DTIC identified 6 core areas, 5 cross-cutting areas and 4 supporting areas. In the budget votes, the Department would convert ideas into allocation of resources, how it planned to extract more value and meet its key milestones and targets. Minister Patel thanked the Chairperson for the opportunity.

Discussion
The Chairperson stressed the need for interdepartmental work given the constrained budget. We have 3 spheres of government, when we look at local government, there was opportunity to ensure a level of alignment, particularly with districts.

Mr M Cuthbert (DA) said that the Minister’s comment that government did not run business stuck with him – he agreed and stated his desire for this attitude to be more prevalent across government. In terms of Ease of Doing Business Report, South Africa had remained in the exact same position as 2019. In terms of starting a business and trading across borders, the country regressed. From what we have been told by InvestSA the Bizportal allows registration in one day. With a ranking of 145 in trading across borders, how could we say we were capacitated to take advantage of AFCFTA with this and the state of our ports and borders? Mr Cuthbert proposed to see interaction with other departments to do something like Singapore where there was a “single window” approach. In Ekurhuleni there were a number of outstanding projects – two projects in Mr Cuthbert’s constituency alone that cost R10m and R60m respectively with no take up. There was nothing going on at these projects. What kind of authority did national government have to follow up with municipalities? He noted the positive conversation about vanadium and renewable storage. Mr Cuthbert endorsed further investigation, which may put South Africa in a unique strategic position to encourage trade with the EU.

Mr Cuthbert questioned the logic of establishing the Sovereign Wealth Fund (SWF) when running a deficit: it was well intentioned to try a SWF, but did South Africa have the money to do it without stripping frontline services? Whether or not spectrum auction continues was another question. When the Committee went to SABS there were strikes – what was the DTI doing about labour unrest and what was the status of this? With budget cuts coming he imagined things could get worse.

Mr F Mulder (FF+) congratulated the Minister on his inputs, which were much more positive than what he had heard the previous year. There was a plan, but could it be worked? The situation of the South African economy had to be taken into consideration. In 2008, Mr Mulder served on the Portfolio Committee on Education in the Gauteng Provincial Legislature. He visited Japan on a skills development study and saw 16 universities, including Toyota University in Yokohama. Skills development as far back as 2008 needed attention in South Africa. Mr Mulder had not seen much success in making South Africa a skills-based economy in the last 12 years. The Minister had to explain what he meant by transformation being a source of deep and sustainable growth – from what Mr Mulder understood, transformation was from poor to rich, unempowered to empowered, welfare dependent to wealth creation. If the transformation was from other races to black, it could translate to just a shifting of poverty rather than transformative growth. Mr Mulder gave the example of skilled workers leaving the country in order to find jobs due to not being able to obtain government jobs in South Africa, including his son.

Ms J Hermans (ANC) enquired as to what initiatives were being planned with other departments in the ease of doing business environment, especially trading across borders. In terms of changing the apartheid landscape as far as spatial development was concerned, the DTIC said it would do this through industrial parks. She wanted to hear how industrial park development would change the apartheid spatial development of South Africa. In the ANC’s January 8th statement, it spoke about reducing inequality – the most effective way to do this was to create employment and economic opportunities especially for youth and women. The Minister had undertaken that quarterly reports would reflect promises. She thought the Committee should undertake that every quarterly report included empowerment of women and youth.

Ms Y Yako (EFF) apologised for arriving late. She thought the Minister’s comments seemed to be broad and general without specific plans. How would promises translate to jobs for the youth now? How did SEZs translate to direct jobs for the youth? She did not see a real, tangible change in the current timeframe, given the decline in rate of employment. The Minister was talking about rhetoric, value for money, growth inducing initiatives. Ms Yako could not continue to say she appreciated presentations if there had not been any change. She wanted to hear about real change that had been done. How was the DTI incentivising or enforcing the mentoring system with bigger and smaller companies? How was it broadening the economic space? She thought the ocean economy was not being addressed properly. Ms Yako stated she would like for the Minister to take a good look at entities and ensure they deliver what they were supposed to.

