Implementation of South African Furniture Industry Masterplan: engagement with Minister, DTIC & stakeholders; Committee Programme

Meeting report

Opening Remarks

The Chairperson informed the meeting that the Master Plan for the South African Furniture Industry was finalised in April 2021 to revitalise the furniture industry, which had been struggling in recent years. The industry offered an opportunity for small and medium-sized manufacturers to grow while creating jobs as it was a labour-intensive industry that added value to locally sourced materials. The purpose of the meeting was to engage with the detail of the Plan and to determine the progress and outcomes of implementing the Master Plan for the South African furniture industry. Minister Ebrahim Patel led the team.

Presentation of the Furniture Industry Master Plan by the Minister of Trade, Industry and Competition

Minister Patel introduced a delegation from the dtic, led by the Acting Director-General, Shabeer Khan. He had invited a few representatives from the furniture industry led by Mr Penwell Lunga, chairperson of the South African Furniture Initiative (SAFI), to be present for the discussion. SAFI brought together all the private sector players across the value chain and organised labour. In addition to Mr Lunga, were representatives of one of the two trade unions that were partners in the Master Plan, Mr Walter Dyers, the General Secretary of the National Union of Furniture & Allied Workers SA (Nufawsa) and Mr Jonathan van Rooyen, Regional Organiser, Nufawsa.

He noted that furniture retail was a key means by which local products reached consumers. Several retailers had joined the Master Plan and one of them was the Lewis Group, which represented the retail part of the industry in the meeting in the persons of Mr Ashley Van Reenen and Mr Paul Normington. The Industrial Development Corporation (IDC) and the National Empowerment Fund (NEF) were also representatives.

The Minister began by returning to the inaugural State of the Nation Address of the current administration, where the President spoke about a reimagined industrial strategy for South Africa. He had spoken to the Committee previously on key elements of that reimagined industrial strategy. The Furniture Industry Master Plan was part of the implementation of that strategy. There had been extensive engagements between the government and the key industrial players. Those engagements had taken place during Covid, resulting in the overall framework of the Master Plan being endorsed earlier in the year. Some weeks ago, the executive oversight committee held a further meeting with the parties to clarify the framework of the industry Master Plan. The next step was implementing and strengthening timeframes and specific deliverables as they all learnt by doing. The Master Plan had been developed to address a number of serious challenges facing the industry to ensure its long-term sustainability. It set out a vision. It had several implementation pillars. And critically, it was a forum where there was a regular engagement between the parties focusing on addressing the day-to-day challenges that held back growth in the sector.

He added that the Committee had been briefed in the past about the industry Master Plans and referred Members to the Clothing Textile Footwear and Leather Master Plan, the medium or heavy industry Master Plan for Steel and Engineering, as well as Automobiles and Components, Food Industry, Poultry, Sugar, Services Sector and Global Business Services Master Plans. While those were the formalised arrangements, the Department also had many active industry engagements and partnerships in the medical and pharmaceutical sector, the film industry incentive, and renewable components.

The Minister referred to the slides that provided a snapshot of the furniture industry. He noted that over 90% of the industry consisted of SMMEs employing less than ten people. The Masterplan sought to improve the competitiveness of those firms through focused measures. A particular focus would be to grow and identify Black industrialists in the major value chains and address links to markets. They included opportunities in the built-in cabinet and kitchen sector through to the increased residential constructional projects in the provinces. Action to date included:

-Reducing input costs, such as a rebate on warp knit fabrics used for upholstered furniture;

-Improving raw material supply;

-Funding to promote competitiveness and structural transformation,

-Promoting local demand and consumption:

-Promoting transformation;

-Curbing Illegal Imports.

The high point of output by the sector, as measured by StatsSA, would have been from 2006 through 2008. That was followed by a dip as a result of the global financial crisis, recovery, and then a challenge that the sector faced due to imports, a sharp decline in 2020, followed by a sharp rise in 2021.

Youth employment as a percentage of total employment fell during the Covid period but had recovered quite sharply and currently constituted close to half the total employment in the sector. The industry was focused in Gauteng but with quite a significant industry in North West, Limpopo and the Western Cape, and a smaller footprint in the Free State and Mpumalanga. It was quite interesting that the Eastern Cape, which was quite a large province, appeared not to feature at all as a significant employer in the sector. Coming to exports, the main tariff lines by value were a tariff line called ‘other furniture and pots’, followed by ‘mattress supports and mattresses and bedding’, and finally, ‘seats’.

