DTI & EDD 2019/20 performance; DTIC 2020/21 Quarter 1 performance, with Minister & Deputy

Meeting report

Opening Remarks
The Chairperson greeted the Committee Members and everyone who was connected on the online platform.

The Committee Secretary confirmed that the meeting was quorate.

The Chairperson welcomed Minister Ebrahim Patel and Deputy Minister Nomalungelo Gina to the meeting. He noted an apology from Deputy Minister Fikile Majola. He also welcomed Lionel October, Director-General, Department of Trade, Industry and Competition (dtic) and the large team that was with him online.

Mr D Macpherson (DA) requested that the issue of the National Lottery Commission (NLC) interviews be included in the agenda.

The Chairperson acknowledged the request, stating that it was on the agenda. He invited the Minister of Trade, Industry and Competition to make his opening remarks before the presentation by the Department.

Opening remarks by the  Minister of Trade, Industry and Competition
Minister Patel apologised for the absence of Deputy Minister Fikile Majola who had just been released from hospital following a medical procedure.  He also indicated that, owing to another engagement, he would be leaving the meeting at 9:30 but he had every confidence in the Director-General and the team to make an excellent presentation and to address all questions.

The Annual Report would normally have been tabled in Parliament by October of the year but 2020 was an exception and Annual Reports had not been presented. However, the audits for the Department of Trade and Industry (dti) and the Economic Development Department (EDD) had been signed off by the Auditor-General.

In a summary of activities in the past financial year, he pointed out that a portion of the report covered both departments and that the bulk covered the dtic. The report would be the last report by two separate entities as until the end of the 2019/2020 financial year, both departments were individually responsible for their finances, even though the amalgamation process had been ongoing throughout the year.

The Minister was very pleased to announce that both Departments had attained clean audits. The Minister singled out the work of the two CFOs, Shabeer Khan, CFO of dti (and dtic) and Irene Ramafola, Chief Director: Office of the CFO, dtic, and former CFO of the EDD, who had been accountable for each of the departments and who had in that particular environment, ensured clean audits, no wastage of funds and had met the targets set for the departments. It was an impressive achievement.  The CFOs had been supported by highly competent DGs and all officials but he believed that much of the credit had to go to the CFOs. The Minister stated that the Quarter 1 Report would be a single report from the newly merged Department of Trade, Industry and Competition (dtic).

Quarter 1 had coincided with the high point of the pandemic in SA, the most difficult period for the officials, the country and for the economy. Other activities had to be included in the work of the Department to address matters arising as a result of the pandemic and, although the Report barely touched on those additional activities, it had to be viewed in the light of that context.

The Minister stated that there had been many successes under both former Departments and although the dtic had formally come into existence at a really difficult time, he had confidence in the ability of the Department to make a positive impact on the economy of SA as it recovered from the devastation of the pandemic.

The DG of dtic would make the presentation on the Annual Reports and the First Quarter Report 2020/21 of the dtic, together with his team of officials.

The Chairperson wished Deputy Minister Majola a speedy recovery. He welcomed the DG and the 18 officials who were part of the dtic team, including all the Deputy Directors-Generals (DDGs) and Acting DDGs.

Presentation of the DTI Annual Report 2019/20
Mr Lionel October, DG, DTIC, thanked the previous Portfolio Committee on Trade and Industry, as well as the current Portfolio Committee, for their support and guidance.

Mr October noted that it was the 10th year that he was presenting the Annual Report but the Department had begun turning the corner some three or four years previously. He noted that the Department had not attained all its targets, particularly in the final quarter of the financial year, especially because export targets could not be reached and some reports, such as the International Trade Administration Commission of South Africa (ITAC) report, could not be presented to Parliament, even though it was complete and ready for presentation.

Mr October noted that one of the decisive changes was providing protection for the poultry industry, despite the fact that the country was hauled over the coals by the United States and the European Union. He was pleased with the work in the sugar industry that had been driven by the Trade and Industry Committee Members, including Ms Mantashe, Mr Mbuyane and Mr Macpherson. He also noted that agro-processing was getting a good deal of support in the Committee and was progressing well.