Mr Mbuyane wanted to check in on the sugar industry regulation, as well backlogs in Letter of Authority (LOAs) and the ICT model of the NRCS. He requested an update on the MoU with the Competition Commission and NPA in terms of dealing with business cartels, as well as on the broad-based tourism model for communities and small players. He also requested clarity on measures of NEMs and the IDC. Ease of doing business – what further initiatives were being implemented apart from the BizPortal? How was the Infrastructure Fund moving forward? What annual plans did the DTI have to assist the President’s promise of 2 million jobs? Was the DTI able to assist NAMISA and SANAS to assist the agenda of African trade.

Mr F Jacobs (ANC), the Whip for Small Business Development, emphasised the need to see how DTIC could improve capacity to realise these good plans. He was interested in the District Development Model. He appreciated this was in its infancy. The key measure was how township and the rural economy found their place in the District Model. If one looked at rural municipalities, the apartheid economy persisted. Despite interventions, ownership and management had not changed. Micro-economies were often run by foreign nationals. Many South Africans were not part of this economy. We needed to see areas of specialisation for the districts. There needed to be a micro-level planning system, so we could crowd in investment to small towns and rural areas.

Ms Motaung had 2 questions: the first was in term of the President committing government to create 2m jobs by 2030. What annual initiatives would be undertaken by the Department to assist in this regard? Secondly, she requested an update on the Infrastructure Fund.

Ms Hermans asked if Cape Town would be home to the African Institute on Space and Science and how would the Department assist this?

The Chairperson commented that the Institute of Space Science indicated that the Department was responsible for the Space Affairs Act and requested an update. Regarding the visit of SANAS and the NRCS and the plans to rehabilitate these two agencies, what was the progress? The previous week the Committee hosted NAMISA and SABS. Technical infrastructure of institutions was a challenge. He agreed with Mr Mbuyane that support for AFCFTA from institutions was pivotal. The Committee had engaged organised labour at the demonstration. Deputy Minister Majola did engage with the Chairperson to follow through. How far had he gone in this regard?

Mr W Thring (ACDP) requested clarity on the crackdown on illegal imported goods. How was the Poultry Masterplan rolling out with regards to securing jobs? Was there a masterplan on the shipping industry? On AFCFTA – a recent comment by the US Secretary of State touched on bilateral negotiations with African countries. What challenges would this pose to AFCFTA, especially if AGOA ended?

Minister Patel noted that by his count, there were 33 questions for 15 minutes of response time. Some questions required very specific and detailed responses. Perhaps it was better to schedule specific sessions on these matters.

Two things struck him when looking at the vision and plan – consistent with SONA and SONA debate last year is a success. If government changes constantly, we lose the plot. He wanted to give examples on weaknesses and strengths. Some years ago, the challenge was everyone wanted to build cars. South Africa had the problem that it could not compete with nimbler and faster competitors, without the history SA had to deal with. The DTI knew if it left it to every company on their own, we would gradually lose our vehicle manufacturers as other countries have done. The Department sat down with the OEMs and developed a plan. The DTI said we have a transformation goal as government. We have now created a R6bn fund to expand transformation. The OEMs said our market was too small to make all forms of cars, so we allowed import of some cars, but tried to export many cars. We exported a record number of cars last year. We even export cars to Germany, the heart of car manufacturing. Big car making plants do not have as many jobs as we would like. So we sat down and moved component manufacturing to South Africa. Now, for every direct job, we have 2 in the supply chain. The car industry has made R6bn available through grants and preferential procurements for black south Africans. With the discipline of focusing on an area, we begin to change the storyline.

The Minister brought up the Kouga example: for a number of years it was a very small SEZ and battling to be successful. The DTI focused on turning it around, strengthening governance and management. In our discussions with China, we agreed to build a car factory to anchor Kouga. This would be a production base for South Africa and the rest of the world, especially the African continent. This took a number of stakeholders bringing something to the table. When they employ, they will employ a preponderance of young people. The DTI DG went to the Eastern Cape last week to talk to business process services. South Africa has pitched itself to become a global player in business process services. Up to now, companies in this industry have preferred urban centres. We are convincing companies to move to towns and townships. We think we can employ a few thousand young people through a state-of-the-art call centre in Kouga to earn foreign exchange for South Africa.

