IPAP 2013/14-2015/16; National Regulator for Compulsory Specifications (NRCS); National Metrology Institute of South Africa (NMISA); SA National Accreditation System (SANAS) Strategic Plans

Meeting report

Industrial Policy Action Plan (IPAP) 2013/14 – 2015/16
Mr Garth Strachan, DDG of Industrial Policy in the Industrial Development Division of the dti, said this was the fifth iteration of IPAP. It sought to ensure a restructuring of the economy on a more labour intensive, value adding and environmentally sustainable growth path. This was in the context of economic growth in South Africa characterised by consumption sectors growing twice as fast as productive sectors and a financial sector which had not supported the productive sector. In addition there was high structural unemployment of around 25% in the economy. IPAP was predicated on state support for industrial development in a role where it ‘steered but did not row’.

IPAP was built around a set of interlocking transversal and sector specific interventions. Transversal interventions were in public procurement, industrial financing, administered pricing and development trade, competition policy and the iron and steel value chain. Sector specific interventions were in the automotive, clothing, textiles and footwear, metals fabrication, pharmaceuticals, agro-processing and business process services sectors. New sectors were the green and energy saving industries, downstream mineral beneficiation, upstream oil and gas services and boat-building. Where interventions were successful it would get more funding. It had been noted that the most successful programs were where there was strong intra governmental interaction. A big gap had been identified in the commercial development of intellectual property into commercially viable products.

The Manyatela Training Project and the National Tooling Initiative had been successful and steel tariffs had been lowered and led to a 5% reduction in the price of steel. There was a task team looking at the iron and steel value chain subject to public consultation. There was public support for this initiative and the Industrial Development Corporation (IDC) was leading an initiative to bring competition into the sector. There was overwhelming industry support for the public procurement instrument. The National Ports Authority had lowered prices to support the manufacturing industry. In the past, its focus had been on mineral exports. There was a major problem at municipal level and it was meeting with municipalities and the South African Local Government Association (SALGA) to discuss electricity shut downs and serious municipal billing problems which impacted on automotive companies and which could lead to them shutting shop or moving to a jurisdiction where electricity supply could be guaranteed by Eskom. The dti was confident that the automotive incentive scheme would yield good results and he noted that Australia no longer had an automotive industry. The clothing, textile and footwear industry had stabilised, with niche industries experiencing increased employment. The program had supported 469 companies. The pharmaceutical industry had been designated for local procurement. In agro processing, Buhler had developed custom maize and wheat mills which could be rolled out to promote small-scale milling. The Biofuels project was 98% ready to go and government would save R8.9b in foreign reserves. Business process services had seen massive investment by big companies, mainly in the Western Cape. In the long term the nuclear, advanced metals, aerospace and defence and electro technical sectors would be targeted.

The protracted recession and consequent decreased demand for South African goods as well as a concern that investment growth would not pick up rapidly were constraints on the plan. Monopoly pricing of key manufacturing inputs in steel and plastics as well as logistic inefficiencies and exchange rate volatility were also constraints. Identified threats included large current account and manufacturing trade deficits, above inflation administered price increases particularly in electricity, a decrease in demand for minerals from China as its economy became less mineral intensive, labour relations volatility, service delivery tensions and a weak and mismatched skills system.

Opportunities presented itself in the form of beneficiation, infrastructure development, regional economic development and integration, new export markets, local procurement and supplier development and BRICs. In the long term it wanted to scale up industrial policy through stronger linkages between macro and micro economic policies biased in favour of the production sectors of the economy, it wanted to strengthen developmental trade policies in a selected and strategic manner and coordinate and integrate efforts to stimulate regional economic development and integration. He said the Department wanted to deepen research into sectors and to improve the user friendliness of the IPAP document and other ancillary documents.

Discussion
Mr W James (DA) said the IPAP document was a big improvement over previous versions and had not received the press it deserved. However, he said political leadership was needed in transversal project management to make it more swift and nimble. He added that the issue of the mismatch in skills needed to be highlighted.

The Chairperson said that no discussion would take place as the briefing served as a precursor to the engagement the following week when the minister would be in attendance.

National Regulator for Compulsory Specifications (NRCS)
Mr Katima Temba, Acting Chief Executive Officer (CEO), said the NRCS administered compulsory specifications in the interests of public safety and health for environmental protection to address failures in the market system and was mindful of the need not to over regulate. It would be using technology and Information Technology (IT) systems to become more efficient and effective in its regulating service and to build market related intelligence capacity. It would be doing research to uncover compliance gaps. Strategic partnerships were important as the NRCS could not cover the whole country. Border inspections would be integrated into the daily operations and inspections would focus on electro technical products. The profiling of containers would be done in consultation with SARS and the border police. The NRCS attended regional and international forums and carried out proactive research to identify areas where regulations needed to be developed. It had a staff of 290 personnel. It oversaw 93 technical regulations and 319 SA National Standards (SANS). It would hold 9 road shows in the course of the year. He said the responsibility for RDP houses rested with the municipalities.