The real success was in the auto industry. Confidence by the multinationals, especially Volkswagen that had made remarkable progress in investing in B-BBEE businesses. The Volkswagen Group South Africa had invested R70,9 million towards the development of black-owned component suppliers and one of the funded companies produced plastic automotive components. Mercedes Benz had invested R10 billion into an expansion of its East London plant. The upgrade extended the production space of the existing plant by up to two-thirds to produce the next generation of the C-Class and also manufacture the GLC SUV. The facility was well-positioned to meet stringent global automotive standards and thereby replace imports. Through this partnership, two distinct export opportunities had been created: Potential exports of the chemical input material HDPE and locally produced fuel tanks.

The Poultry Master Plan was launched at the Presidential Investment Conference in November 2019. An investment commitment by South African Poultry Association (SAPA) to the tune of R1.7 billion had been secured to invest in poultry production capacity. Cabinet endorsed the Biofuels Regulatory Framework which was subsequently gazetted in February 2020 and incorporated sugarcane as a key feedstock. The Sugar industry had committed to a R1 billion five-year transformation plan, which was currently being implemented.
The Special Economic Zones (SEZs) were facilitating investment and transformation.

In support, legislation was being developed. The NEDLAC Secretariat through video conference meetings with all social partners had adopted the draft NEDLAC report. The Bill still had to be signed off by the Conveners of NEDLAC for each constituency.

Briefing on the Annual Financial Statements by the CFO of dtic
Mr Shabeer Khan stated that 98% of dti’s R10 billion budget had been spent. R5.7 billion was paid out beneficiaries across the various incentive programmes. R1.32 billion was transferred to public entities. R1.7 billion was spent on operational costs.

The dti had achieved a financially unqualified audit opinion with no findings, commonly known as a clean audit for its final audit report.

Briefing by dtic on the First Quarter Report 2020/21
As a result of problems with the connectivity of DG October, Mr Khan took the Committee through the dtic Report for the First Quarter 2020/21.

Ms J Hermans (ANC) was concerned about moving onto a new report when the EDD had not presented its section of the 2019/20 Annual Report.

The Chairperson indicated that his understanding was that the EDD would be presented as the last part of the presentation.

The DG was once again successfully connected and confirmed the Chairperson’s understanding. He requested that the CFO continue with the presentation of the First Quarter Report, which was the period during which SA was hardest hit by the Covid-19 pandemic.

Mr Khan said that dtic had recorded 53% of women in Senior Management Services (SMS) against the quarterly target of 50%. The new website and branding for dtic had been launched. The dtic had been involved in the development of the first draft Patent Bill and Design Bill that would provide for the use of the flexibilities in the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement for purposes of public health.

A successful Special Economic Zone (SEZ) Chief Executive Officers’ Forum had been held in June 2020 where, amongst key discussions, was a discussion on ways to mitigate risks and challenges associated with the impact of COVID-19 on SEZs and how to maximize on manufacturing opportunities.  The dtic had successfully negotiated with York Timbers, South African Forestry Company Limited (SAFCOL) and organized labour to abandon the proposed retrenchment of 700 workers and closure of two mills

The Sugar Master Plan had been developed. The gazetted Amendments to the Sugar Regulations and Sugar Act 9 (Act No.9 of 1978), which aimed to enhance the transformation agenda in the industry, had been extended until 31 March 2024. The dtic had gazetted the Competition Authorities Exemption to provide a foundation for industry collaboration and implementation of the Master Plans.

R900 million had been invested in capital investments, including major investments in greenfield facilities.
Bushveld Minerals and Energy, a company involved in the mining and production of vanadium, was establishing an 8 million litre vanadium electrolyte manufacturing plant in the East London Industrial Development Zone (IDZ) and was supported by the Industrial Development Corporation (IDC)

The overall process of the Companies Amendment Bill at NEDLAC had been concluded. The dtic had implemented COVID-19 Industrial Financing Interventions in partnership with National Empowerment Fund (NEF) and Industrial Development Corporation (IDC) to support manufacturers of essential products to combat the COVID-19 pandemic. A total of 43 companies had been approved for loan funding.

Section B: Economic Development Department Annual Report 2019/2020
Dr Molefe Pule, Acting DDG: Competition Policy and Economic Planning, dtic, presented a list of achievements by EDD, including the unblocking of the Highveld Structural Steel Mill, unlocking water supply challenges for Goldi Chickens, implementation of the Competition Amendment Act and the Social Economy Green Paper Project.

Ms Irene Ramafola, CFO of the EDD, presented the budget for EDD. The Department had spent 98% of the budget and she noted that the Department had achieved a third consecutive clean audit. 85% of the budget was transferred to the Department’s entities.

