Hon Deputy Speaker, hon Members of Parliament, colleagues and South Africans, especially the unemployed, industrialists and many people in the manufacturing sector, the Industrial Policy Action Plan, Ipap2, is no dream. We believe it is a reality capable of dynamically industrialising South Africa using manufacturing to drive it while generating millions of jobs.
The Portfolio Committee on Trade and Industry spent many weeks deliberating on Ipap2. It came to the conclusion that it is a radical shift to grow a developmental economy by taking a deliberate decision to ensure that investment targets the production sectors of the economy to arrest the decline in manufacturing and accelerate employment creation.
Within the context of a new growth path, Ipap2 focuses on value-adding sectors with the potential for high employment creation and growth multipliers. Indeed, it identified a number of constraints, among which are the following: exchange rate overvaluation and volatility; high cost of capital; failure to adequately leverage public procurement; monopolistic pricing of key inputs; a low skills base to support industry; aged, unreliable and expensive rail and port systems; and low productivity levels, currently.
The key overarching issues raised during the public hearings were as follows: employment creation; equity challenges; coherence between micro- and macroeconomic policies; and all of the issues that have been identified as constraints.
With regard to employment creation, will Ipap2 create 10 000, 20 000, 50 000 or 60 000 jobs? It will create million of jobs if it is implemented effectively.
The National Union of Metal Workers of South Africa, Numsa, welcomed the government's break from its neo-liberal economic orthodoxy in that it confronts the structural challenges faced by our economy. Many other stakeholders, in their submissions to the committee, argued - and this went across the board from unions, academics, businesses and industrialists - that no country has developed without a focused and well-resourced industrial policy.
Prof Patrick Bond asserts that the impact of the global financial crisis merely highlighted the existing and inherited contradictions of the neo- liberal macro- and microeconomic policies pursued. In fact Minister Davies, with whom we have a very strong and constructive relationship, acknowledged that the advances of the past 15 years did not bring about structural changes that would absorb the marginally unemployed people into new productive, income-earning activities.
Manufacturing has become the most productive sector, and, as I said, it is manufacturing that Ipap2 is highlighting. It is the biggest contributor of the production sector - 54,3% in 2008. But, it has been varied, and there is a steady decline in productivity and competitiveness. Due to all of those constraints I raised before, manufacturing, especially within the automotive, clothing and textile factory areas, has been identified as the engine of sustainable growth and job creation in developing countries.
In the submissions, we and many other people called for coherence between macro- and microeconomic policies and welcomed the reality that Ipap2 recognises this and that it will ensure that this coherence takes place.
Cosatu and Mr Jennings from the PG Group raised their concerns in respect of a stable and competitive currency. Cosatu called for the devaluation of the currency while Mr Jennings said - he reflected the position of a number of people who were exporting - that the current strong value of the currency threatened the export sector, particularly the automotive component, etc.
Public procurement and industrial financing will be dealt with by hon Radebe.
The committee called on government to significantly recapitalise the Industrial Development Corporation, IDC, and review its legislation and align it with the objectives of the developmental economy. In fact, as Business Unity South Africa, Busa, pointed out, the way it is currently legislated, it acts like a commercial bank.
The competition policy will be dealt with by hon Radebe, and hon Khumalo will certainly deal with the impact of standards, quality assurance, accreditation and metrology, SQAM, on developmental trade.
I can't cover all sectoral issues. Hon Radebe will be looking at minerals, iron ore and steel. But we went so far as even to bring in the green and energy-saving industries because there is absolutely no doubt that Ipap2 recognises the scope of the green industry to drive economic development.
The automotive sector itself has been growing. You will see this outside. The localisation content in vehicles that are produced by Volkswagen South Africa began at about 10% to 20%. Today it is reaching more than 70%. But the National Association of Automobile Manufacturers of South Africa, Naamsa, is concerned about the impact of the dispute between Kumba Iron Ore and ArcelorMittal South Africa.
The conclusion of the committee is saying that we will encourage - and we believe that Ipap2 also encourages this - regional dimensions here and promote regional integration. But it is also of the view that the transport system and logical infrastructure must be improved to support Ipap2. Telecommunications will note the shortage of critical skills and the like. Two or three of the key recommendations are that there is an integrative co- operative approach between departments and sectors.
In fact, there is absolutely no doubt that it is essential that the public and private sector work together. Of course, the fact that there was overwhelming support from those who came to the public hearings, ranging from unions to business, industrialists and manufacturists, simply indicates that Ipap2 has been too long in coming.
Of course, there is the issue of black economic empowerment, BEE, which is meant to broaden the base, upstream and downstream. The committee was of the opinion that the current tendency towards elitism and BEE must be surgically removed. Hon Speaker, I would like to thank all committee members for their active, robust deliberations here. The committee and all of us - opposition parties included - believe that the targeted outcomes that we dealt with and those that we believe Ipap2 generates can be achieved through this implementation. It is no dream. It is an achievable, implementable programme to which the entire Cabinet must give their wholehearted support. It cannot be limited. If it is limited it will cost us our development, and we will not achieve millions of jobs. Thank you. [Applause.]
Voorsitter, op 'n vraag van my in hierdie Huis aan 'n vorige President is ek verseker dat die regering oor 'n industrile beleid beskik wat enige uitdagings die hoof kan bied. Vandag weet ons dat die Industrile Beleidsaksieplan nie aan die verwagtinge voldoen het nie, en dat die doel met die Industrile Beleidsaksieplan2 is om die tekortkominge en uitdagings aan te spreek. (Translation of Afrikaans paragraph follows.)
