REPORT OF THE SELECT COMMITTEE ON TRADE AND INTERNATIONAL RELATIONS ON BUDGET VOTE 32 AND THE MEDIUM TERM STRATEGIC FRAMEWORK 2009 - 2012: DEPARTMENT OF TRADE AND INDUSTRY (the dti), DATED 29 JUNE 2009.

The Select Committee on Trade and International Relations, having considered Budget Vote 32 of the Department of Trade and Industry, reports as follows:

1. Introduction

The Select Committee on Trade and International Relations’s briefing on the budget vote of the Department of Trade and Industry took place on the 26^th June 2009.

The delegation from the Department appearing before the Committee included: Deputy Minister Ms M Ntuli, Mr Tshediso Matona (Director General), Mr Sipho Zikode (Acting Deputy Director General), Tumelo Chipfupa (Deputy Director General), Mr Nimrod Zalk (Deputy Director General), Mr Kumaran Naiden (Chief Financial Officer), Ms Lillian Mofokeng (Chief Director: Coomunications) and Ms Malebo Mabitje Thompson (Acting Head: ERPC).

The information contained in this report focuses mainly on the Department’s Medium Term Strategic Framework (MTSF) for 2009 – 2012. The report covers the following areas: Overview of the Economy (Challenges and Responses), Overview of the Department of Trade and Industry’s strategy-Key Interventions of the MTSF period, Allocated resources and Challenges.

2. Overview of the Economy

Challenges

In his presentation to the Committee, the Director-General highlighted the global economic downturn and its impact on the local economic environment.

While the crisis first appeared in the financial sector, it has become a deep real economy and job crisis which threatens the economies of the developed and the developing world.

South Africa as part of the global village is not immune to the economic crisis affecting the world economy. The domestic economy is in recession and the Gross Domestic Product (GDP) has contracted by 6.4 % on the annualized basis in the First Quarter of 2009.

The crisis has negatively impacted on South Africa’s industrial base and the following are some of the economic challenges:

· Manufacturing production has decreased by 11, 7% in March 2009.

· A labour intensive sector such as wood products, leather, clothing and textiles has declined dramatically.

· Mining production has decreased by 12.8 in March 2009.

· Company liquidations in the First Quarter of 2009 increased by 46.7% (from 687-1 008).

· The Quarterly Labour Force Survey gave an indication that a total of 208 000 workers lost their jobs between the First Quarter of 2008 and First Quarter of 2009.

Responses to the economic crisis

2.5 In response to the economic crisis crippling the economy, government and the social partners on 19 February 2009 reached consensus on the mechanism and interventions to be put in place to address the economic crisis, the mechanism agreed upon is referred to as the Framework for SA’s response to the international crisis.

2.6The framework outlines the following measures:

• Defensive measures aimed at protecting the South African economy and society in the face of the economic crisis. The government economic cluster together with the social partners need to urgently expedite implementation of the framework agreement.
• Transformative measures to deal with the long standing structural economic problems.

2.7The main focus area of the framework focuses on maintaining high levels of public investment in infrastructure to support private and public job preservation and creation.

2.8 In order to rebuild local industrial capacity and to avoid the erosion of the country’s manufacturing base there is a high need to utilize industrial and trade policies.

2.9Guided by the framework agreed upon at NEDLAC, the Department of Trade & Industry has formulated its in-house responses focusing mainly on:

• Improving access to finance.
• Addressing under invoicing, dumping and illegal imports.
• Leveraging the capital expenditure programme and broader government procurement to stimulate demand and support the local manufacturing base.
• Improving competitiveness of local industries by intensifying awareness campaigns on the suite of incentives on offer.
• Addressing growing global protectionism through active participation in trade negotiations.

3. Overview of the Department of Trade and Industry’s strategy

Key interventions over the MTSF period

As part of its key intervention strategy the Department organized work according to the following themes:

· Industrial Development

· Trade, Investment & Exports

· Broadening Participation

· Regulation

· Administration and Co-operation

3.1 Industrial Development

As a significant part of the national response to the global economic slowdown, the Department has prioritized industrial development as a crucial strategy in order to rebuild the local industrial capacity. The industrial development seeks to address the following:

ü Over the next three years the Department intends to grow and diversify manufacturing services by facilitating and monitoring the implementation of the industrial policy action plan.

ü Strengthen regional industrial development and cooperation by working with regional economic communities to harmonize business laws and develop strategies on continental norms for agricultural, industrial and environmental standards.

ü Assist firms experiencing economic distress through the amendment of the incentive rules

ü Utilize COEGA, East London & Richards Bay Industrial Development Zones (IDZ’s) to attract new foreign and local investment.

3.2 Trade, Investment and Exports

South Africa seeks to expand and strengthen the trade and investment ties with key political and economic players globally by consolidating trade investment relations with developed countries through continued engagement with the European Union and the US, deepen economic links with major developing countries such Brazil and India and strengthen Africa’s continental integration and development negotiated frameworks in the AU and NEPAD.

3.3 Broadening participation

• To foster the growth of small business enterprises and co-operatives, the Department seeks to create a broader participatory environment through the support of agencies such as Khula, the Small Enterprise Development Agency and the South African Micro-finance Apex Fund.
• Furthermore, the Department intend to increase the participation of the historically disadvantaged individuals and businesses to enter the main stream economy through the promotion of empowerment and equity policies.

3.4 Regulation

In order to increase access to economic opportunities for historically disadvantaged individuals, as their strategic plan going forward the Department will monitor all Departmental regulatory entities.

3.5 Administration and Co-ordination

To continue providing quality service the attraction, development and retention of professional skills is going to be addressed by implementation of the Human Resource Development Strategy and reviewed Performance Management System.

3.6 Allocated Resources

The allocation of the budget over the MTEF period (2009 – 2012) is as follows:

2009/10 : R6 344 192

2010/11 : R5 752 987

2011/12 : R6 003 769

4. Committee responses to the briefing

In the interrogation of the briefing, the Committee raised a number of issues emanating from the briefing. The issues raised by the Committee are follows:

• While the Department is functioning under a restrictive regulatory environment, what measures are in place to attract investment under such a restrictive environment?
• What is the effectiveness of the current macro-economic variables.
• Are there any plans by the current government to review the ASGISA policy?
• Regarding the economic downturn, what is the turnaround strategy to address poverty and rural development?
• Industrial Development Zones - why the development of these zones is on the eastern side of the country and not the other parts of the country.
• Given the high rate of textile industries closures mainly due to illegal dumping of textiles by Countries such as India, the Committee wanted to know what the DTI is doing to address the matter.
• Overpricing by local factories - what is it that the DTI is doing to deal with this matter.

5. Conclusion

The Committee welcomed the briefing by the Department and took an undertaking that it is still going to interact with the Department in order to obtain more insight into the functioning of the Department and its agencies.

The Committee supports Budget Vote 32.

Report to be considered.