Department of Trade and Industry on the Annual Report for 2009/2010: briefing

Meeting report

Department of Trade and Industry Annual Report 2009/10 briefing
Mr Tshediso Matona, Director- General of the Department of Trade and Industry (DTI), briefed the Committee on its Annual Report for 2009-10. He said that the economy was still dependant on commodities. There had been reverse growth in 2008/9 but that was now over with growth of around 3.2%, with the recovery being led by the primary sectors; however, the Department had not made inroads regarding the unemployment challenge. There were major job losses of over 300 000 in five sectors in 2009. The most negatively affected sectors in the economy were machinery, electrical equipment agricultural products and transport equipment destined for Europe. There was a need to intervene to get private sector banking to release funds into the economy.

The achievements of the Department were that Industrial Policy Action Plan 2 (IPAP2) had been finalised, the Industrial Development Corporation (IDC) had supported distressed firms, and the DTI had participated in the national energy response team in response to the energy crisis.

Sectoral interventions of the Department were in the automotive sector with the Automotive Investment Scheme finalised, the development of a draft strategy for the Agro-Industrial sector finalised and the completion of pilot learnership projects in the business process outsourcing (BPO) sector projects. The Department launched incubation programmes in the Forestry, Paper and Pulp Sector. In Umtata the Department launched the R20 million Umtata Furniture Incubation Centre. A feasibility study for a bio-diesel refinery was completed in the bio- fuels sector. A proposal to tax the export of scrap metal had been sent to the National Treasury. The clothing and textile industries had a programme in place to improve the competitiveness of companies

Support for 463 enterprises valued at R18.1 billion were approved through three investment support programmes - the Critical Infrastructure Programme, the Enterprise Investment Programme and BPO. Financing was also approved under the Film and Television (TV) Incentive Programme amounting to R1.3 billion, the Tourism Support Programme for R2.3 billion, and the Manufacturing Investment Programme (MIP) for R6.1 billion. The Coega Industrial Development Zone and Deepwater Port had investments of R1.7 billion; East London had an investment of R309 million, while Richards Bay had its operator permit approved. OR Tambo airport and Mafikeng were earmarked to be declared as industrial development zones (IDZs).

On the international front, the focus had been on the Southern African Development Community (SADC) as a free trade area. There was a memorandum of understanding (MOU) with Brazil; and the Southern Africa Customs Union (SACU) and India were in negotiations in an attempt to improve South- South trade. The United States’ African Growth and Opportunity Act (AGOA) 2000 had allowed South Africa to penetrate United States (US) markets but the Act’s weakness was that it was time bound. The South Africa (SA) European Union (EU) enlargement protocol had been signed extending Trade Development and Co-operation Agreement preferences (TDCA) to Bulgaria and Romania. The SA - EU cheese agreement had been implemented which meant that SA cheese could now be exported to the EU. There was continued multilateral engagement on the Doha round and the Department participated in the World Trade Organisation (WTO) trade policy review and in the Group of Twenty (G-20) process.

The Trade Policy and Strategy Frame work (TPSF) and the review of bilateral investment treaties were approved by Cabinet. It was involved in arbitration with an Italian company regarding Black Economic Empowerment (BEE) exemption. The company withdrew its case and paid the Departments legal fees. A record 300 delegates went on a trade visit to China. The Department facilitated investments by Ford, Heineken, Proctor & Gamble and Kimberly- Clark to expand these companies’ facilities locally.

10 products had been identified for preferential procurement from small to medium enterprises (SMMEs). It had launched an SMME hotline to enable SMMEs to be paid within 30 days. A SMME information toolkit agreement had been finalised with the Department’s business partners. It had established a centre for entrepreneurs in collaboration with Wits Business School. Co-operatives were not being promoted well enough as they had the potential to lessen dependence on the state to drive economic development. It was a difficult area but the rewards were huge if done successfully.

Women’s economic empowerment programmes included the Isivande Women’s Fund’s becoming operational; the Bavumile Programme being rolled out in Limpopo and the North West to 120 women. The Small and Medium Enterprise Development Programme (SMEDP) had been closed and would be replaced by the Enterprise Investment Programme (EIP). 66 SMMEs had been supported to acquire new technology in the technology transfer programme, while the Techno-girl programme benefited 100 learners at 10 schools. 17 district municipalities were supported in local enterprise development (LED) strategies. The Broad-based Black Economic Empowerment (B-BBEE) Advisory Council was launched in December 2009 and three Enterprise Equivalence Investment Programmes worth R500 million had been approved. Law reform processes had been completed and signed by the President for the Consumer Protection Act 2008 (Act No. 68 of 2008), The Companies Act 2008 (Act No. 71 of 2008) and the Competition Amendment Act 2009 (Act No.1 of 2009). The Intellectual Property Laws Amendment Bill [B8-2010] to protect indigenous knowledge was introduced to Parliament. Gambling legislation had been reviewed and the Department would provide guidance to improve the lottery distribution disbursements. The Estate Agency Affairs policy was also under review.  Research had been conducted on intellectual property, the effect of advertising in the gambling and liquor industries, dog racing, and shareholder activism. 50 campaigns ranging from liquor regulations to consumer protection were conducted across the country to simplify legislation for the public to understand and to assist in business compliance. There were two new commissions - the Companies and Intellectual Property Commission and the National Consumer Commission. 