[Mr S J F MARAIS: Chairperson, after I asked a former President a question in this House, I was given the assurance that government has an industrial policy that is able to handle all challenges. Today we know that the Industrial Policy Action Plan has not lived up to expectations and that Ipap2 aims to address the shortcomings and challenges.]
South Africa has lost global market share and was overtaken by Brazil as an important emerging economy over the last 15 years. This has detrimental consequences for us in Africa and in both South-South and North-South trade relations. The inability to attract foreign direct investment, to regain global competitiveness in strategic industries and to create sustainable jobs has become our Achilles heel.
The success of an industrial policy is not dependent on a once-off successful intervention by government, but on applicable and targeted support over a period of time. The main purpose of Ipap2 should be to speed up the process of structural change towards higher production and employment initiatives and to know when to adapt and/or terminate interventions as circumstances change or to rectify outright mistakes.
Ipap2 has identified 13 strategic sectors compared to the current 7. Most of these have shed jobs in 2009 - 870 000 to be specific. It also sets out seven policy objectives. However, there are no cost-benefit analyses or explanations linked to each of the favoured sectors. There are also no quantifiable and measurable objectives explaining the expected cost and impact of each intervention. The impression is that government has decided on the winners and leading sectors, which is contrary to the belief of the DA that successful industrial policies are always market-driven and private sector-led in partnership with government. The South African economist Jac Laubscher said that "industrial policy should aim at discovering the competitive advantages in the economy in close collaboration with the private sector instead of prescribing what they should be". Dani Rodrik of Harvard University said that "the real test for an industrial policy is whether governments can let losers go".
One gets the impression that some of the sectors made the list because they are either fashionable or ideologically attractive while others respond to strong lobbying from vested interests. Global investors are losing confidence in our credibility as an investment destination. The practical implications of the current black economic empowerment policy, as represented by the widely reported ArcelorMittal South Africa-Imperial Crown Trading, AMSA-ICT deal, the constant rumours about nationalisation and state corruption and the effects of the Green Paper on agricultural land ownership have added to negative perceptions.
In instances of successful global industrial policies, a focused and specialised approach was followed together with partnerships between government and big and small enterprises. Ipap2, in our opinion, is targeting too many diverse sectors with no real strategic thrust and targeted financial support in specific sectors to clearly lead the industrialised recovery. It ignores the fact that our strength lies in our diversity and in sectors where we can be champions, as well as the limited financial resources available. Dit wil voorkom asof geen werklike moeite gedoen is om die strategie uit te brei om vir spesifiek klein, medium, en mikro-ondernemings, entrepreneurs en koperasies te voorsien nie, en om te verseker dat die beleide van handel, swart ekonomiese bemagtiging en arbeid proaktief en op 'n holistiese wyse ondersteuning aan industrialisasie en volhoubare belegging bied nie. (Translation of Afrikaans paragraph follows.)
[It seems as if nobody took the trouble to extend the strategies to provide for specific small, medium and micro enterprises, entrepreneurs and co- operatives, and to ensure that the policies of trade, black economic empowerment and labour will provide support to industrialisation and sustainable investment in a proactive and holistic manner.]
Although Ipap2 provides for retail, financial and some service-related activities, its main focus is on growing the manufacturing sector. It is a myth that only mining, agriculture and manufacturing can be regarded as productive sectors. No mention was made of the possibility of utilising the service sector as a lead sector. Experiences in India have shown that service-led sectors' growth can be sustainable and be a leading economic sector. Today services are the largest sector in the world, accounting for more than 70% of global output, and we are not part of that.
Nie genoeg klem is geplaas op die finansile sektor wat noodsaaklik is vir ekonomiese groei en ontwikkeling nie. Die Suid-Afrikaanse finansile dienste sektor word hoog geag in die wreld en is ideaal om dienste te voorsien tussen Afrika en die res van die wreld. (Translation of Afrikaans paragraph follows.)
[Not enough emphasis is being placed on the financial sector, which is essential for economic growth and development. The South African financial services sector is held in high esteem around the world and is ideal to provide services between Africa and the rest of the world.]
South Africa has ample raw material, natural resources and low-skilled - mostly unemployed - labour. A key element of Ipap2 seems to be the importance of technological knowledge and capacity for which a highly skilled labour force is needed, which depends very much on an effective education and skills development regime, for which South Africa is not well positioned. Thus, Ipap2 is targeting an ideal labour force and not the one we have.
Other barriers Ipap2 is facing are the lack of foreign direct investments due to unpredictability and low investor confidence, low productivity and weak global competitiveness, a highly regulated but inflexible labour regime, limited availability of project funding, and the poor state of our transport infrastructure.
Ipap2 emphasised the importance of local beneficiation and how this will increase the local content of manufactured products, employment and foreign earnings. However, the reality seems to be different. For example, the Automotive Production and Development Programme is seen to be central to the success of Ipap2. The prevailing criticism is its highly mechanised nature and the very small local content in vehicles assembled, in some cases less than 30%. Companies like Volkswagen South Africa have set a target of 70% local content. However, it does appear that much of the raw material and semi-finished products are still imported and are judged to be 100% local content after some value has been added. Both Naamsa and ArcelorMittal South Africa confirmed that while South Africa has some of the best iron ore in the world, South Africa does not produce flat sheet metal to be used in the manufacturing of vehicle bodies.
Meer klem moet ook geplaas word op waardetoevoeging van Suid-Afrikaanse rou materiaal en om die arbeidsintensiewe voertuigkomponentebedryf as 'n globale kompeterende sektor te ontwikkel. (Translation of Afrikaans paragraph follows.)
[More emphasis should also be placed on value-adding with regard to South African raw material and developing the labour-intensive motor vehicle components industry as a competitive sector globally.]