Ms Reshma Mathura, CFO, said revenue was projected to grow at 6.5% over the Medium Term Economic Framework (MTEF) and funding would increase by 26% in 2014. Growing employee costs accounted for the bulk of the employee compensation expenditure at 71%. Operating costs were 10% and administration costs were 18%. The lease on its current accommodation would be coming to end soon and a budget item for R50m for buildings had been included as a worst case scenario although it was exploring different alternatives to provide the accommodation. IT accounted for R6.9m, vehicles for R3.4m and laboratory assets for R2.9m of the budget.

Discussion
Mr Mackintosh (COPE) asked what SANS stood for.

Mr James said the SABS had state of the art DNA laboratories which were under-utilised because no standards had been specified. How could the system (all the entities) be made more effective? He said another case in point was the standards for concrete which he mentioned in connection with the crumbling of RDP houses.

Mr Alberts (Freedom Front+) said the NRCS was focused on policing the private sector, was it policing government procurement?

Mr B Radebe (ANC) said a high percentage of the budget was spent on personnel, could interns not be used. Was training built into the budget?

The Chairperson asked for comment on whether the specifications of RDP houses were being complied with. Who was responsible? The SABS claimed that it was being under-utilised by government and its sister entities, could the NRCS comment. Was the NRCS working directly with the South African Revenue Services (SARS) or were they outsourcing their work to SARS?

Mr Temba replied that SANS stood for the South African National Standards.

On the matter of government procurement, he said the focus of the Act was on health and safety in particular areas, but that from time to time the NRCS was used for its technical know-how.

He said the NRCS had identified the use of interns within its operations, but the use of interns for testing was not likely as testing was not the competency of the NRCS but of the SABS. In its medium to long-term strategy outlook it had done an in depth study of their department of legal metrology, to identify its staff needs. This amounted to 70. Other departments were embarking on similar studies but funding for posts would be dependent on available resources or the use of a levy to raise funds.

He said generic medicines were not an area that the NRCS regulated and one would have to approach the Department of Health. The current Act focused on trade and health and safety.

RDP houses were the responsibility of municipalities. The NRCS got involved in the case of disputes and also in the case of overseeing the competency of building control officers. It had set up joint task teams with its sister organization, the SABS, and the Act made provision for some of the NRCS functions to be outsourced. The task team also determined who did what in joint operations.

Ms Mathura agreed that employment costs were high but this was due to historical reasons and it had an active union operating and had not yet even finalised wage negotiations of the previous year. In addition the NRCS was undergoing a staff grading exercise.

Regarding the SABS, she said that from a Supply Chain Management (SCM) point of view, the NRCS was obliged to get three quotes as the SABS was not the only supplier in the country. The NRCS was constrained by the procurement rules.

Ms Meisie Katz, General Manager, said it had developed compulsory specifications for processed meat. On the matter of testing and the utilisation of laboratories, she said they were finalising the testing regime and the use of the SABS’ laboratories.

Mr Bongani Khanyisile, of the electro technical division, said the NRCS was piloting border enforcements and inspecting containers and vehicles at harbours and airports, with the most success being obtained at Durban harbour. It had met with SARS and shown them the challenges it faced. It would be meeting with SARS to sign a Memorandum of Understanding. A challenge was that the SARS Act did not allow for information on importers to be divulged. Challenges to implementation were that containers disappeared or false declarations were given. It would be training SARS officials on what to look out for but testing and sampling would still be done by NMISA.

Mr Stuart Carstens, of the legal metrology division, said that inspections and samples were taken regarding the compulsory specification on cement but that the real challenge was in its use by the end user and this was the domain of building inspectors.

Ms Jodi Scholtz, COO of the dti, said the Minister had become involved in the wage negotiations and had tasked the COO to develop collective bargaining for all the units. This was at a consultative stage still in its infancy. She said the NRCS was located on the SABS promises which had compounded the wage negotiations problem.

The Chairperson asked how tender specifications complied with the regulations.

Ms Mathura said that it was not a prerequisite that products bear the SABS mark. The NRCS had advertised a tender for service providers which the SABS could tender for.

Mr Khanyisile said the process on whether to use the SABS mark or not was a consultative one and an impact study was being done on whether a mark was required or not in the conformity assessments process. Fluorescent lights, for example, were required to have the SABS mark to comply with regulations.

Mr Temba said that notwithstanding what had been mentioned, the NRCS and the SABS were strategic partners and the NRCS had to work with the SABS as partners in government.