The clothing industry used to be in deep crisis, losing 15k jobs a year from 1996-2009 as SA entered the global market. Today, the industry had stabilised to the point the DTI thought it could grow. The Masterplan added 100 000 jobs in the next 10 years in clothing and retail. There were containers containing confiscated goods that SARS has seized, and the importers want to take SARS to court. We would like to join SARS’s case and give evidence of how illegal imports harm our economy.

There were many examples of DTI getting things right. There were equally times it had gotten things wrong. We must acknowledge these, change the programmes or drop them if they are not saveable. We do not want to come with different ideas every time. Minister Patel recognised the enormous infrastructure and protocol issues of AFCFTA. The agreement only told us where we must get to, but hard work was required to get there. Tariff lines, rules of origin and other issues were all key and had to be determined with businesses and other partners. In many cases the work was being done. The DTI did not want to stagnate. Having 100 000 people in car making was good and had a multiplier effect of the goods they purchase and their stimulation of the economy. But how should we double this?

The Minister requested an opportunity to go through detail in future sessions.

The District Development Model would not be an overnight success. It would allow government to structure its work by district to see where different districts were competitive by industry. The DTI wanted to anchor districts by industry. It would take a year and a half to do all of the districts. 3 had been done so far: OR Tambo (EC), eThekwini (KZN) and Waterberg (LP). The DTI was working with the idea of a single budget by district that allowed one to look at work of all 3 spheres of government and different departments. One had to see the gaps in the budget and the resource base to address this.

SONA set the vision; the budget gives one the fuel tank. Maybe one could drive differently to use fuel more sparingly. The DTI would show the Committee in future sessions how it planned to use its fuel tank. It would have partnerships with business and labour to be able to go further.

The Chairperson proposed that the Minister suggest a programme for future engagement so that the Committee could proceed with its agenda, given the Minister had to leave.

Minister Patel proposed that, instead of a 1-minute reply which will not do justice to questions, we should pick a number of thematic areas to be addressed in a deeper engagement with the Committee in the coming months. He recognised the support of the Committee and thanked them.

The Chairperson noted that the 14th April was scheduled for the Annual Performance Plan (APP) presentation. The Committee was looking at a joint sitting with the NCOP committee, maybe that would be an appropriate occasion.

Mr Cuthbert noted he was happy to do that if there was a settled date.

The Chairperson asked Mr Cuthbert for a seconder.

Mr Cuthbert seconded the Chair’s proposal. He asked, as a matter of urgency, for an update on strikes at the DTI.

Ms Yako noted the Minister said we all agree in principle. She had to register that she did not agree in principle.

The Minister gave a short comment on Mr Cuthbert’s question. He thought a lot of progress had been made, the DG had been involved in industrial relations, and he would leave him to give further detail on this matter.

Briefing by DTI
Mr Lionel October, Director-General, DTI, began the presentation. The global economic arena presented risks to the downside, including rising geopolitical tensions, higher tariff barriers and climate issues.

In the domestic arena, South Africa had a GDP contraction and this trend seemed to be continuing, along with dips in mining, manufacturing and agriculture. Consensus seemed to be forming that the problem of low growth was linked to Gross Fixed Capital Formation. South Africa had seen a 10% rise in private fixed capital formation, but a 17.8% decline in government investment, which was supposed to be the constant in an economy.

On a positive note, the trade balance was moving to the positive side for the first time in a long time. South Africa exported more than it imported. 30% of trade went to the African continent, but 90% of this trade was in manufactured products. South Africa had a massive trade surplus with the African continent. It was key to maintain intra-African trade.

The picture on the private side was positive, with both investment and exports rising. The issue was the massive decline in government capital formation.

Goal One: Industrial Development

The heart of the DTI’s strategy was industrial development. In clothing and textiles, the first Cotton Indaba took place last November. Mr Price committed R30m to small-scale local farmers. The DTI completed the Clothing & Textiles Master Plan and signed it off at the November Investment Summit.