Industrial development zones, IDZs, in the past were targeted and designed to drive specific industrial and export sectors. During the visit of our committee to Coega, it became clear that not enough priority and support are being committed to IDZs despite the enormous initial state investments made. The DA believes that export processing and job creation zones can be an effective mechanism that must enjoy targeted behind-the-border incentives. Such zones should be implemented in more rural areas where wage subsidies and tax incentives on profits and to first-time employees should be considered to also contribute to the economic development in those rural areas.
Agro-processing offers opportunities to effectively structure land reform through the utilisation of commercial productive land as well as existing production capacity, knowledge and expertise. This will add to rural development, strengthen the whole agrisector and contribute to food security, second tier agri-industries and their export capacity.
As we have learned from our last interactions with Eskom and the iron, steel, and automotive industries, there are still many stumbling blocks preventing Ipap2 from achieving the intended outcomes. We support the view of the committee with regard to the need for continuous evaluation of appropriate strategic industrial actions plans that will meet the demands of the time and will enjoy the full support and buy-in of government, labour, South African business and foreign direct investors. This will not only contribute to optimal employment and beneficiation in South Africa, but will assure strategic global competitive positioning, sustainability and an open-opportunity environment for all. Ipap2 must be seen as a step towards practical and achievable action plans that will contribute to the actual growing of our economy. The DA will continue to play a constructive role to develop the best options for our needs. I thank you. [Applause.]
Chairperson, Ipap2 stands for Industrial Policy Action Plan 2, which clearly means that there was another one before - Ipap1. Ipap2 is addressing the challenges we experienced in Ipap1.
Any government worldwide is not about the creation of jobs, but is about creating a conducive environment through policies and legislation that would enable the economy of the country to grow so that private companies are able to create massive numbers of jobs for the people.
During our public hearings as the committee, we were able to listen to and interrogate a number of sectors on how they plan to come to the party in as far as Ipap2 is concerned. They really raised some of the challenges they have. Some of the challenges were as follows: the exchange rate overvaluation and volatility; failure to adequately leverage public procurement; monopolistic pricing of key inputs; unreliable, aged rail and post systems; low skills base to support industries; and low productivity.
For this industrialisation plan to work, we need companies like ArcelorMittal South Africa and Kumba Iron Ore to be committed and do so as the nation expects them to do, and not as they wish. It seems that because they are connected in a high office, there's a free-for-all. Recent reports about ICT getting mineral rights and immediately selling them back to ArcelorMittal constitute proof that only the connected few so-called BEE companies can get the deals.
This government has demonstrated during the World Cup that it has the ability of focus on being timeous and delivering on schedule. It must show that same commitment in arresting the country's industrial decline. Everyone agrees that labour-intensive industries are the best to assist this country. But that should be put together with what we plan to do as a country in terms of increasing growth. This must not be for personal gain, but for the country as a whole.
We need to look at the clothing industry that has declined at this point in time, especially in the Western Cape. Programmes like the Motor Industry Development Programme, MIDP, that have worked for automobile industries, also need to be looked at.
At the present moment, the country is experiencing a serious political strike. I call this a political strike because many teachers and health workers are complaining that they want to go to work, but Cosatu is threatening them that they shouldn't. How can Ipap work if Cosatu, which is part of the tripartite alliance, is the instigator? In this case, government has come to the party by addressing the workers' needs. But Cosatu is not prepared to come to the party because this is not an industrial strike but a political strike.
I think the ANC, within its ranks, should look into sorting this matter out because for Ipap to work and for us as a country to create more jobs, we also need to move. It is very important for the country to look at these things because it is of no use for us to create Ipap when Cosatu is not party to that and when it is creating its own fights within the industry, not about jobs, but about positions they want in the ANC. In this case, they should really be part of the tripartite alliance and not part of another party because they are a part of creating those jobs. [Applause.]
This Ipap is not going to work if Cosatu continues to instigate people who really want to work. Many teachers fear going to work because they are being assaulted. It is not about the fact that they are a part of this. The ANC should bring the tripartite alliance to the party so that we can deliver to the people of this country and make sure that jobs are created. It is only on that basis that we are able to create jobs and not divide this country. Thank you, Chair. [Applause.]
Hon Madam Chairperson, Ipap2 represents, as it states, an action plan by the Department of Trade and Industry in attempting to create a platform for the direct and sustainable increase of manufacturing productivity within our country.
We are at an extremely delicate juncture, economically speaking, with fears of a double-dip recession looming and with some economies in the world already showing signs of contraction. A cluster-co-ordinated strategy must therefore be determined and implemented between the various stakeholders and government departments, as well as the industry if South Africa is to avert economic disaster.
The creation of sustainable employment being core to Ipap's programme must remain strongly within our focus. Unemployment levels which are dangerously high at the moment need to be addressed because of their dire socioeconomic implications, which in themselves are counterproductive to domestic growth.
Mechanisms which attract foreign direct investment into the manufacturing sector and will have the effect of bolstering both employment and productivity must be put in place.
South Africa's manufacturing competitiveness must be on par globally if we are to sustain the increase we have seen in our manufacturing sector over the past 10 years. Variables such as the very high costs associated with capital and its limited availability in this country, as well as unreliable and costly port, rail and road systems, coupled with very high electricity prices, do not make South Africa as attractive as other developing countries, such as India and Brazil.
The automotive industry has been identified as one of the core focus sectors for the current period. This is a sector which is expected to contribute an extra 150 000 jobs in the next 10 years, and is also a sector which avails lends to increased productivity as only 35% local content is presently used in motor vehicles manufactured in this country. Furthermore in this regard, Ipap2 must be assisted by national skills development in the automotive and other manufacturing industries. Trade schools should be readily available for learners countrywide who want to pursue a career in manufacturing.