National Metrology Institute Of South Africa (NMISA)
Mr Benjamin van der Merwe, Acting CEO, said NMISA provided a National Measurement System. NMISA maintained 42 national measurement standards which were anticipated to increase to 50 within three years. It maintained a number of reference measurements. Certified reference materials which were used in analysis or in a quality assurance process, would increase from 10 to 15. NMISA played a key role in the establishment of measurement traceability on the international front and regionally played a leading role in the development of metrology infrastructure in Africa and in particular Southern African Development Community (SADC). Sound measurement structures being critical to successful implementation of free trade agreements and eliminating technical barriers to trade.

It would align its work to contribute to metal fabrication, the green and energy savings industries, agro processing, business process services, cutting edge technology, the plastics, pharmaceuticals and chemicals industries and the automotive and components industry which was the biggest manufacturing industry in South Africa.

A key strategic focus would be strengthening corporate governance and especially supply chain management where, because of its technical nature there were many instances of only one supplier and deviations were required. It wanted to modernise the national measurement standards in physical metrology as trade and industry was directly related to physical metrology. In the ionising radiation division it would be getting funding from the International Atomic Energy Agency to do training. In the electricity and magnetism division it wanted to provide users with knowledge and reliable measurement data to verify energy savings claims for lighting systems like LEDs and building materials. It wanted to assist space agencies in benchmarking observed environmental data. It wanted to increase bilateral collaboration in Africa and with BRICS partners. It wanted to increase the organisational qualification profile and increase black professionals to 51% and conduct a remuneration survey to attract and retain staff.

Over the MTEF its budget would grow from R76.5m to R250.8m with the main item being the recapitalisation of the institute. In the past it had been part of the Council for Scientific and Industrial Research (CSIR), but since it was established as an independent entity its budget had decreased drastically and if this trend continued it would not be in a position to fulfil its mandate. In 2012/13 capital expenditure was expected to grow by 27% and increase to 106% by 2015/16. It had identified strategic government initiatives where it could participate in and add value to the state’s costs such as in the establishment and operation of the National Nuclear Regulator laboratory and the use of the South African Police Services forensic analysis laboratories.

Not ensuring international benchmarked and accepted national measurement standards, not establishing or maintaining expertise and competencies of staff and not upholding corporate governance and compliance were strategic risks for the entity.

Discussion
Mr Mackintosh asked who was doing the work of the CFO and CEO whom had left the organisation. Why had its income share dropped from 55% to 4% and what did China and Brazil spend on equipment.

The Chairperson said the employment equity profile was a challenge. Was all the technical equipment past its shelf life or could it still do the work it was contracted to do. What measures were put forward to the dti regarding the equipment that needed to be replaced?

Mr van der Merwe said the CFO had been replaced and the process to find a CEO was in place. After the CEO and CFO had left the accounting report had ticked mainly the red boxes but there had been improvement and in the last report most of the green boxes were ticked.

NMISA was happy with its funding and most of it would be used for a Public Private Partnership (PPP) project. It was in the process of quantifying the rest of the money needed for the recapitalisation of the unit.

Regarding the drop to 4%, he said the NMISA had at that time been part of the CSIR when its share had been 55% but that it had become an independent unit from the CSIR and its share of that budget had shrunk to 4%. It was currently not at a critical point and was receiving new money for infrastructure development and employee compensation.

On the matter of the contract work the NRCS had, he said that the equipment was old and needed to be upgraded.

On the matter of the BRICS countries, he said Brazil was also a developing country but that South Africa was behind Russia and China.

Ms Scholtz noted that NMISA was not part of the consolidated metrics provided to the Committee, as it was one of four entities that had been outsourced. The Department would ensure that the outsourced service provider’s reports were consistent with that of the Department.

Mr Kumaran Naidoo, Group CFO of the dti, said that on an inspection visit it had identified that NMISA’s equipment was 20 to 30 years old and had given NMISA R30m at that time and that it had taken two years for Treasury to give further funds for equipment. The building was old and dilapidated and Treasury was involved in the PPP plan. He said the CFO and CEO had left for better salaries and prospects.

The Chairperson complained about the quality of the presentations of the entities and that it had to be in a digestible format.

Ms Scholtz said that the reports of entities were still looking for a balance between giving too much information and giving too little and that in this instance it was also a question of how to present technical information in an easy format to the layperson.