She presented the variances, especially for Compensation of Employees, which was as a result of the resignations in the Department as it approached amalgamation. There were only 97 staff members when the Department had been closed and amalgamated with dti.

R209 million was surrendered to the Competition Commission for non-adherence to the Competition Act. The funds were paid over to the Revenue Fund.

Discussion
Ms Hermans thanked the former Departments of dti and the EDD and stated that the Committee was very happy that the Departments were ending on a high note of clean audits. She appreciated the leadership of the previous and current Ministers.

Mr D Macpherson (DA) noted that the Minister had done a hit and run, which was unfortunate as he had some questions for the Minister. Months ago the Minister had promised to spend a lot of time with the Committee but had not done so.

There was a need to be honest and truthful about the economic problems of the country. The pandemic was not the reason for the crisis. The crisis had been created by the lockdown that the government had imposed on the country with the intention of improving the health system, but that had not happened. Instead people were without jobs and the economy had been destroyed. The government would undoubtedly blame the virus for the next ten years or more. More money was needed to develop the economy and so the Department had to address important issues such as the bail-outs of state-owned enterprises. The government was about to spend R10 billion on a project that would not create jobs. SAA would simply suck up all the money with nothing to show for it. Why was money being pumped into SAA so that a few people could fly? Surely it was time that dtic said that the money had to go to job funding projects.

Mr Macpherson noted that legislation had not moved one iota. He had asked for the Department to present the proposed legislative programme for this term of government but that had not happened. The Department spoke of improvement to the Liquor Act but if the Bill that had been sitting in the President’s office for months had been signed, those very problems that dtic was referring to, would have been resolved. He understood that the Copyright Bill had been returned so that amendments could be made to ensure the constitutionality of the Bill. The DA strongly supported the need to ensure that the Bill was constitutional. But there were other pieces of legislation awaiting processing, such as the Gambling Act and the Companies Act.

Mr Macpherson suggested that the Department provide the Committee with a list of proposed legislation so that the Committee could intervene, if necessary.

Mr M Cuthbert (DA) referred to the scrap material industry and its problem. Minister Patel had issued a trade policy directive to ITAC to urgently look into measures to help support the metals industry.  That week ITAC had introduced changes to the Price Preference System (PPS). He was of the opinion that the Minister had gloated about the situation. The export tax would kill the industry. He would like the dtic to provide for another round of consultation on the matter of export taxes.

Mr Cuthbert asked what the audit findings were for the various entities that fell under dti. To what extent had dtic implemented zero-based budgeting to get bang for the bucks and to ensure mass economic benefit for individual South Africans and the economy?

Mr W Thring (ACDP) complimented the Minister and the Departments. He asked for the reason for transfers of some R1.9 billion from the dtic budget. He appreciated the reports on localisation and beneficiation.
The economy was on its knees and the economy had 80% unemployed people according to the wider definition of unemployed persons. Youth unemployment stood at over 70%. That was unsustainable and would lead to very serious trouble.

He stated that government could not continue to use failed policies. What new policies were there to address the failed economy?

Ms P Mantashe (ANC) appreciated the reports presented that day. She applauded the clean audits that the two Departments had attained. She applauded the Departments for riding the rough seas over the past ten years. Before the DG left the Department, all Master Plans had to be completed. She appreciated all the efforts to prevent a bloodbath of jobs.

As someone from the Eastern Cape, she appreciated the motor industry but requested that the Department consider supporting agro-processing in the province, especially as the Eastern Cape had the largest number of cattle in the country. The Eastern Cape was appreciative of the motor industry but the province could not rely on that. Already Bridgestone Tyres had left the province. What would happen to the Eastern Cape economy if the vehicle manufacturers disappeared? The dtic had to consider meat processing plants for the province.

The number of jobs created by the Department gave her hope that the economy would pick up.
She asked when the B-BBEE Commission would become independent.

Ms Y Yako (ANC) failed to understand what her fellow MPs were appreciating when they had received a very vague report that had no addendum nor was there any evidence of achievement. She did not understand why they were so pleased with the report. It repeated the same things every time that the Department presented to the Committee.

Ms Yako had an issue with the Minister who was forever leaving meetings and had better things to do than give attention to  oversight, which is what Members had to do. What did that say about support for the Committee? The DG seemed to say that beneficiation was championed by the private sector. Why was government not championing its own beneficiation processes? Why did the state have to rely on the private sector to create beneficiation of raw materials?