The Minister pointed to a slide showing important components of the industry: skins from animals, cotton from cotton farms in South Africa, the polymer-based sectors of the plastics industry, the wood industry, paints and adhesives, steel for springs, etc. Beneficiation of local products was critically important. The sector provided a relatively easy entry into manufacturing as capital spending did not have to be huge, for example, the auto industry or much of the steel industry. It was a sector well geared to bringing in smaller businesses and there was an opportunity to foster furniture manufacturing in many more districts across the country. There were opportunities for more trade in furniture on the African continent and the African Continental Free Trade Area had agreed on provisions for furniture rules of origin. SA had a trade agreement with the European Union that granted preferential access for goods made in South Africa and there was also access to the US market for certain furniture products under the African Growth and Opportunities Agreement. The Minister provided extensive data on the international furniture industry and international trade, but localisation would be driven by proudly South African online stores, hotels, private hospitals, etc.

(See presentation)

Minister Patel requested that the industry representatives say a few words.

Industry Input

Mr Lunga explained that SAFI was established by the industry bargaining councils after having experienced several closures of companies, resulting in massive employment losses in the sector. SAFI had taken on the challenge, rebuilt, and come back stronger. SAFI supported SMME development and had a very strong connection with the rural economy of the country, a close association with the forestry industry, and manufacturers in various parts of rural South Africa. SAFI created an opportunity for value chain alignment and support and intended to create opportunities for massive capital investment. The sector was most definitely aligned with the goals of government's industrial strategy and welcomed the opportunity of working with the government and taking on the challenge of rebuilding the sector in a manner that was in line with the government’s industrial strategy policy. The current phase was about rebuilding the sector, which the Minister had articulated. SAFI welcomed the enabling environment government was creating and would take on the challenge. The Minister had articulated the fact that the government had made various resources available, in terms of skills and policy support, to SAFI to ensure that it was in a position to take on the challenge head-on.

Mr Langa emphasised that there was no way that his organisation would give up. It represented a sector that presented so many opportunities. He welcomed the opportunity to answer questions and be part of the solutions that Members put forward and other stakeholders.

Mr van Rooyen stated that Minister Patel and Mr Lunga had covered most of what organised labour had wanted to say. He added that the Union was also represented on the SAFI board. The Union was fully aware that there was no silver bullet to assist the challenges it faced but believed that the Master Plan would have benefits on multiple levels, including the social plan. It was a good vehicle to assist Union members in overcoming all the major challenges facing South Africa and the furniture industry. The challenge now was the implementation, which would take a lot of effort. But he needed to say that with all the great things that all stakeholders were putting effort into and a lot of effort, they could make things work.

Mr Van Reenen fully supported the government's initiative and retailers would continue to support local manufacturers. Retailers were working very closely with the dtic and the Master Plan committees to discuss the industry challenges and some of the issues they had as retailers. He assured the Committee that the retailers worked closely with SAFI regarding how the sector could proceed. Retailers continued to procure more and more local products and were fully on board and working alongside various stakeholders to achieve the desired goals. He was happy to answer any questions.

Discussion

Mr M Cuthbert (DA) stated that the position of the DA on the vertical industrial policy pursued by the government was well known. The DA believed it was not the right way to go about things as the party believed in a more horizontal industrial policy that looked to improve network infrastructure, improve energy supply, and ensure that the regulatory environment was correct to generate growth and stimulate economic activity. He would not go into that kind of detail again. However, he asked the Minister, firstly, whether there would be any other tariff measures, aside from the rebate to be granted to industry players before the import of certain materials. Exactly what kind of tariff protection would that be and whether there were any possible applications for ITAC (International Trade Administration Commission of South Africa) concerning any kind of duties to be attached to any items.

Secondly, Mr Cuthbert said he had also been made aware of potential international investment in the sector, but the investors had been turned away by the localisation requirements. International players were saying that they were willing to localise the value chain after the initial bidding period and ensure a stable and reliable supply of certain goods at a local level. However, he had been told that the proposal was rebuffed by the Department and the Ministry. Was that going to be the attitude moving forward and would there be a blanket block on any new foreign direct investment in that way?

Having noted how the Minister had to renege on his commitments to the poultry industry, in terms of the proposed additional tariff protection that was going to be provided, did that have implications for the IDC which was funding a series of those projects based on tariff protection and were having the protections thrown out because of changes to the policy environment and the regulatory environment from what was initially agreed upon? Aside from the Master Plan, were there any agreements with individual companies to commit to creating a certain amount of jobs and zero cost increases in particular lines, as had been done in other industries? Did that interfere with the independent work that ITAC should be doing, i.e., what the DA would class as ministerial interference in what should otherwise be an independent process?

Mr C Malematja (ANC) applauded the Minister’s initiative. South Africa had long ignored its very good infrastructure initiatives which would allow the country to stop relying on foreign investors. He referred to the forestry industry that could create jobs and ensure that SA competed with other global entities by producing and processing its own products and taking them to the market. The Furniture Industry Master Plan would change the entire setup. He asked how the Department intended to ensure that localisation did not increase prices in the furniture industry. Was there any scientific evidence suggesting that implementing localisation policies had negatively impacted the price of goods within the sector?