Women’s representation at senior management level was 42% and the Department implemented the revised fraud prevention plan. He said the Department was one of the least corrupt departments having the second highest score of 86% in an anti- corruption capacity audit and that the Department took decisive action against fraud and corruption. The Department had had five unqualified audits in a row. The information and communications technology (ICT) structure was earmarked for upgrade with a revamped website expected to be in operation in 2010/11.

Mr Matona said that the challenge facing the Department was a need to develop a clear spatial framework. He concluded by saying that the Department needed more funding to effectively achieve targets.

Discussion
Mr J Gunda (ID, Northern Cape) asked a number of questions around job creation and how the Department was tackling assistance to previously disadvantaged individuals (PDIs) or how the Department’s programmes were benefiting PDIs. He wanted to know what the challenges in the clothing industry were. He wanted clarity on the three approved equity equivalence programmes totalling R500 million and on the statement that the Department provide guidance for the improved distribution of lottery funds. Were the DTI’s service providers from PDIs?

Ms B Abrahams (DA, Gauteng) asked about co-ops for the disabled

Mr A Nyambi (ANC, Mpumulanga) asked why people were leaving the Department. Why had R20 million been spent on consultants?  Why was senior management not signing performance agreements? Some of the reasons given were not convincing. He asked the Department to clarify the Auditor- General’s findings regarding the Department’s internal controls as mentioned in the annual financial statements.

Mr A Lees (DA, KwaZulu-Natal) asked for the DTI’s view on incentives for the automotive industry. He asked Mr Matona to clarify the statement that the rand was regarded as volatile. He asked what Mr Matona meant exactly by his comment that the banks should release more funds. He asked why the Department was involved with BPOs. Was the Department aware that charcoal plants were large polluters? Was the Department involved in changing the mindset over the use of maize as a bio -fuel? He said Eskom was sourcing steel from a local supplier who in turn sourced steel from overseas. He asked if there were any green clauses in the Automotive Investment Scheme (AIS) programme agreements. He said TV/film were provided with incentives and asked how much revenues from these films came back to South Africa. Was the Department working with Bangladesh and Vietnam regarding textiles? Was the shipping gateway to Europe going to be switched from Rotterdam to Romania as transport via the Danube was now possible? He said that maybe the Department was not doing enough to make incentives known. He said all accounts should be paid within 30 days whether to small or big companies. He asked with reference to the Tech- girl Programme whether boys were being disadvantaged. Why was R37 million unauthorised payment unresolved. He said there were many entities which were an embarrassment to the Department, like the Companies and Intellectual Property Registration Office (Cipro).

Mr Matona replied that Cipro had had an unqualified report.

Mr K Sinclair (COPE, Northern Cape) said that there was a lack of a national development framework and that there were skewed development patterns. R860 million was going to Coega. Was it worthwhile, what benefits derived and what were the economic returns? He noted that R105 million was allocated for other critical infrastructure. Did this mean that the DTI contributed funds to the World Cup? R330 million was earmarked to the Small Enterprise Development Agency (Seda). Was this for the year or rollovers to next year? Could the Department explain the contingent liabilities claim of R3.14 billion. What was the R2.8 billion for the International Council of Scientific and Industrial Design (ICSID) and why and for which company were there R950 million guarantees? He said Cipro was hampering economic growth. He noted a tendency that one must be politically correct before one was invited to be part of business opportunity trade missions.

Ms M Dikgale (ANC, Limpopo) asked if Department could help women source money for women’s programmes. How could liquor regulations be changed to make outlets close earlier?

The Chairperson asked what the criteria were to be part of trade delegations. He said the World Cup and Cipro would be reported in next year’s report. He said cheese could now be exported to the EU.  He said in China most of the gross domestic product (GDP) came from SMMEs. He was still concerned with fronting. He had come across projects where fronting still appeared to occur. He asked how far the Department had progress on implementing the rectified trade agreements. What plan was there to stop the hijacking of companies through Cipro? Why was R23 million spent over a short time on consultants? He was not happy with Standard Bank share acquisition by the Chinese. Standard Bank was being used to get the work for the Chinese while Standard Bank got the financing. He said South Africa, Africa and SADC should trade amongst themselves.
 
Ms E van Lingen (DA, Eastern Cape) asked what role the Department played in trying to establish a sustainable clothing industry and what impact did the rand currency and labour have. What was the progress on the R200 million Umtata project?  What happened to the Dube trade port? What happened with corruption charges? Were cases dismissed, settlements made or criminal proceedings brought to bear? She said there were no trade or political agreements with Taiwan, yet goods were flooding the country.