Ms Yako asked why the IDC was not working efficiently. She was trying to understand the role of the IDC because of Covid-19. She failed to understand why that was an issue for services declining. What was happening with the IDC?

She also noted that the US had raised concerns about the Copyright Bill. Why was that?

Mr S Mbuyane (ANC) welcomed the presentation which encompassed all the meetings that had been held. He wanted some Members to understand that it covered all meetings that had been held with the Committee, hence the repetition. He had noted that the dtic had ensured the unblocking of municipal services and water and that action had to be applauded.

He was pleased that the renewed economy was based on transformation. He asked for more information about agro-processing and noted, with particular delight, the Poultry Master Plan. He believed that the Transformation Fund had to be applauded for the good work that had been done. In terms of competitiveness, he applauded the way in which the Competition Commission had dealt with price gouging.

Mr Mbuyane had a clarity seeking question regarding the Special Economic Zones and also the industrial parks. How far was the process? He also enquired about the Gambling legislation and the Copyright legislation. How far were those processes?

The Chairperson informed Mr Mbuyane that his time was up.

Mr Mbuyane was concerned that he had not had sufficient time to speak but the Chairperson explained that he was trying to manage the process.

Ms R Moatshe (ANC) asked about the  investment project of the President. Had that been implemented?

Ms N Motaung (ANC) congratulated the Department. Had the dtic conducted an assessment on how the lockdown had impacted investment? Had the dtic paid attention to the destruction of the rail industry?

Ms Hermans stated that the President should work on lowering the ease of doing business to below 50. What was the dtic’s assessment of the ease of doing business?

Ms Hermans suggested that maybe the pressure of the DA conference had got to Mr Macpherson. She suggested that the DG should explain about the ventilators in more depth. Mr Macpherson heard that ventilators would be coming in the next day or two but he simply said that they were not there when he had checked. If the ANC was to blame for all of the challenges that the country was experiencing in the economy, was he saying that the ANC was responsible for the economic downturn in Europe and US as well?

Ms T Msane (EFF), noting the investment in research, asked about the capacity of the Research and Development Division of the Department. What was the expenditure and how many people were employed in research? She saw that VW and Mercedes was doing so much, but when was a company going to manufacture South Africa’s own vehicles?

Mr Macpherson referred to a media article that showed the Gauteng Health Department had received only 36 ventilators. Health departments in provinces said that they did not need the ventilators as they had come so late. The project had been a complete waste of valuable resources. Members seemed to need a high dose of oxygen to understand the waste of money involved in the project to develop and construct ventilators.

The Chairperson noted that the Minister had provided full commitment and support before he had left.
Secondly, the issue of Covid-19 came on top of challenges in the country so the economic challenges were not only the result of Covid-19. He had received a report on the ventilators. He informed Mr Macpherson that the manufacturing of ventilators was currently in full swing.

The Chairperson reminded Members that the Minister had apologised for leaving early.

The DG again experienced connectivity issues.

Mr Khan informed Members that National Treasury was doing work on zero-based budgeting but at the moment the Department was using budget processes and a plan for procuring goods and services within the legislative framework. The transfer payments had been made to public entities and the IDC, the National Institute for Scientific and Industrial Research. Other amounts paid out, included transfers for membership fees with the World Trade Organisation, etc., and transfers to Non-Profit Organisations such as the Proudly South African programme.

The key focus for the research programme was to provide evidence-based research to drive the programmes within the Department.

Mr October responded to Ms Hermans and thanked her for the kind words. The dtic had done some work on making businesses more accessible. He explained that on the Biz portal, registration was integrated with the SA Revenue Service (SARS), UIF Compensation Fund, the B-BBEE Commission, and banks. The dtic was trying to assist with the registration of property deeds and was working with municipalities on that point.

He thanked Mr Macpherson for his support but he would not engage in the debate regarding the hard lockdown as that was a political debate. Likewise, the SAA bailout was above his pay grade, but he agreed that expenditure needed to be switched to industry as the R10 billion that the dtic had to work with was a very small amount of money to promote the economy and transformation. He would shortly inform the Committee of the programme in respect of the Gambling, Liquor and Copyright Bills.

He responded to Mr Cuthbert’s questions regarding the scrap metal process by requesting a debate on the matter with the Committee as it was a complex issue. The IDC was in good shape and the fundamentals were good. The financial downgrading of the IDC had been linked to the downgrading of the country. Mines were coming back after the Covid-19 shutdown.