Ms R Moatshe (ANC) asked what measures had been adopted to ensure stakeholders complied with localisation. The presentation showed that there had been a steep decline in employment in the sector since 2018. How had the Master Plan mitigated the continued decline in the sector?

Ms N Motaung (ANC) noted that the furniture sector was one sector where the poorest of the poor benefited, especially in job creation. She noted that importation in the sector had steadily declined in the fourth quarter of 2020. How had that improved the manufacturing capacity of local industries? Has there been any direct benefit for the South African economy regarding job creation? Noting that SMMEs were a key driver of development and opportunities in the furniture industry, what benefits had the SMMEs derived from the Master Plan to date? How many SMEs had benefited directly? And how many jobs had been created?

The Chairperson hoped that Dr Tshwaku had taken notes from his predecessor, Ms Yako, because she had been very passionate about the Furniture Master Plan when she was on the Portfolio Committee.

Dr M Tshwaku (EFF) asked about the percentage of black ownership companies in the sector. What was the dtic doing to assist the black furniture makers in acquiring raw materials, because the Minister had said that the price of the raw materials was very high? If businesses bought raw materials at very high prices, it would mean that they would not be able to charge competitive prices. Those who owned the means of production, those who owned the forests that made the planks were able to make the furniture. So those who owned the land and owned the trees controlled the industry. Would it be possible to see black players coming into the market and also offering competitive prices? His point was that those who owned the land and the minerals closed out the black industrialists in terms of getting the raw materials. Those who own the land will be the ones who own the trees, and they will be able to manipulate or monopolise the raw materials to make furniture. How could the Minister sort that out?

Dr Tshwaku asked the Minister to send the Committee the list of the black industrial players in the sector. Who were they, just for interest’s sake? Also, could the Minister send the list of the white company players in the sector? Maybe that would talk to the question of the percentage of participation in that sector. Did the Minister think that the raw material and the market for the furniture were monopolised? Was there a sort of resistance against black industrialists or maybe sites of resistance to the transformation of that sector? What were the decisive steps or concrete steps that the Minister was taking? Was he taking the radical steps necessary to be able to transform the sector and did he have any timelines? The Minister always came to the Committee saying that transformation was needed. People were doing their best to do that, but the transformation was not happening. Those who owned the means of production were closing out the Black industrialists. How was the Minister going to be helping those guys?

How was the dtic assisting the Black players to export furniture? Dr Tshwaku asked if he were a furniture manufacturer and needed assistance to export, would the dtic be able to help him? Would the Department also be able to identify a market out there internationally so that he was able to export his furniture? Dr Tshwaku said that a Black furniture maker, he had contacted had said the Master Plan did nothing to help him. So, what was dtic doing in the sector to transform or give Black industrialists, especially those who were manufacturing furniture, a chance to supply export markets?

Mr W Thring (ACDP) commented that if anyone failed to plan, one planned to fail. That was apt when it came to the furniture plan so, it was important to put plans together. The ACDP, to a large extent, had been supportive of the master plans that the Department had come forward with and certainly was hopeful that the Furniture Master Plan would do what it intended, i.e., to create jobs. One of the challenges in South Africa was that businesses were moving more towards capital intensity rather than labour intensity. So, those sectors like the agricultural sector, which was fairly labour intensive, and the Furniture Master Plan could tap into the areas which required labour intensity; the ACDP would support that.

The second aspect that interested Mr Thring was the aspect of beneficiation where SA could use its natural resources, even if it was cultivated in timber plantations, which would create more jobs if the industry continued to grow. It was a positive move regarding beneficiation, looking at what could be done to increase the value chain. His concern was the trade imbalance within that particular sector, but obviously, it might be even on a national scale regarding all sectors, particularly with China. Over R1 billion worth of furniture was being imported from China, and SA’s export, in terms of furniture globally, did not even match just that which was coming from China. How was the Minister planning to address that kind of trade?

The Chairperson asked, as a consumer and thinking of the last piece of furniture she had bought at one of the major retail stores, why nothing indicated the origin of furniture, unlike clothing which would give the country of origin. The clothing showed that it came from Country X, but the furniture did not indicate that it was manufactured in South Africa. That was a matter of branding. The Minister had spoken about working with Proudly South Africa. He also mentioned that the Department was working closely with commercial banks, but what type of support was the IDC and NEF giving the industry? Their representatives were on the platform and observing, but it would be good to know exactly what type of support they were giving. Was the Master Plan at the level of implementation or was it still in the planning phase?