In conclusion, the IFP would like to see a co-ordinated approach and the working together of all interested sectors of government in making Ipap2 a great success as herein lies the key to us meeting our future growth path goals. I thank you. [Applause.]
Hon Chairperson, hon Ministers and members of Parliament, the 2010 January 8 Statement of the ANC identified strategic development priorities which must be attained in 2010. These are speeding up growth and creating more jobs, decent work and sustainable livelihoods. To attain the objectives of creating more jobs, decent work opportunities and sustainable livelihoods, an inclusive economic growth path based on a comprehensive industrial strategy was agreed upon. This inclusive growth path was anchored on the following four programmes: the expenditure of the budgeted R787 billion on improving public infrastructure; tailoring fiscal and monetary measures in a way that complements trade and industry policies; preserving as many jobs as possible; and ensuring that funds meant to assist companies in distress flow to deserving enterprises.
The ANC also noted that the global financial crisis opened up space for a fundamental transformation globally and domestically. It is recognised that the unfettered free-market system does not have the capacity to address the serious social and economic inequalities in the world. The ANC recognises that the state must play an active role in the economy. The state must address the pressing challenges of unemployment, poverty and inequality.
During his Budget Speech, the Minister of Finance called for a growth path that envisaged the following key actions: creating youth employment; developing labour-intensive industries; maintaining public and private investment; generating an inclusive economy; striving to achieve low inflation and a stable exchange rate; and increasing productivity and competitiveness and attracting foreign direct investment. All these actions point to a government committed to creating a new industrial policy which deals with issues of equity, poverty and underdevelopment.
During the public hearings, the monopolistic pricing of key inputs in the steel industry was identified and the consequence thereof was quantified. For example, ArcelorMittal always received cheap iron ore from Kumba at cost plus 3%. This exclusive deal was meant to provide cheap steel for domestic consumption. Instead local consumers were slapped with an import parity price, which did not take into consideration that steel is a strategic industry. This led to increased costs for motor, canning and manufacturing industries.
Kumba also undermined the economy by exporting ore instead of processing it so that value-added products could be created. During public hearings, Prof S Roberts and Cosatu were of the view that all monopolistic firms which were involved in uncompetitive behaviour must be dismantled and additional competition enforcements enhanced. The committee is of the view that the Competition Act should be strengthened and capacity should be increased to give greater power to the implementing agency.
Since the ArcelorMittal and Kumba fight is bleeding the economy, we call on the Minister of Trade and Industry to revisit the principles which underpin the privatisation of Iscor, which are to ensure the viability and cost- competitiveness of local steel production and to ensure a competitive steel- pricing regime to support the development and deepening of value-added manufacturing products in downstream industries. The interdepartmental task team of the Ministers of Trade and Industry, Economic Development and Mineral Resources must conclude its work so that the economy can be spared. This is because when two elephants fight it is the grass that suffers.
The other issue that came out during public hearings is the leveraging of public procurement. Both business and organised labour have called for the overhaul of the Preferential Procurement Policy Framework Act and further called that procurements should be used as an instrument of industrialisation. This means that there must be a change from ad hoc procurement practices to fleet-type purchasing arrangements. For example, when Transnet purchases locomotives, it should purchase 50 of them instead of purchasing just five so that it can ensure that the majority of the parts that go into locomotives are locally sourced so as to ensure that more jobs are created in the value chain industries.
Business Unity SA, or Busa, and Cosatu have also called for the alignment of the National Treasury regulations with the broad-based black economic empowerment, BBBEE codes. Since the current BBBEE legislation does not have industrialisation and the creation of employment as its primary objectives, this legislation should be subordinated to the imperatives of industrial policy. This demands a legislative change.
The other challenge identified during the public hearings is the issue of high costs and limited allocation of capital. The lack of private capital investment within production sectors of the economy was highlighted in Ipap2. The acknowledgement that the cost of capital is high relative to our trading partners requires an approach that will allow government to be a catalyst to unblock financial impediments to growth and employment creation. This means that development finance institutions should promote a developmental agenda and not be as risk-averse as commercial banks. The development finance institutions must be able to provide financing at rates below the market. This means that institutions like the IDC should be regularly recapitalised so that they can attain their developmental mandate on a larger scale. This also calls for changes in the legislative framework of the IDC.
One of the fundamental problems which undermine our industrial policy and economic growth is the volatility and the overvaluation of the exchange rate. Dr E Wessels is of the view that a strong currency is not necessary to reduce the cost of imported capital goods in developing countries. He also stated that the inflationary consequence of depreciation has been exaggerated because the overall impact on the economy is determined by the ratio of nontradable prices to tradable prices.
The National Treasury is of the view that the exchange rate must depreciate in the long term and still advocates the reduction of dissaving and the inflation-targeting framework. The SA Reserve Bank is in favour of the gradual accumulation of foreign reserves and the facilitation of the development of hedging instruments which will assist in smoothing excessive rand volatility over suitable timeframes.
The committee is of the view that issues of volatility of the exchange rate, the interest rate and its impact on manufacturing should be addressed at the highest level of government. This high-level government engagement must be followed by a national indaba to promote the objectives of Ipap so as to secure increased participation by all stakeholders, for example all spheres of government, organised business and labour, civil society and academics.
Resources needed to fund Ipap2, like the R20 billion incentives made available by the Treasury over five years, must be used together with other funds, amounting to R787 billion spent on infrastructure.
The ANC has called upon the people of South Africa to work together to fight poverty and underdevelopment. Ipap2 calls upon us to put aside our political differences and work together as a cohesive force as we did during the Fifa World Cup. Hon Minister, President Zuma said during the national executive committee lekgotla:
The defining feature of this administration will be that it is a government that knows where the people live, which knows what the people think, and which acts fast on the issues they raise.