Regarding Mr Cuthbert’s bang for the buck, he stated that R10 billion was a very small amount in the context of the work to be done but the Department was leveraging up to four or five times the budget through its programmes, B-BBEE, outsourcing, etc. The dtic was trying to create an entrepreneurial state.

Mr October thanked Mr Thring for his support  and welcomed the fact that Mr Thring had championed beneficiation but the challenges were big and the processes were only starting. it was a hard road. The only comparative country where transformation and integration had occurred was the East and West Germany amalgamation.

Mr Ocotber stated that the dtic intended to continue with its current policies, especially as they had recently started to bear fruit.

He thanked Ms Mantashe for her support. With respect to beef industry, the dtic would be putting a lot of work into the SEZ in the Eastern Cape and was working with the Premier of the Eastern Cape. The fact was that a beef processing plant would be included in the SEZ. He added that talks with Bridgestone Tyres were underway. The B-BBEE Commission could not be separated from dtic because the B-BBEE Act stated that B-BBEE had to be located within the dtic. However, the Department intended to have a look at the legislation governing the situation.

Mr October informed Mr Mbuyane that dtic was fully motivated and was completely honest in all its reports to the Committee. He explained to Ms Yako that the state could pay an active role in beneficiation, but, in terms of the law, it could not be the beneficiator. The dtic, and the IDC, had to help private companies in the new and growing green industries. Vodacom already deployed 300 of the fuel cells constructed in the manufacturing facility at Dube Trade Port, and there was the potential for an additional R1 billion contracts with the telecoms sector. It was dtic’s mandate to play a complementary role.

He agreed with Ms Yako that the United States and the European Union had engaged with SA about the Copyright Bill, although the EU was more supportive than the US, which was concerned about the breaching of US copyright laws.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Mr October assured the Committee that the Black Industrialist Programme would move to all provinces. The SEZs and Industrial Parks would be more active in the provinces

As he had explained to Ms Moatshe, the President’s investment project was beginning to pick up again, although Covid-19 had hit very hard, especially in the field of tourism

Mr October assured the Committee that the Minister was very active on the ground and had convened all the Master Plan meetings. The Minister was active in those Master Plans under dtic. He explained to Ms Msane that exports would increasingly come from SEZs. The dtic only provided structures and did not invest in the businesses. The real purpose of SEZs was to draw in private investors. He had only mentioned Ford and big international companies, but dtic was also trying to develop its own equity programmes. It had to be noted that foreign companies were good for investments and to drive international markets.

Mr Cuthbert asked about audit outcomes of entities that fell under the dtic. His question had not been responded to.

Mr October stated that in the previous year, the Department had produced 10 clean audits for itself and its12 entities. He had only just received the dtic audit results for 2019/20. The PIC had received a clean audit but because of the delay, the other audit reports had not yet been received.

The Chairperson stated that all written responses to questions that had not been responded to would be distributed to the Members.

Mr Cuthbert asked when Auditor-General audit reports would be available.

Mr October October stated that audit reports were coming out daily.

The Chairperson thanked the DG and his team.

Committee Programme for the Fourth Quarter 2020
The Committee Secretary explained that Mr Frolick, Chairperson of the Chairpersons’ Forum had provided information which needed to be examined for its impact on the Committee’s Fourth Quarter Programme and requested that the programme be presented the following day following that exercise.

Ms Hermans commented on the length of the programme for the following day and whether it was going to be possible to deal with everything.

The Chairperson explained that he had requested the Committee Secretary to present the programme as the first agenda item the following day.

Mr Macpherson asked about the National Lottery Commission (NLC) interviews.

The Chairperson stated that the NLC was in the 4th Quarter Programme and could be dealt with when the Committee addressed the programme.

Mr Macpherson was indignant that the Chairperson had cut him off without hearing what he had to say.

The Chairperson said that it had to be discussed the following day.

Mr Macpherson said that he respected the Chairperson and requested that the Chairperson respect Members and listen to them.

The Chairperson said that the matter of NLC was part of the programme for the following day.

Mr Macpherson asked if the Committee would be permitted to discuss the process of the interviews.

The Chairperson agreed that the process could be discussed. He hoped that Ms Hermans would support the process.

Concluding remarks
The Chairperson thanked the Members for their participation.

The meeting was adjourned.