Minister Patel stated that Mr Cuthbert had made the same points in previous meetings, so he would repeat what he had said before. On the vertical versus horizontal industrial policy, he suggested that Mr Cuthbert should get out a little bit more and look at what was happening in the world. The Minister had just met with a number of trade ministers from different parts of the world and they all recognised that infrastructure was critical. Increasingly across the world, countries were doing things to identify sectors with the potential for competitive advantage that could unlock the supply chain challenges they were seeking to address. The practice in the world was to combine the vertical and the horizontal approaches. Even in South Africa, the different provinces did the same. The Department had received requests for support from the Western Cape based on sector-specific measures. The party that Mr Cuthbert represented was in power in the Western Cape and followed, on a smaller scale, exactly what government was doing nationally.

Concerning the question of tariff measures, he would look at the evidence when the industry put forward an application and if that application made sense, if there was a balance of jobs being created for South Africans, if there would be an expansion of SA’s GDP, then he would support it. The Minister could, consequently, not give a direct response to that question.

The Minister asked Mr Cuthbert to divulge the name of the investor he had referred to and what the challenge was because he did not know of such an investor.

Mr Cuthbert replied that he did not want to pick out any particular company, but he would say that it was a European furniture company that had wanted to invest in the country and, from his understanding, there was a rebuff or rebuttal of the investment. He just wanted to find out if that was the case and if that would be the general attitude towards anybody who wanted to invest.

Minister Patel insisted that Mr Cuthbert supply the name of the company so that he could give a very concrete reply right there.

Mr Cuthbert said that he would not pick out a particular company, because there were implications related to that. That was why he had asked the question in a more general sense. He was sure the Minister could respect that. He would be happy if the Minister could answer the question, but if he declined to do so, he respected his right not to answer.

Minister Patel wanted to answer the question, as long as it was a short question. He knew of no such example. It sounded to him that it was not possible for that to happen because if a furniture investor wanted to set up an operation in South Africa, there was no localisation requirement that the investor would need to adhere to. One needed to avoid just putting out storylines that had no substance. If there was substance, if a particular company had complained, Mr Cuthbert should raise it with him. He could provide the name in confidence if the company wanted commercial confidentiality. But there should be less speculation as the basis for those kinds of things.

The Minister noted that Mr Cuthbert said he had decided on the poultry tariff against a commitment to that sector. He advised Mr Cuthbert to familiarise himself with the detail of those things. There was benefit to factual conversations in a Committee meeting but that was speculation and mischaracterisation, which was not helpful. There was a commitment given to the poultry industry that government would review and put into place changes to the aggregate level of duty. When the government had done the work and ITAC considered it, ITAC implemented what it felt was an appropriate duty. That was in February or early March 2020. That duty was still in place and had not been changed at all. There was the ordinary ad valorem tariff, then there was something called an anti-dumping duty and the anti-dumping duty was something completely different that applied where there was a factual assertion that an industry was disrupted due to a trading partner providing products to South Africa below a true market price. ITAC did significant investigation and came up with what it believed was compelling evidence of injury and dumping involving a few countries. ITAC had put that forward and having considered the matter carefully, he had agreed to the application. He had postponed the date of implementation to take into account the massive disruption in food markets in the wake of the war in Ukraine, which he believed showed responsible governance and a government that was able to take the facts into account. It was the nature of trade-related decisions that they were polycentric. In other words, governments took several different policy considerations into account. A policymaker that was purely an ideologue who said he just wanted free trade and the lowest tariff possible, did a disservice to what was required of a policymaker. A protectionist said every application had to be agreed to and he would simply put the tariffs up to the highest level possible in every instance, but he would also not be doing his duty. He encouraged Mr Cuthbert to move out of the ideological corner into the world of pragmatism where those in the government took into account multiple considerations. He had raised the same issues in numerous previous discussions about tariff policy, and the matter had been dealt with quite extensively.

Minister Patel addressed Mr Cuthbert’s question of whether individual agreements with individual companies required those companies to increase jobs and limit the price increases. To the best of his knowledge, he did not recall such an agreement in the furniture industry affecting a tariff application. But if there were a tariff application, it might well be very sensible to have such a set of commitments by industry. Those were called reciprocal commitments that said when tariffs were increased on the strength of a business case stating that more jobs could be created if tariffs were increased. When companies said that, and the state, based on that business plan, increased a tariff, the government could simply increase the tariffs in the hope that the jobs would flow. Sometimes that was warranted on the strength of a particular case. Alternatively, the government could take a different view and ask for a binding commitment to increase jobs. The Department did the latter. By the time the Minister made a decision, he had considered all the facts, including what the Department and the investor had agreed upon, the impact on the industry as a whole, and how it affected the small businesses in the sector. He might also take a consumer matter into account and SA’s economic relationships with the rest of the world. All of those factors were identified and worked through. That was what governments did. Did that constitute interference? No, it did not, except for people who had an ideological commitment to free trade. The world had moved on. Countries looked pragmatically at those things.

The Minister appreciated that Mr Malematja had recognised the opportunity for South Africa to have a value chain that included farming, component manufacturing, furniture production, kitchen cupboards, etc. the actual fitting of the furniture, and retail businesses that sold that furniture to local consumers and in other cases, exporters who sold that furniture to the rest of the world. That was how the country could create economic value. The point was spot on.