Mr Matona conceded that spatial economic development was a core challenge that had not featured and that the Department needed to be able to measure how it dealt with this as certain industries had a clear regional focus. He added that addressing the issue would demand that all tiers of government work together. The BPO, for example, was a skills development within a sector strategy to allow for a much stronger outcome. He said that the mayors alleged that malls were killing small business but the DTI did not licence malls; the municipalities did.

IDZs were meant to devolve development from certain provinces. Notwithstanding the huge resources, the Department would not walk away from it and would complete it.  These were long term projects, the Chinese were committed and in the long term there had been a turnaround. What the Department needed was to find sustainable models as the initial assumptions around Coega (a core tenant in the form of an aluminium smelter) did not hold anymore.

Job losses were caused by the recession and the Department's strategic objective was job creation. One could not develop second economy if the first economy was not growing. In industry there were very few black people. CEOs were mostly white male. BEE had to promote manufacturing not just increase the benefits to shareholders. The Manufacturing Investment Programme (MIP) was to address this challenge. Small exporters were assisted by the Department before being part of overseas trade shows. Cipro’s administrative weaknesses were being dealt with, some challenges required police involvement. There should not be further lapses. Public perceptions and the reporting on Cipro portrayed a complete failure and part of the Department's work would be to win back public confidence. The Companies Act meant that there was currently a cleaning of the data held by Cipro as the Department did not want to take the rot into the new entity. It needed to sought out the IT challenges and the Department had asked the court to allow it to move on with the IT overhaul. New management and leadership would be put in pace. It was unfortunate that Cipro overshadowed the Departments work.

Mr Sinclair asked for replies to questions be given in writing.

Mr Nimrod Zalk , Deputy Director-General, Industrial Development Division, DTI, said the Department's approach to the clothing industry was that it could not compete with Bangladesh and Vietnam, because of those countries’ poverty and working conditions, so its focus was on upgrading competitiveness, upgrading products, people and processes. The preparatory work had been done in the last financial year and 99 companies were participating. There were massive challenges in the industry; currency for example was overvalued in real terms and this related to the wage issue too as wages were a function of currency. There was also massive under invoicing of imports from China estimated to be about 60%.

Since the 1995 introduction of the Motor Industry Development Programme (MIDP), production had doubled, capacity had doubled and growth had multiplied by ten. Over the course of time the initial significant support had been scaled down from 100% to 30%. A review had concluded that some shifts were needed from exporting to production based trend to give more balance to the industry to serve a growing domestic market. The programme set a minimum volume threshold and called for higher levels of locally sourced parts. All countries that had an automotive industry provided support for that industry. South Africa had to compete with these countries. The industry generated significant net positive benefits; it has the strongest multiplier effect especially on the steel, plastics and leather industries. The Department was mindful of the shift towards green, manufacturers had to meet green requirements and in any case the countries to which the cars were exported demanded that green requirements be met.

There were compelling reasons to place an export duty on scrap metal. A proposal was submitted to Treasury.

The Department said that there were 17 municipalities in the Local Economic Development policy (LED) and four were from the Northern Cape.

Equity equivalence programmes allowed multinationals who were not allowed to sell equity to invest 25% of their operations budget. Three companies, including Hewlett Packard, totalled a budget of R500 million which was used in projects to benefit black people in the IT sector.

Disabled persons benefited in co-operative investment schemes and Cipro registered co-ops this year

There was a huge effort to strengthen Government at all levels through partnerships to asses lending criteria of banks

Ms Zodwa Ntuli, Deputy Director-General, Consumer and Corporate Regulations Division, DTI, said that last year the Department intervened with the Lottery Board because of administrative challenges in grant making. In the past the time taken to pay out was six to 12 months and this had been addressed. The requirements were too high for the applicants. Some regulations were removed to improve accessibility to those applying. The Draft Lotteries Bill was to be tabled to Cabinet in the next few weeks. There was a new Lottery Board and a new chairperson focussed on the challenges.

Research on advertising was required to help formulate regulations. Consultants were used as the Department had no continuous need for such expertise

Recognised that fronting was still happening, companies were using directors for BEE purposes and after a contract was awarded they removed them using Cipro. The challenge was in the enforcement of the legislation

Ms Sarah Choane, Deputy Director-General, Group Systems and Support Services Division, DTI, said the Department graded the posts not the people. There was a skills shortage in the country and the challenge was to compete with the private sector. She felt the Department was doing well with a turnover rate of 4.5%, the average rate being 10%.  She agreed that some of the reasons given were not sound. The amount set aside was contingency fees for litigation. Proper approvals were in place for internal controls.

The Department followed due process in all corruption charge cases.

Due to a shortage of time Mr Lees proposed that the answers to the questions be given in writing.

The Chairperson concurred.

Consideration and adoption of the draft report of the International Trip to China
This item was deferred.

The meeting was adjourned.