In the Poultry section, the DTI completed and signed off the Poultry Industry Master Plan, with an investment of R1.7bn by the SAPA.

In the sugar industry, DTI had a commitment to R1bn in investment over 5 years from SASA.

In terms of African industrial development, DTI had completed a list of industrial and mining projects in cooperation with the Africa Steering Committee and Africa Trade Group respectively

The DTI had designated 27 products that had to be procured locally by government, it had added Industrial Batteries and Medium Voltage Switchgears in Q3.

The DTI also established a manufacturing line for latex and nitrile glove production with Medtex, and saved Biovac from going under.

The production of polypropylene that was supplying VWSA had been localised. A Polyethylene Terephthalate investment of over R800m had been established, as well as HDPE fuel tank manufacturing for local and global demand.

Goal 2: Trade and Investment

The DTI was working with China to rebalance the trade relationship, taking some of South Africa’s manufactured products and addressing illegal exports. The Department also had a bilateral engagement with Iran given South Africa’s major investments there. Engagement with Central European economies had also taken place.

A lot of work was done by DTI to ensure access to the UK market stayed constant during the Brexit negotiations and in the long term. It brokered the EPA deal in November 2019 and was working on expanding South Africa’s historic trade relationship with the UK.

Goal 3: SEZs and Transformation

Q3 saw the launch of the Tshwane Automotive SEZ, with one third of funding contributed by local, provincial and national government respectively. Phase One was complete, the DTI was moving into Phase Two because of the success of the project. The Gauteng government approved R200m to roll out bulk infrastructure. The DTI aimed to be in production by June 2021.

The SEZ Investment Roadshow was taken to Spain, Monaco, India and Zimbabwe. The DTI was working on creating jobs for the youth in SEZs.

The DTI had another programme for foreign companies that could not participate directly in BEE deals, the Department had signed a Memorandum of Agreement on the implementation of the Equity Equivalent Investments Programme. The DTI signed off the EEIP Business Plan for Auto Companies, with R6bn devoted to black industrialists in the automotive value chain. Isuzu’s production has increased to 30 000 from 20 000. The DTI was engaged in promoting the success of black industrialists.

Goal 4: Legislation and regulation

7 education workshops had been held across Gauteng, the North West and Eastern Cape – the Department was trying to raise awareness of DTI legislation.

Goal 5: Admin and Coordination

The Department was trying to build a dynamic and professional administration. The DTI had 54% of women in senior management, and 4.1% of people employed had disabilities. All eligible creditor payments were processed within 30 days.

The Director General wanted to highlight 2 issues. In terms of financial performance, he noted that the DTI had spent so far just over R6bn of its R10bn budget, but there was no cause for concern as there was a variance of around 1% of expected spend. He doubted the Department would underspend.

Regarding the SABS issue: labour relations were a difficult area, the committee and executive had engaged striking workers. The Department had been asked to mediate now, there was a collective bargaining forum, focused on SANAS, NRCS and SABS. Entities and labour had called for DTI to mediate. As of last week, the workers had ended the strike and gone back to work. Most entities implemented their wage agreement of 6.3%. The forum had now reached a principled agreement that this would be the wage level. However, the DG acknowledged that these matters were complex, and stakeholders were yet to sign a written agreement. A well-run organisation needed well-run management and labour.

The DTI was trying to build case studies of success for SEZs. The Tshwane SEZ had seen 18 investors, i.e. 18 factories that would be built. The other was Kouga, where there were 45 investors from being a white elephant 5 years ago. 8060 construction jobs had been created; 1922 young people were employed in the call centre. The Department took all the other SEZs and had a seminar in PE, to show the call centres as an example. Kouga had trained 7406 young people, and had established a full time training centre. 33% of the spend had been on SMMEs. Morocccan SEZs have 100 investors – South Africa had to get to this level. The DTI’s best practice examples were Tshwane, Kouga and the Dube Trade Port.