Concerning prices and how to ensure a balance between local produce and cheap imports, he said that was at the heart of what a master plan sought to do. There were two options. Firstly, ITAC could simply take whatever tariff space in the WTO (World Trade Organisation) rulebook and increase tariffs to the maximum, making it difficult for any imported products to come in. However, on its own, the consequence would be price increases. The alternative approach that the Master Plan followed was to consider how South African-based firms could be more competitive, and a range of measures was available to do that. The Master Plan spoke about several of them. One way was to have a more competitive supplier of raw materials, so, there was a big investment by one of the big raw material suppliers to increase the output of the boards and they would pass the benefit of that to downstream users, in other words, to create a competitive supply of board in the South African market. But the other part of it was the fund that the IDC had launched. The dtic had committed R200 million and the IDC had committed R200 million. That fund would be a critical means to financing ways in which firms could upgrade their competitiveness to become stronger companies, able to supply quality goods at affordable prices. It was, of course, quite challenging. If it were an easy thing, then everyone in the world would be a manufacturer.

Unfortunately, he added, one was constantly competing with other countries that were also upgrading the ability of their furniture producers to get out there. The level of exports from China pointed to what the Chinese government had done over a number of years to find different ways in which they could strengthen the cost competitiveness of their products, in many cases following what Mr Cuthbert did not like, which was vertical policy.  In SA, the competitiveness fund was one element of support. But the state was not able to do all of that work as that was not the state’s core thing. There was some furniture production in the public sector, for example, through the Working for Water Programme, using alien vegetation, but the bulk of production took place in the private sector. It was private entrepreneurs with a good knowledge of furniture and who knew the market who got in there. The state’s job was to enable and support where it could.

Minister Patel admitted that it was a case of how the state could square that important circle, which was to promote localisation but do it in a manner that did not increase prices. There was no evidence that the localisation measures, as a whole, had increased prices. South Africa had gone to the extent where its input penetration was large. One of the features of neo-colonialism was that the African continent became the supplier of raw materials to Europe, Asia, and other parts of the world and Africa imported completed industrial products. And that was what Africa wanted to change, and it was not just a South African government's point of view; it was the view of every African government that the pattern had to be broken, and the way to break it was with the kind of policies that had been put in place in SA. The country was not simply a provider of raw materials to the rest of the world. But to do that, the state had to borrow the dynamism of firms in the country, support local entrepreneurs, and support young people getting into the industry. Competition was tough, and strong firms could not be shielded from internal competition. So not every business was going to succeed. There would be companies that succeeded spectacularly; built their businesses; employed many more people and gave a good return to the shareholders, but there would be companies that failed. The core of the Master Plan was to try to work in partnership with industry to see how the state could assist in upgrading the competitiveness of the local industry.

On stakeholders, he and his Department had sat down with the furniture retailers and presented a business case, or a commercial case, to localise and a social case to localise. He was very heartened by the fact that the furniture retailers had said, “Look, we get it, we accept that there is enormous value to South Africa, to our own businesses, if we can find a successful way, to localise.” They could see that the people who bought furniture at a retail shop needed to have a job. If SA became a nation purely of importers, consumers would get low prices but have no jobs. So, the retailers saw that it was a way of building the strength of the domestic consumer base. Also, there was value in a world with significant supply chain disruptions, to have a local supplier handy, around the corner or in a province nearby. But to do that, he emphasised the point that there had to be a way to upgrade the competitiveness of local industry and one way was a partnership between retailers and manufacturers. He had not set hard targets for each retailer but was giving retailers space to find partnership agreements and work on those. The Department’s job would be to try to evaluate the impact of that and to support and assist the parties in doing that.

The Minister stated that more than one Member had raised the question of employment data. During the Covid period, two phenomena pertained: the one phenomenon was a sharp drop in employment numbers; the second phenomenon was that in the StatsSA quarterly survey, there was a very significant drop in the response rate to surveys because StatsSA shifted at the time to telephonic interviews; they would phone people to ask if they had a job. StatsSA was reinstating the physical service where people went around, knocked on doors and asked questions. When that process was completed, there would be much more detailed information. He had put the employment data in the presentation with a bit of a disclaimer. The Chief Economist at dtic was looking at a database of information that could tell fairly rapidly what was happening in employment in different sectors. The employment drop could result from a survey problem or the actual closure of a factory or a series of factories or businesses.

He agreed with Ms Motaung that it was a sector where the poorest could benefit because it was both a labour-intensive sector and a sector where small businesses could come into the market fairly quickly. Setting up a small upholstery shop was much easier than setting up a small business in the steel industry. There were no current statistics that anybody collected on the extent of small business output but there was information on the number of small businesses and their aggregate output on a quarter-by-quarter basis. That was not a statistic collected by StatsSA. One of the task teams in the Master Plan would be looking at that information in detail.