Hon Minister, the tribe has spoken. Let the chief's administration act accordingly. Thank you. [Applause.]
Chairperson, the committee report is a result of a committee - irrespective of party political affiliation - that has sensed the urgency of addressing the challenge of growing the economy in a manner that will lead to sustainable employment creation. The report reflects a pragmatic approach to tackling this challenge by supporting the use of industrialisation as a tool and leverage for growth.
Daar bestaan ernstige strukturele gebreke in ons land se ekonomie wat uitgewys is deur die afgelope paar jaar se werklose ekonomiese groei, waar die nuwe rykdom nie omgesit is in genoegsame werkskepping nie. Hierdie verslag probeer hierdie gebreke aanspreek deur erkenning te gee aan die behoefte vir 'n gentegreerde en sistemiese benadering tot ekonomiese groei en werkskepping. (Translation of Afrikaans paragraph follows.)
[Economic growth without increased job opportunities during the past few years has brought to light serious structural deficiencies in our country's economy, where the new wealth has not been converted into adequate job creation. This report attempts to address these shortcomings by acknowledging the need for an integrated and systemic approach to economic growth and job creation.]
It is enlightening to note that this committee has adopted an approach of "South Africa first" when it comes to responses to macroeconomic matters like trade, thereby seeking policy space within the international trade instruments which this country can use to achieve its economic goals without flouting international laws.
This committee, together with the DTI and other agencies concerned with the country's economic growth, must continuously investigate industrial and service opportunities as they appear on the horizon for investment and development. We live in a global environment where the innovation cycle is increasing at an unprecedented rate and information flow is deepening. Therefore, our ability to scan for opportunities and our ability to exercise expert choices must also be enhanced.
In order to unlock further value, we must release the labour market from restraints like affirmative action, arrest crony-based capitalism, stop cadre deployment and pursue an open and inclusive market, amongst others.
Die VF Plus ondersteun die idee van 'n vaardigheidsoudit ten einde 'n register daar te stel vir gebruik waar tekorte in die arbeidsmag bestaan, solank die werking daarvan in samewerking met die arbeidsmakelaarsbedryf plaasvind. Hierdeur kan ons weer geleenthede gee aan vaardige persone wat as gevolg van regstellende aksie nie geleenthede sou gehad het nie, maar ook sorg dat nuwe vaardighede gekweek word, waar leemtes bestaan soos blyk uit die oudit. (Translation of Afrikaans paragraph follows.)
[The FF Plus supports the notion of a skills audit in order to establish a register that could be used wherever shortages in the labour force exist, as long as it is implemented in co-operation with the labour broking industry. Through this we can once again afford skilled people opportunities they would not have had because of affirmative action, but also ensure that new skills are nurtured where there are deficiencies as revealed in the audit.]
If we can ensure co-ordination among all the role-players in the economic matrix, we will be able to ensure that the tide comes in to lift all the boats in the harbour. Then we must remember to untie the currently disadvantaged boats so that they too can sail into the sunset and prosperity.
Chairperson, the major cause of unemployment is a structural distortion of the economy which favours capital-intensive industries due to the monetary and industrial policies of the apartheid years. An economy that grows without creating sustainable employment opportunities for the majority of her citizens is not sustainable. An economy that relies on exporting raw materials without beneficiation is also not sustainable. The question is: What does this Ipap seek to achieve? Who are the intended beneficiaries? What distortions does it want to rectify? How does it achieve a balance between the primary and secondary sectors of the economy?
Ipap2 has been welcomed by business and labour as well as other stakeholders to bring structural changes through skills upgrading, agroprocessing and standards, quality assurance, accreditation and metrology, SQAM. Ipap2 recognises the critical need for skills upgrading to reach sustainable industrialisation, and it has listed a number of areas where specific skills development is required, namely: SQAM; standards writers; laboratory personnel and compulsory specification practitioners; metal fabrication and tooling industry skills; solar water heating; forestry, timber, paper and pulp furniture; business management; and efficiency skills for new forest growers and beneficiaries of land reform.
Ipap2 includes a number of interventions that focus on development plans relevant to certain sectors and improving such facilities. In terms of the advanced manufacturing sector, one of the interventions is to revive and upgrade existing training centres at state-owned enterprises and reduce bottlenecks of up to 18 months at testing facilities. This should assist in addressing the five-year gap with regard to 14 500 scientists, engineers and other technical skills.
A coherent and integrated skills development strategy must be developed and implemented to ensure that institutions of higher education appropriately align their academic programmes to meet the skills demanded by the industry. Government should ensure that institutions and sector education and training authorities, Setas, are adequately funded. Furthermore, they should partner with business to develop relevant on-the-job training experiences for the unemployed and for the youth to improve their employment possibilities and to promote continued learning for their existing employees.
Agroprocessing is an identified intervention sector that will contribute to rural development. The key reason for this is that the sector mainly uses primary agricultural products as an input. Some parts of this sector, such as packaging, are often situated in or near rural areas where the agricultural products are grown.
Agroprocessing also feeds into a number of downstream industries such as wholesale outlets, retail chains, restaurants, pubs, shebeens and fast-food franchises, as well as the hotel industry. Therefore, the prevalence of agroprocessing has a huge impact on both direct and indirect jobs as well as on food security because it comprises a highly diverse group of subsectors and industries, namely food processing, beverages, aquaculture, horticulture, medicines, aromatics and flavourings. The following subsectors have also been identified to focus on: the aquaculture and organic food sector, small-scale maize milling, fruit and vegetable canning and rooibos and honeybush products.