South African National Accreditation System (SANAS) 
Mr Ron Josias, CEO, tried to clarify the role of SANAS vis a vis the other bodies by noting that SANAS did not develop or draft standards, did not regulate, legislate or prosecute and did not provide conformity assessment services, but that it did support the South African National Standards (SANS), it verified compliance to relevant standards, it did support regulators, it did provide input to legislators and support o prosecutors and that it did accredit conformity assessment bodies. It collaborated with a number of national departments, state owned enterprises, the private sector and international bodies. Accreditation was important because it facilitated trade by ensuring compliance to international standards. SANAS played a role in SADC in developing the regional economy by reducing the technical barriers to trade and in establishing the Southern African Developmental Community Accreditation Services (SADCAS) but this body was not yet recognised internationally. There was a still lot of work to be done to prevent poor quality products from entering the country. It was a member of the International Laboratories Accreditation Corporation (ILAC) and also of the World Anti-Doping Agency (WADA), having one accredited laboratory in Bloemfontein. There were 297 accredited testing laboratories in the country, 292 medical laboratories, and 211 calibration laboratories and in total had accredited 1419 organisations. They were spread around the country with Gauteng having 585 facilities; the Western Cape 220 and 70 facilities outside of South Africa were accredited. It had a full time staff of 57 which would increase to 72 by 2013 and had a panel of 180 contracted assessors used on an as needed basis.

A key intervention area was industrial development and health and safety and environmental protection where it worked on IPAP assigned projects in the green industries, agro production and processing and nuclear energy. It would also be working with the Department of Labour on developing accreditation programs for risk inspection and for road transport management systems, and with Business Unity South Africa (BUSA) on accreditation system for the verification of greenhouse gas emissions. It would work to provide input into the international accreditation requirements of ILAC and the International Accreditation Forum (IAF).

The lack of office space and the limited availability of skills were identified as constraints. It had been supported by the dti in acquiring additional office space in the short term. SANAS did not have strong nuclear work skills base which would be necessary for the country to roll out a nuclear program and SANAS would have to be competent in the matter of accrediting inspections and of certification of component manufacture. He acknowledged that the majority of the assessor pool did not reflect the demographics of the country

57% of SANAS’ income was self-generated while 43% came from a dti grant which was used to maintain issues of national importance. He noted that SANAS had made provision in the budget for the acquisition of a building for office accommodation.

Discussion
Mr Mackintosh asked what would serve South Africa best with regard to all the different entities and how they operated.

Mr Radebe said SANAS appeared to be the super power of the entities overseeing all the other bodies. He said generic diabetic medicine pills appeared not to be safe to take, could SANAS comment on that.

Mr Alberts asked if all verifications agencies had to be accredited by SANAS.

Mr N Gcwabaza (ANC) asked for an explanation why the capital assets item in the budget rose from R10.5m to R50.3m in 2014/15 then dropped to R300, 000 in 2015/16.

The Chairperson asked for further clarity on how SANAS played a major role in health and transport safety. What was the racial and gender profile.

Mr Josias replied that in 1995/6 the dti reviewed the infrastructure and recommended that there be one national accreditation body. The EU required that member states have one body although in the United States of America there were multiple bodies. He affirmed that the government entities were in alignment.

On the matter of whether the entities could be located in one place, he said that prior to 1994 the entities had all resided in one body, but that when South Africa became part of the global economy impartiality had become important and the single body was split up into the different entities.

Its alignment with IPAP2 was informed by the entities participation in technical committees.

On the matter of overlap with the NRCS, he said the NRCS had a specific role and SANAS was only a service provider.

He said SANAS was not a super body; its mandate was around accreditation and even served the accreditation of BEE entities and supported the establishment of a regulator.

On the matter of generic medicines, he said that if a product was not what it claimed then it was fraud. Approvals of medicines were done by the Medicines Control Council.

He said there was a staff of 57 currently which would increase to 72 by 2013.

He said the jump in income was because SANAS wanted to purchase a building which accounted for the R50m increase and the drop to R300, 000 reflected the servicing of that debt.

The reference to medical testing was not to medicine in general but to the accreditation of medical laboratories like Pathcare in the private sector.

On the vacancy matter, he said that SANAS was working on developing and expanding the assessor pool to be more demographically representative. He said more than 60% of staff was female.

On the transport matter, he said they were working on a new standard for road management systems and how transport fleets were managed. He said the NRCS was the responsible body on the Quantum taxi conversions matter and they could throw light on the issue of the conversions.

The Chairperson said that this was not what she had expected and that she would have asked the NRCS to remain to answer the question. She asked that the COO of the dti get all the bodies together to spell out precisely where each body’s responsibilities began and ended.

Mr Radebe said that the mother company concerning the Quantum taxis conversions had not approved the conversions and asked that the Quantum taxi conversion issue be responded to.

Mr Gcwabaza said he was concerned as it appeared that foreign based testing companies like TUV could do what they liked in South Africa. He said that legislative amendments be composed where there was a need to do so.

Mr Prags Govender, Chairperson of the SANAS Board, said that the board’s gender split was 50% and that it comprised 100% of Previously Disadvantaged Individuals (PDI). SANAS staff was composed of more than 70% PDI and 60% female.

Mr Josias asked that the term technical infrastructure be used instead of the term SQAM.

The meeting was adjourned.