The Minister explained that the task team on value chain data management (on slide 23) was aimed at trying to get some baselines to measure the impact of all the various elements of the Master Plan in each of the sub-sectors of the furniture industry and to provide a little bit more information to show the output of small business in different areas. He assured Ms Motaung that he would get the team to put the data together if that information was available. He informed Dr Tshwaku that the black ownership the Department was involved with was a much bigger project to try to map the extent of transformation in different sectors of the economy. It was quite complex to capture because there was no regulatory requirement for businesses to provide that information to the government, so a lot of it was done through surveys. In the run-up to the Black Industrialists Conference, the Department had done quite a bit of work and persuaded him that there were significant problems with the quality of the data. He had asked for a research project that would be able to give that kind of information. In contrast, better information was available on levels of economic concentration, and he was happy to make that available to Dr Tshwaku. The data was contained in work done by the Competition Commission. It showed where the bigger challenges and concentration lay in those parts of the sector that were more capital intensive. On the face of it, the Competition Commission did not see that same challenge of concentration in the more labour-intensive parts of the economy. It made sense that where there were significant capital requirements, it was going to be a bigger challenge.

He found Dr Tshwaku's question on the ownership of land and trees interesting. Some of the bigger farming concerns were entering into partnerships with small-scale farmers, including those farming communally owned land, and there was a commitment to buying all the timber that a community could grow, providing all the support, the seedlings, and everything that was required to do that. It enabled those small-scale plantation farmers to use the inputs given with a firm order to purchase the product at a given price. It was an interesting model to use land ownership as leverage to access markets because there was a shortage of trees or timber. He had proposed some amendments to the Competition Act, that Parliament had put into effect, on price discrimination on a broader definition of what was called ‘abuse of dominance’. As people complained and cases emerged, those cases would be settled by the Competition Tribunal and the Competition Appeal Court. That would create jurisprudence to guide the market.

The Minister told Dr Tshwaku that he had also seen a number of Black industrialists that had grown their businesses and were able to produce goods. Dr Tshwaku should have been at the Black Industrialist’s Conference. It would have given him an opportunity to see what black industrialists were doing. And they were doing quite a bit, especially in furniture. In that marketplace, people had a cup of coffee, sat in a meeting between customers and suppliers, and all of the furniture used in that marketplace was sourced from Black South Africans. And so, while it was necessary to open up markets, people should not talk themselves into a storyline that said there was absolutely nothing one could do and no differential market opportunities for South Africans. The nature of markets required the individual to be out there hunting for orders.

Concerning the retailers, Minister Patel had already stated that retailers had agreed that there was value for them, in committing to take more products from local players and each retailer would implement it as the Master Plan and challenge fund came into effect. As new board production came from the factories investing in board production and supplying the furniture makers, one could see the extent to which things could change. Before addressing the question of the trade imbalance with China raised by Mr Thring, the Minister thanked him for the ACDP’s supportive approach to master plans and the points he had made about the job intensity. Master plans and job intensity were needed in critical areas of the economy; clothing and textiles and furniture were examples. The Global Business Services was another example, but those sectors had to be complemented with sectors with a very high-value addition and contribution to the GDP, like the steel sector. The trade imbalance with China was at the heart of the challenge for localisation. It was about how to build the capacity of local industry so that an increasing quantity of products that were being imported, particularly from large exporting nations, like China, was made in South Africa. It was a challenge in many sectors, not only in the furniture sector. That was the heart of it. SA did not seek to cut itself off and close off trade with other parts of the world. It was about finding the right balance. Sometimes tariff measures worked, i.e., increasing the tax on an imported product, but in other cases, the price gap between the products from China and the product from South Africa was so large, that consumers bought the Chinese product. Competitiveness was one of the key things that had to be addressed in South African manufacturing. SA’s export numbers were not equal to the import numbers, although both on the export and the input side, numbers might be overstated because some imports might well be simply for re-export to neighbouring countries, even taking into account that the imbalance was glaring.

On the matter of country of origin labelling or branding, the Minister agreed that it was not something that was being done on a uniform basis, but there the Master Plan frame had led to discussions with retailers to see how they could bring locally made products to the attention of consumers. Proudly South Africa had an online portal that allowed consumers to discover local products, but if someone went to a furniture store, the person needed to be able to see that there. The Minister was interested in the views of the representatives of Lewis Stores on that point.

He said that the NEF would be a big partner in trying to support smaller businesses and Black-owned businesses, but he did not know the current portfolio of the NEF in the sector. Following the unrest in July the previous year, the NEF had pointed to a project where people were involved in producing coffins. While furniture was essentially for the living, ultimately, some were buried or cremated in a wooden product. The NEF was also finding ways in which a client could try to co-invest between the IDC-administered Fund and the NEF. That was a relatively new arrangement.