Briefing by EDD
Mr Monde Tom, DG, EDD, introduced the presentation. He ceded to Mr Len Verwey, Economist at EDD

Mr Verwey said he would be brief on economic context, given the Q3 GDP result was being released as he spoke. One thing to add was that 2019 was the worst year for global growth since the financial crisis, which had to be kept in mind. As South Africa successfully pursued localisation of industry and import substitution it no longer had a balance of payments issue. Its trade balance with the rest of Africa was R200bn positive. Total trade was R350bn with the continent. The composition was largely local products. Vehicle exports to the rest of Africa were a key export. Truck and bakkie exports in 2019 were at R13bn roughly, and South Africa was the largest exporter to the African continent in this area.

Q3 gave the same unemployment rate as the previous quarter. Looking at unemployment over 2019, South Africa was struggling to accommodate the entry of new people into the labour force and saw the loss of jobs, leading to the unemployment rate growing by two percentage points.

The Director General resumed the presentation. During Q3, EDD received its second consecutive clean audit (for 2018/19) from the Auditor General, as well as a Certificate of Excellence. This spoke to the value for money processes of the department.

The second focus was the promotion of beneficiation. EDD launched the PPS for Scrap Metal in 2013, to be replaced by the Export Tax on Scrap Metal during the 2020 calendar year. EDD was aware of the pressures on the steel industry.

The third focus was spatial development of township and rural economies. There was no consensus on what this meant – it was important to have a framework defining it – the National Township and Rural Economies Development Framework would be put in place in the current financial year, as well as the Social Economy Policy Framework. The District Model would require identifying different competitive advantages by district. One of the things EDD intended to do was roll out strategy of the Grocery Retail and Data Market Inquiries.

The fourth focus was the Budget Facility for Infrastructure platform. During Q3, 42 large projects submitted applications. 5 projects were recommended for funding to the MINCOMBUD: the Gauteng Schools Programme, Klipfontein and Tygerberg Hospitals, and projects in Coega for Gas to Power and a Return Effluent Scheme. The BFI helped to address weaknesses in planning and project identification, no formalised authorisation environment, and poor or incomplete project preparation processes.

The PICC technical capability had begun to move to the DPWI since the President’s decision to merge the EDD and DTI. Q3 saw the PICC meeting Minister De Lille, DBSA and the Office of the President for Infrastructure Fund Support to ensure the retention of technical and institutional capacity and a smooth transition.

During Q3, EDD planned 43 products but achieved 54, meaning it had a spending level of 78%. Areas that had been hard for the department were that it had to conduct an investigation in one of our entities, requiring the retention of private legal services. The Director General ceded to Ms Irene Ramafola, Chief Director: Office of the CFO and CFO of EDD.

The CFO noted that the S51 spending of EDD had declined due to resignations of senior positions. The impact of senior members leaving had allowed a 50/50 gender equity in EDD’s senior management. Overall, the Department was 62% female in its 95 person staff, and 3% of people with disabilities. The investigation mentioned was not planned by EDD and was requested by National Treasury. EDD achieved 96% of its targeted spending. It was slightly under on compensation due to resignations and slightly higher due to the legal investigation. It was not able to make a R21m transfer to the Tirisano Construction Fund in Q3 due to an issue with the NRF – it had nevertheless added two new companies to the Fund. EDD was able to execute this transfer in Q4.

Mr Tom stated that South Africa’s GDP growth was 0.2% annualised in 2019, which is a decline from 2018, and saw a -1.4% quarterly decline in GDP.

Discussion

Mr Thring highlighted that page 18 of the DTI presentation spoke to trade deficits with BRICS partners: what was the progress of changing South Africa’s trade relationships given we largely export raw materials? With platinum, was the DTI looking at battery beneficiation and electric cars, and what was the progress? In 2019, he visited an Industrial Node in eThekwini – management complained that members were told they could not introduce solar power or rainwater harvesting as they did not have a municipal licence. South Africa was stunting growth through lack of services, were there not still some stumbling blocks where local municipalities want to secure their income from sale of water and electricity as they were dependent on this? The DTI seemed to be failing to translate the leverage of R1:3.61 return on investment into economic growth. He noted the “double whammy” on page 7 of the EDD presentation: the labour force saw an increase of 478000 but a jobs decline of 108000. In Township and rural development: some argued that city development should be central. How did one strike the balance? The effect of malls on SMMEs had to be stated. Which particular department hosted the investigation that caused over-expenditure at EDD?