Small and medium enterprises and co-operatives should be direct beneficiaries of the agroprocessing sector development. However, the following issues are critical to ensure that they reap the benefits of such development: access to affordable financial support for capital and operating expenses; access to markets; knowledge of supply and demand; affordability of telecommunications; reliability of transport; and skills development support.
SQAM institutions are reliable institutions that ensure the integrity of new manufacturing industries and existing manufacturing industries. The SQAM institutions ensure that South Africa's standards are adhered to and that the market is not subjected to poor quality and cheap imports. They provide protection to consumers by ensuring the quality and safety of products, including with regard to health and environmental aspects, and ensure that they themselves are recognised domestically and internationally. Therefore, certified products are accepted.
Through the process of achieving international quality assurance standards, the development of the small, medium and micro enterprises, SMMEs, and co- operatives can be stimulated, which could lead to an increased demand for their products by larger enterprises that must meet standards and promote preferential procurement. The cost of being assessed for certification is a concern. The government should consider the cost implications for SMMEs and co-operatives and provide support to assist their development. Furthermore, standardisation with the SADC region can promote regional integration and broaden markets for South Africa.
For Ipap2 to be a success, the government should develop the necessary technical and managerial capacity in the fields of economics, accounting, engineering and, in general, management science. I thank you. [Applause.]
Malungu ahloniphekile, besicela ukuthi nithi ukwehlisa umsindo kancane. [Hon members, we request you to lower the noise levels.]
Hon Chairperson, hon members, the DA believes that the protection and creation of jobs should be an important part of the national agenda. We need to see all spheres of government working towards this goal. The revised Ipap is one department's response to this challenge.
But - and here we share the sentiments of the hon Kotsi from Cope - in an open opportunity society, the responsibility for industrial growth is not only the responsibility of government. In an open opportunity society, government should create an environment in which the private sector will be able to drive that economic growth.
South Africa has lost much of its industrial capacity over the last few years. The recession and the enormous number of jobs that have been lost have highlighted the fragile nature of the South African economy, and the hon Alberts of FF Plus has just referred to that. The good news is that every recession, by its very definition, is followed by a period of economic growth. The DA believes that it is of the utmost importance for government to make the structural changes needed by the economy now. This is needed so that we can avoid the constraints that hampered the economy during the last economic upswing.
The sad reality is that we have lost much of our skills base, including the ability to train sufficient numbers of artisans and others with the skills needed by a modern, growing, knowledge-based economy. The subperformance of the Setas is contributing to the current skills deficit. Government should also invest much more in infrastructure.
Parliament has dealt extensively with the negative effects of our failure to invest in power plants in good time. But there are other examples as well - examples such as our transport system, especially the railways and the harbours, that has not seen the capital investment needed to support long-term growth in industrial activity. Major developments are too often turned down or delayed, even at the local government level, due to capacity constraints pertaining to water, sewerage or road infrastructure.
Also, the way in which black economic empowerment is undertaken does little to instil investor confidence. This was recently illustrated by the alleged mistakes made in the awarding of mining rights to Imperial Crown Trading. It was clear from the oversight visits by the committee that government's support, both in finance and in the advice given to small entrepreneurs, leaves much to be desired.
Many industrial development zones remain underdeveloped areas due to the lack of incentive schemes. We therefore welcome the tax incentives that we have learned of earlier today - incentives to the value of R20 billion over the next five years. A DA-run administration would improve the ability of government to create those opportunities that mark a truly open opportunity society. I thank you. [Applause.]
Chairperson, this Parliament is really quite a strange place. You know, when we are in the portfolio committee, we all agree on almost everything. And then we come into plenary and suddenly we find major differences. For that reason, I want to talk ideology, and I hope that the hon leader of the DA will forgive me if I talk ideology. You see, we are told by the hon Marais that successful industrialisation is always market driven - I hope I got that quote right because that's the note I took. And then the hon Kotsi said that it's the private companies that create jobs, and then she went on to attack Cosatu in a way that we have not heard for many years. I think even under apartheid, people didn't attack the trade unions quite so vigorously!
So, what is this ideology that we are talking about? Suddenly it is the private sector that is going to do the job. Let me tell you about the private sector in South Africa. Firstly, the Business Report reported on 30 July 2010 on the ease of doing business. It reported that South Africa has a better ease of doing business than Argentina, Brazil, Chile and China. South Africa scored higher ... [Interjections.]
Where's the ideology?
The ideology is that this government and this country are very friendly to business, right? But - and here comes the but - the exports of South Africa with regard to industrial output are much lower than the countries I mentioned. So, the ease of doing business is high, but the consequences are low.
Secondly, Wits University reported in Business Day on 10 August 2010 that in 2007, R450 billion of South African wealth went abroad. This is the private sector. It is not the state that sends the money overseas.
Thirdly, Business Day of 19 August 2010 reported that in 2008, South Africa imported R5 billion worth of machine tools. Now, if you say to me that the private sector is the sole solution or even the main solution, I'm afraid I have to disillusion you because a few months ago Prof Ha-Joon Chang of Cambridge University - he is a South Korean and an expert on the East Asian tigers - came to Parliament - right here - and gave a talk in the Old Assembly. I can do no better than to summarise what he had to say.
The advice he gave us is that we need a fundamental transformation of the productive sector of South Africa - Ipap. Exactly! He didn't know about Ipap. But he said "fundamental transformation of the productive sector", which, of course, includes the private sector.
Then, he said that the enormous success of East Asia was due to the following: one, aggressive state intervention; two, the directing of investment to particular sectors in which the state also helps to direct; and three, trade protection, subsidies, regulation and state ownership. Those were the policies which brought unprecedented growth to South Korea, Japan, Taiwan, Malaysia, etc.