The Chairperson asked Mr Cuthbert to raise his concern while the Committee was still receiving responses.

Mr Cuthbert appreciated how hard the Minister tried to paint himself as a pragmatist when, in fact, his actions were otherwise. The Minister opted to lecture him about being a free market fundamentalist when the Minister failed to realise that it was publicly said that there was no clear binary between two positions in the modern context and there would be a bias towards the supply-side measures rather than demand-side measures. He might be of the view that SA did not have enough demand-side measures in place, but SA had neglected the supply-side measures for far too long, hence the structural economic problems.

Mr Cuthbert stated that there was a specific question that the Minister had missed and it was very possible that the Minister, whilst getting caught up in his soliloquy and trying to be right, had not listened to the question that he had asked. Did the projections made by the IDC, when they committed funding to a particular master plan and a particular business in an industry that was guarded by the tariff policy, consider whether tariff protection was provided, and the level of certainty that created, when considering the impact on the returns of the business? That was aside from considering operational matters. Were the IDC’s investments calculated into the tariffs that were granted? Was that a key piece of evidence used in an investment decision made by the IDC and the ministry itself? He did not want a written answer as they were on the platform to listen to each other.

The Minister thought the question related to what Mr Cuthbert called ministerial interference.

Mr Cuthbert agreed he had asked about the ministerial interference, but then he had added a subdivision to that question. That was why he had restated the question so that it was a little bit clearer to the Minister and he might now be able to answer it, if he was confused the first time around.

Minister Patel appreciated that Mr Cuthbert had clarified the question and separated it from the false hypothesis with which he had originally prefaced it. When he made decisions on key trade policy matters, he made those decisions while taking a number of considerations into account. The consideration that he would never take into account was whether the IDC was an investor in a business; the IDC had to be prepared to take that risk. If the IDC invested in a business where the business case was compelling and sound, then they would have the expected return but if they invested in businesses where the business case was weak, they could not rely on a special measure being put in place to support the IDC investment. The broad approach promoted localisation and tried to find opportunities in the domestic market. Before Covid, SA had imported R1 trillion worth of goods from the rest of the world. That provided a marvellous opportunity for South African manufacturers to go out there, find out those products and see which of those products they could produce in South Africa, and in a competitive manner.

The Minister also commented on the supply-side measures versus the demand-side measures. Supply-side measures were introduced by government. A demand-side measure would be something like tariff protection that would effectively protect the demand in a particular market in South Africa. For domestic players, a supply-side measure provided support or assistance to the productive capacity of a business, not the market. That could be any number of measures, like the availability of energy supply, transport, logistics systems, and so on. The measures could be targeted or in a particular area, like a special economic zone. For the furniture sector, the R400 million fund that he had spoken about provides support. Those would all be supply-side measures. And so, he was happy to see that Mr Cuthbert supported supply-side measures, and the Minister would like to welcome him to the club. If they were physically in a meeting, he would offer him a cup of coffee. It was good if Mr Cuthbert had seen the value of supply-side measures through their dialogue because that was what quite a bit of the Master Plan was about. The old notion that all one needed to do was to keep on decreasing the quality of employment was not a sustainable path. For any country, including South Africa, upgrading skills would create more value and that was the advantage of the current approach of blending both demand-side measures and supply-side measures.

Mr Cuthbert asked for the Chairperson’s indulgence to accept the offer by the Minister. The Minister had said that if Members had any issues they would like to engage with him on, he was happy to make himself available. He would like to take up that offer, as well as his colleagues in the DA. They could speak about those kinds of things directly because they were both interested in ensuring that the country could secure as much investment and create as many jobs as possible in the interest of the economy.

The Chairperson was pleased that there was progress in the engagement between the two.

Minister Patel was very happy with that and was looking forward to meeting with Mr Cuthbert in the interest of South Africa’s manufacturing capability and getting more jobs in the local economy.

Mr Lunga stated that he was not going to specifically refer to the Members’ questions. He would address them in general. One question was regarding the extent to which implementation had taken place relative to the various pillars of the Master Plan. He referred to export promotion measures to highlight a few things done together with the Department. He added that data had already been collated in terms of players in the sector currently involved in export markets and players with the potential to export. SAFI would like to implement measures jointly to facilitate export development. The dtic was involved in looking at the possibility of utilising the embassy infrastructure across various international markets and analysing the data across various markets to understand and unlock opportunities the sector could drive forward. SAFI and the Department would share various measures taken to address the raw material shortages in the sector. The sector had applied, particularly concerning school furniture, for steel rebates. When ITAC published the application, the Department had also got involved, particularly during Covid, when there was a very sharp supply shortage of particle board. Measures were put in place at the time to support the local industry through that difficult period.