Mr Cuthbert stressed that, while annually South Africa grew at 0.2%, its economy shrank by 1.4% quarter on quarter. Whilst understanding that it was a highly globalised economy, it was time to stop passing the buck and recognise that domestic policy choices and implementation was not up to scratch. DTI reports showed significant failures to reach targets. It was dishonest of officials to blame global issues solely. Uptake of schemes in the steel industry had been low due to slow disbursements and stringent BBBEE requirements. South Africa had a serious problem in steel production as it was through government protection of a foreign company which harmed downstream producers. He looked forward to the Minister’s address as the steel industry was in serious hot water. Once the departments were collapsed, what would the process with senior officials be?

Ms Yako advanced two points: for the DTI, she proposed the presentation was making job creation a by-line. The total point of the DTI was growth in industry for job creation and making the economy sustainable. Regarding black industrialists, she would like a written response from DTI on how many black industrialists in the automotive industry were being supported by the department as compared to private sector. The township economy should not be a patronising statement: we must bring the economy to the people. How involved were municipalities in implementation? They had to be an integral part of the economy. What one did in New Brighton was not the same as what one did in Soweto. There couldn’t be a blanket approach. What work was government doing to engage municipalities?

Mr Mulder noted that, as far as the labour market was concerned in the EDD presentation, it was very alarming that youth unemployment was at 41,5%. He wanted to include the fact that Minister Mboweni stated 18m people were dependent on grants. This had escalated since 2004 – this was a problem. He brought up the use of terminology like township economy. Over the years, the government had centralised the economy rather than localised. We must have self-actualising communities with more say in their own affairs. Even if one invested much money in opening a mall in a local community, the money left the community as the goods were produced outside. We must make people less dependent on the state.

Mr Mbuyane asked if there were any plans to revive sugar mills that had been closed. Was there any agreement for before master plans are implemented? His understanding was that there had to be an agreement before the Masterplan could be signed. He requested clarity in terms of legislation. The 0.2% GDP growth was shocking. Were we able to develop programmes that speak to rural and township communities directly? On the issue of the development funding model – how did the different funding institutions cooperate?

Ms Hermans asked the DTI to unpack the social economy policy framework at a later stage. The decline in the manufacturing sector has persisted for a number of years – were there any appreciable factors in this regard? What kind of support would the department give to revive this sector?

Ms Motaung asked how the department was addressing BEE fronting. On the Automotive plan – did it include local content requirements? SEZs factoring in skills development: would this be rolled out beyond Tshwane?

The Chairperson highlighted the issue of sugar and the possibilities of use of sugarcane for bioethanol. Was this covered in the sugar programme? On the Massmart-Walmart merger and the announcement of the shedding of 1400 jobs at Massmart, was Massmart waiting for the period to expire to be able to retrench? Was January 2020 the end of the period? He told Mr Cuthbert that the DTIC would cover issues of the transition to the new fused department. On black industrialists, he stressed the issue of increasing participation of black people in the economy.

Mr October responded that, in terms of incentives and conditionalities of local content in the automotive industry – the DTI incentivised the industry only if it invested, it gave 20% at a maximum of this investment. It had increased conditionalities for local content, currently at 45% and progressively moving to 65%. For BEE, it had introduced a conditionality for reaching Level 4 in the next financial year from the current Level 8 requirement.

The supplier park idea was taking root, after VWSA (Uitenhage) and BMW (Tshwane). Toyota wished to do similar in Amanzimtoti. The whole town would benefit. The DTI was using Kouga as an example as it had experience building the Uitenhage park.

Nationally, in terms of exports to the world, South Africa ran a surplus of R31bn. That was an historic change. With regards to the continent, exports for the quarter were R90bn to the continent, and R30bn in imports. It was not sustainable to grow this surplus. We want to grow intra-African trade. South Africa had to buy from other African countries as well. The DTI could not rejoice too much about the surplus as it was unsustainable.