So you see, the private sector ... [Interjections.] Yes, of course, we are all for the private sector. By the way, in the portfolio committee hearings, the private sector didn't talk the language of the DA and Cope. On the contrary, they were totally in favour of Ipap and they were totally in favour of strong state intervention because without strong state intervention, the private sector does not push the way it should.
Between 1950 and 1980, South Korea experienced 6% growth over the whole period. The result was that income doubled every 12 years. The result of that - listen carefully - was that in 1961, per capita income in South Korea was $80 per head.
Tell us about North Korea.
I will tell you about North Korea tomorrow. [Laughter.]
So, per capita income was US$80 per head in 1961. Today it is US$28 000 per head in South Korea. That's the result, and it is the result of the same policies that are in South Africa. [Interjections.]
Listen quietly because you were around during that period.
In South Africa in 1961, our income per capita was US$400, and it is now US$3 000 per capita. In South Korea it is US$28 000 per capita. So, who has done better? South Korea has shown the way for us to follow. Indeed, Ipap is built very much on the kind of interventions that South Korea accepted.
We talk about the developmental state. We don't talk much about the private sector, but now, in the ANC, we talk about a developmental state. What is this? South Korea adopted the policies of a developmental state, which meant planning, co-ordination and sectoral industrial policies. Peculiarly, France has done the same. Scandinavian countries have done the same. What they did is what Ipap is doing - identifying strategic industries, technology, research and development, and upgrading where necessary.
The state does the planning and co-ordination, and the private sector implements. And you are quite right. The state creates the environment - I think you said the same thing. But you see, it is neither a capitalist state nor a business state. It is a developmental state that provides that environment. That's essential.
The other thing they did was implement protectionism. The United States was the most protectionist country in the world in the last century. They had very high tariffs, and they grew behind the tariffs. Why can't we, in a modest way, also apply protectionism?
Prof Ha-Joon Chang told us that South Africa has a strong base. We have the IDC, the Development Bank of SA, or DBSA, and state-owned enterprises. He also said, DA, that we have a strong political base as well. The ANC is a strong party. You see, you need a strong ruling party in order to rule and to rule effectively. Ipap is actually based on a strong ruling party, and that's what is sitting over here. Prof Chang said to us that we can do the job.
Finally, he talked about human capability. You know, very often Harvard professors and so on tell us that our capability is low. Let me tell you what Prof Chang said. He said that at the beginning of industrialisation in East Asia, their human capital base was lower than that of South Africa, and now it is much higher. So, you see, South Korea's level of literacy in the forties was lower than that of South Africa during the same time. But today they have massive engineering and massive technological human capability. The lesson in all this is that we must put Ipap in place. We must do all the necessary things, and we need a good developmental state to do it. Thank you. [Time expired.] [Applause.]
Chairperson, I would like to start by thanking all those members who made, mostly, constructive and thoughtful contributions during this debate. I would also like to appreciate the work of the portfolio committee, under the chairpersonship of Joan Fubbs, for organising public hearings and finalising a comprehensive and excellent report, which succinctly captures most of the salient points made by no less than 38 stakeholders of a very, very high calibre during the course of those hearings.
The parliamentary hearings and the report itself have confirmed something that we ourselves have discovered in ongoing, extensive consultations with key stakeholders, both in business and in labour - that there is overwhelming support in this country for the objectives, analysis, diagnosis and direction of the policy proposals included in Ipap2.
As we have said repeatedly, we regard Ipap as a rolling action plan and a living document. Through ongoing consultations and engagements, we plan to amend and improve our Ipaps in the process -as we describe it - of learning by doing.
Ipap is one of the platforms of the new economic growth path which is designed to place us on a qualitatively new, more labour-absorbing growth path. Ipap is rooted in the perspective which argues that we need to make structural changes in the trajectory of accumulation if we are to reduce the unacceptably high levels of unemployment in this country, and with them poverty and inequality.
Ipap identifies a number of constraints which have led to a situation in which the productive sectors of our economy have grown at only about half the pace of consumption-driven sectors. It proposes a number of ways to address these constraints. We have to work for the success of these policies and programmes against the backdrop of a considerable external shock, whose impact on the industrial sector and on jobs continues to be severe.
The global economic climate is characterised by great uncertainty. Although it appears right now that the world economy is moving out of recession, the extent and the nature of the recovery is uncertain and fragile, at best, with growth in the developed world expected to be, at best, sluggish for many years to come.
This context of uncertainty and oppressed trading conditions for us with our established trading partners in the developed world, in our view, requires that we do things differently. It makes it even more imperative that the policy perspectives and tasks set out in Ipap are implemented.
Frankly I've heard nothing today ... and I think I'll have to make allowances for the fact that people say something different in the portfolio committee from what they say up here. There is an element of grandstanding when they come to this podium. But I think I have heard nothing that suggests that there is any coherent or credible alternative to the strategy which we are proposing.
Further than that - and I want to build on a point that was made by the hon Turok - the lesson from the experience of those developing countries that have performed more successfully during the crisis and which have now emerged as major new poles of economic power and major new forces of dynamism in the world economy, countries like China, India and Brazil, is that all of them, without exception, had active state-led industrial policies which sought to identify, support and nurture key value-added production sectors. In fact, the experience of economies like India, China and Brazil has merely echoed that of every other country at any time in economic history which succeeded in placing itself on a new growth path characterised by increasing as opposed to diminishing returns to scale.
I want to quote from a recent book called Industrial Policy and Development By Mario Cimoli, Giovanni Dosi and Joseph Stiglitz, which says:
All the countries which are nowadays developed undertook indeed relatively high degrees of intervention to support the accumulation of technological capabilities and the transformation of their organisation of production, especially in the early period of industrialisation.