Mr Lunga added that there were also measures in place, which he hoped the Committee was aware of, in the Forestry Master Plan. That Plan aimed to ensure that sufficient timber would flow through the value chain, opening up market opportunities, particularly in developed markets where they were going more towards green finished products. But for that to succeed, it was important to take a value chain approach, i.e., supporting the entire value chain so that SAFI members could capitalise on all of those opportunities. SAFI looked at South Africa's trade commitments with all of its trade partners just to make sure that whatever trade measures it asked the government to implement were in line with policy and in line with the legislative provisions which South Africa had incorporated following its agreement with various trade partners all over the world. SAFI also had the support of the IDC, and they worked well together.

He said that one of the questions that Members continued to raise was the availability of data on various issues in the sector. Because of its informal nature and broad fragmentation, unlike the automotive sector, the sector was not in a position to have readily available data for policy implementation or even for the players in the sector to make appropriate decisions. SAFI had initiated a process with the support of the IDC to address specifically that issue and he was certain that at the next meeting with the Minister, SAFI would be in a position to report on progress insofar as that was concerned. And so broadly, his message was simply that implementation was happening and there was a great deal of cooperation amongst various stakeholders to ensure the project was a success.

Mr van Rooyen stated that all questions that he could contribute to had been fully covered.

Mr Van Reenen responded to the question on branding locally manufactured products. The Lewis Group had been a member of Proudly South Africa for over three years. If one looked at its brochures, in-store or on the website, one would see that all locally manufactured products sold within its stores across its multiple brands were highlighted as locally manufactured products. So, the Group was already doing that. Secondly, to put everything back into its simplest form, the Lewis Group, one of the biggest retailers in furniture in South Africa, looked for quality products at competitive prices as that was often the differential in a highly competitive market. However, even within that approach, the Group continued to support local suppliers as best it could. That support was substantial, considering the scale and the skills required to supply a group of that size. It had always been the ethos of the Lewis Group to grow SMMEs in South Africa and would continue to do that. That was the retail perspective. As to the bigger picture of the Master Plan, he had earlier stated that retailers supported it and would continue to do so.

Minister Patel appreciated all the comments made by the Members of Parliament. His team was working hard on the Furniture Master Plan. Although it was a challenging environment, some positive stories were coming out. Mr Lunga had referred to the kind of steps that had been taken to rebuild and strengthen the furniture manufacturing industry. He had noted that Committee Members had asked him and his team to focus on jobs, greater levels of small business opportunities, beneficiation, a bigger portion of exports, and deeper levels of localisation in the economy. The global environment was still troubled, but the team would work in a very close partnership to unlock the opportunities available.

The Chairperson thanked the Minister and his team, hoping that, despite the challenges, they would try to create as many jobs in the sector as possible.

Consideration of the Fourth Quarter Committee Programme

The Chairperson reminded Members that the proposed programme remained flexible and open to any changes that might be necessary for the fourth quarter.

The Secretary presented the draft programme for the Committee's consideration, noting that the Committee would be in recess until 11 October 2022. Highlights of the quarter included the workshop on industrial policy and beneficiation that the staff hoped to arrange for 18 October 2022. Much of the quarter would be occupied with reports from the Department and its entities.

Mr Cuthbert stated that it was nice to see widespread coverage of some very important issues. There would be no disagreement from his party on the programme. It was a progressive programme. Concerning Committee business, he had sent a letter requesting a legal opinion. He asked when he could expect a response to that letter so that he could get an understanding of the view of the Chairperson.

The Chairperson responded that the first PC Secretariat meeting (after her leave of absence) was scheduled immediately after the current meeting and Mr Cuthbert would receive feedback after that.

Dr Tshwaku suggested that the programme include a status report on the South African Bureau of Standards.

The Secretary pointed out that the programme did include a briefing from SABS.

The Chairperson agreed that it was important to keep a check on the two entities that were under administration.

Consideration of minutes

The Committee Secretary presented the minutes of the meetings held on 23 August, 24 August, 30 August and 31 August 2022 which were unanimously adopted without amendments.

Closing Remarks

The Chairperson informed Members that, after serving Parliament for 28 years, of which 23 years were in the Committee section in various positions and different committees, Mr Tenda Madima, one of the Portfolio Committee’s two Committee Secretaries, had attended his final meeting that day as he had retired from Parliament. He had served the Trade and Industry Portfolio Committee diligently for eight years. She wished him all the best in his retirement and noted that he would finish his doctoral studies in Public Policy and Management.

Mr Cuthbert wished Mr Madima well in his studies and on his retirement and sent thanks to him on behalf of the DA for his assistance and contribution to the Committee.

Mr Thring stated that the ACDP shared similar sentiments, praying that his future would be richly endowed.

The ANC and EFF added their best wishes.

The Secretary reminded Members that Parliament would be in recess from the end of the week until 11 October 2011.

The meeting was adjourned.