It had been a big struggle to obtain beneficiation of raw materials in SA. The DTI was able to move to sophisticated manufacturing, but it had not cracked the raw materials/platinum issue. After 3-4 years, a Taiwanese company was starting a fuel cell plant to supply Telkom towers. This R150m investment in the Trade Port would allow the beneficiation of platinum, as would another investment by a Russian company in Gauteng. As the Premier of Gauteng, Mr David Makhura said, the DTI was creating a platinum SEZ in Springs. The essential problem was the low value of South Africa’s mineral exports.

Were we leveraging our incentives? Currently the manufacturing sector employed 1.6m people. The DTI had to protect these people. It was completely under-resourced in incentives. The EU budget just for agricultural support was 37% of their total budget. The DTI’s incentives were far smaller. The problem was no longer on the supply-side of the economy, although the DTI acknowledged the 10% of late payment of incentives. The key problem was it had received no fresh applications. Last year the DTI was underfunded – but this year there was not enough demand for manufacturers. The real issue was the decline in government spending at the local level, which has hit manufacturing and construction hard. The auto-industry was growing on exports. Exporters were doing well, but local demand is falling.

The DTI would give a detailed report on the steel industry in the coming weeks.

The question of senior managers in the Department was above his paygrade and would be dealt with by the Minister and President.

Municipalities and local level were the heart of the problem. On visits to Emfuleni, Sedibeng and Motherwell, the DTI noted the problem was that the industrial area for the private sector may be full, but the infrastructure had collapsed in terms of roads, electricity and water. The President wanted to shift the budget from operational budget to capital expenditure. Hopefully with the appointment of Kgosientso Ramokgopa to the Infrastructure Fund this would accelerate local infrastructure spending. The DTI was appointing a team to work full time on unlocking investment. In Vaal for instance, the multi-billion rand Heineken investment had to have water.

Mr October was enthusiastic about the relationship with the United Kingdom – Brexit may be an own goal for the UK but an advantage for South Africa, especially given the UK had always been less protectionist than the rest of Europe. The DTI had just returned from a conference on infrastructure there.

In sugar, the biggest consumers of sugar (Coke and others) had agreed to buy local content from Illovo, Tongaat etc, who buy from black farmers. The issue was the sugar levy as demand for sugar had declined significantly as people used less. The DTI had to move to stimulating demand through alternative uses.

Decline in manufacturing was now a demand problem. Investment was up, companies were investing as they dominated and could export – but people weren’t buying. There was no demand for steel or cement as South Africa was not building anything. There was no use telling companies to be more competitive with no market for their products.

Mr Tom agreed with Mr Cuthbert that downstream producers in the steel industry were suffering.

In terms of the Competitive Fund under the IDC, EDD actually reviewed the criteria in November when it saw that pricing for smaller participants was incorrect. There was a pickup in this fund.

The Frameworks were driven by a need for a common understanding to address issues.

On the social economy, policy had to talk to competitive advantage of local areas rather than speaking in generalities. In the social economy framework, one had to identify what needed to be considered in local areas in terms of value chains and poverty reduction. What were the unserved and underserved markets? It could not be a one size fits all approach.

Mr Verwey noted that quarterly GDP was -1.4% seasonally adjusted and annualised. Any way it was looked at it was bad. 3 of the 4 quarters of the year were contractions. Year on year, South Africa had a real GDP growth of 0.2% compared to the last quarter of 2018.

Mr Tom continued on the Massmart and Walmart issue – conditions for job retention lapsed a year or two ago. Their point was that the performance of the organisation has been poor due to economic conditions.

On malls vs SMMEs: EDD did deal with this in the Grocery and Retail Market Inquiry. It proposed remedial actions. These actions had to be negotiated with the malls and large supermarkets.

On municipalities, the Chairperson said that it would make sense to look at capacity and capabilities. At the last engagement the Committee had in Maluti-a-Phofung, the water and electricity engineers were retiring. There was a need to follow through on this. There was an engagement with DTI from Nestle about costs of infrastructure disruption that cost them R100m.

The Chairperson thanked the delegation.

The meeting was adjourned.