Ipap is indeed based on and draws precisely lessons and learnings from key developing countries which have now emerged as powerful forces in the world economy.
In response to the hon Marais, I want to say that the choice of 13 sectors in Ipap is not the product of some thumb-suck by government. Rather, it is the product of an exercise of self-discovery and continuous engagement with key stakeholders. The fact that we have chosen 13 subsectors is a reflection of the diversity of the existing industrial base. At the same time, the hon Marais appears to have forgotten that there are in fact three identified focus areas. The first of these are metals fabrication, capital goods and transport equipment industries, which we say need to grow and development fundamentally on the back of the infrastructure investment programmes that we will be undertaking in this country. The second focus area is green industries, and the third is precisely one of the ones he mentioned - agroprocessing.
It is also not true that Ipap ignored service sectors. Some high-value service sectors like tourism and business process outsourcing, BPO, are actually part of Ipap. But the bigger picture is that the growth path strategy, which is being developed by my colleague, Minister Ebrahim Patel, will deal with this much more comprehensively because the domain of Ipap is in fact value-added sectors. I would argue that, again, the experience of economic history is that the quality and income-generating capacity of service sectors are much stronger when they are rooted in an economy which has growing and expanding productive sectors than when they are rooted in an economy which does not.
I would contend that the debate on the desirability of Ipap is now completed with the adoption of this report. The task now is to move towards implementation and the task of rallying important forces behind this particular programme. As the DTI, we are now firmly in implementation mode. In fact, we are committed to presenting a six-monthly implementation report, and that report will have to refer to the period of implementation up to the end of this particular month. We are now two quarters into the implementation of Ipap.
I want to just say that the report which we will be presenting to both Cabinet and Parliament, according to the commitments which we made, will reflect in detail on all the different action plans which have been identified in Ipap. As a sort of preview, I can say that, broadly speaking, most of the work which we have identified that we need to do in these two quarters is being done and is on track. There are very few exceptions. Although I must say that if there are any exceptions, I am not happy with that because I think we need to keep the pressure up to make sure that all the work is done when it needs to be done.
There are a couple of issues that were raised by hon members in the debate that I would just want to refer to. A number of people spoke about the issue of procurement. Indeed procurement was a major, major issue in Ipap itself. I am pleased to be able to report that a joint task team from National Treasury, the Department of Economic Development and the Department of Trade and Industry has reached an agreement on the set of proposed amendments to the regulations of the Public Preferential Procurement Finance Act. These proposals, which are fully compatible with World Trade Organisation, WTO, rules, we believe will considerably scale up our ability to use state procurement as a mechanism to generate and support local manufacturing.
When these proposals are implemented, subject to Cabinet approval, we believe that this will signal the first phase in a broader comprehensive review of state procurement which will address a number of the issues raised by the committee in the report, including the potential of co- ordinated procurement processes at the level of metro municipalities.
As the committee noted in its report, there are a number of positive examples that show what is possible. The eThekwini Municipality's procurement of public transport equipment is exemplary. They achieved 98% local procurement, and it showed what can be achieved when the will is there.
The reason for the display of the exhibition which we are having outside in the private sector of the Volkswagen Polo, is that the local content of that particular vehicle has gone up from 39% to 74%, which is an objective we have set in the automotive programme. [Applause.]
We are proposing that the accreditation for local procurement be undertaken by Proudly South African, which will give that campaign a major boost. We believe that all of this will assist us in moving towards getting a higher proportion of local production from the investments which we are making in infrastructure.
A number of members referred to the issue of ArcelorMittal and Kumba. Let me just say a couple of words on this, although this is not central to this particular report. Let me just say that the unbundling of Iscor in 2001 involved what we are convinced are two public and developmental obligations. The first of these was that the company that received the licence to mine iron ore incision would have to make a proportion - and indeed it was a rather modest proportion - available at cost plus 3% to support local steel production.
The second public and developmental obligation was that the beneficiary or the recipient of that concessional iron ore would have an obligation to pass this on in the form of a competitive steel price that would support downstream manufacture. I think that recent events and the differences between the two companies that have benefited from this arrangement show that there was a weakness in that those public service obligations were embedded in contracts between two private companies.
As is known, the Department of Trade and Industry together with the Department of Economic Development and the Department of Mineral Resources has established a task force which has, as its objective, to ensure that we identify all the levers in government to make sure that those particular objectives are restored.
Make no mistake, it is essential for the success of Ipap that we have in place competitively priced steel available for downstream manufacture.
I don't have any time to go through the large number of other individual recommendations made in this excellent report. Suffice to say that we are prepared in the committee to go through each of them in detail and that we will be reporting, as I said earlier, through the six-monthly report, both to Cabinet and to Parliament.
As far as implementation is concerned, we also believe that the new system of monitoring and evaluation in government, with the different new structures in place - implementation structures and so on - offers us a mechanism whereby all the different contributions coming from all the different parts of government to make Ipap a success can be monitored and be evaluated.
In implementing this important industrial policy initiative, we know that there are no easy victories. We will continue to signal that we are going to be honest and very serious about what we are doing. We call upon all South Africans to do, in this area, what we succeeded in doing in the World Cup - making it a major success.
Let us then work together to make our industrial policy a success. Let us work together to grow the economy and to fight the scourge of unemployment. I trust that the House will adopt the excellent report on the hearings on industrial policy by the Portfolio Committee on Trade and Industry. Thank you very much. [Applause.]
Debate concluded.
Speaker, I move:
That the report be adopted.
Motion agreed to.
Report accordingly adopted.