The Report of the
Portfolio Committee on Trade and Industry on their oversight visit to
The Portfolio Committee on Trade and
Industry, having visited entities, manufacturers and cooperatives to assess the
service delivery performance of the Department of Trade and Industry, reports
as follows:
1. Introduction
The Department of Trade and
Industry (DTI) in its drive to promote industrialisation, foreign investment
and broader economic participation provides a policy framework for business and
a variety of incentive grants to companies and cooperatives. In addition, the
recently revised Industrial Policy Action Plan (IPAP2) identified a number of
sectors that will be supported by the Economic Cluster, with the DTI taking a
lead role on a number of these. The IPAP2 attempts to address
various economic and industrial imperatives, and also seeks to address the
structural challenges faced by the South African economy. IPAP2 seeks to
intensify the industrial process, develop local manufacturers that can produce
capital goods, promote labour-absorbing industrial sectors and promote a
broad-based industrial path.
The recent global
economic crisis resulted in the global as well as local collapse in demand for
manufacturing goods. This has had a serious impact on our local automotive
industry which led to the questioning of the viability of the industry. The
importance of the automotive industry in achieving the goals as identified in
the IPAP2 cannot be underplayed as it is has been identified as a key component
that underpins reindustrialisation of the South African economy.
As part of its oversight function, the Committee
agreed to conduct an oversight visit to
The Committee also visited the
Amathole Branch Office of the Small Enterprise Development Agency
(SEDA) in
1.2 Preparation Process for Study Visit
In
light of the above and in line with its strategic objectives, the Committee
embarked on an oversight visit to the Eastern Cape visiting Volkswagen South
Africa (VWSA), Coega IDZ, SEDA, Mzamo Wethu Cooperation, and the Zenzele
Weaving Cooperative.
The
following Members of Parliament and the Secretariat participated in the oversight
visit to the
1. Ms
J Fubbs (ANC) – Leader of the delegation
2. Mr
B Radebe (ANC)
3. Ms
H Line (ANC)
4. Ms
F Khumalo
5. Mr
X Mabasa (ANC)
6. Mr
N Gcwabaza (ANC)
7. Mr
S Marais (DA)
8. Mr
A van der Westhuizen (DA)
9. Ms
C Kotsi (COPE)
10. Ms
S Lebenya (IFP)
11. Adv
A Alberts (FF+)
12. Mr
A Hermans – Committee Secretary
13. Ms
M Herling – Content Advisor
A
report on the interaction with the various organisations during our oversight
visit follows below.
2. Organisations visited
2.1
Volkswagen
Mr D Powels, Managing Director: VWSA, briefed the Committee on the status
of the automotive sector and its contribution to the broader economy. Currently,
the sector is not globally competitive and is experiencing a decline in
production in both passenger and light commercial vehicles (LVC) from a high of
almost 700 000 combined units to almost 400 000 vehicles. This could be
attributed to the current global economic market with the projection for the
year 2010 more positive.
The Motor Industry Development Programme (MIDP) introduced in 1995 sought
to strike a balance between further opening to international competition and
maintaining a measure of protection for the local industry. The rationale for
the introduction of the MIDP was to allow for the adjustment to the
reintegration into the global economy. Although the MIDP has been extended to
2012, the import duties will continue to be phased down but at a slower rate. The
import duty imposed on imported vehicles declined from 115% in 1994 to 27% in
2010 with a further reduction of 2% envisaged with the introduction of the Automotive
Production and Development Programme (APDP).
During this period, there has been increased competition within the
passenger vehicle market. In 1994, there were 17 brands and 192 models available
in the market, which has diversified to 60 brands and 1 187 models in
April 2010. Furthermore, the component sector showed a significant increase in
exports from R3.3 billion in 1995 to a high of R44.1 billion in 2008. However, 2009 reflected a significant decline
to R 27.9 billion in component exports, due to the declining global demand.
Although the MIDP contributed significantly to the growth of the motor
manufacturing sector and component supplier industry in
Mr Powels was of the view that without the rebates the auto industry
would collapse which would have a direct impact on employment creation. At
present, the auto sector is employing 32 000 automakers with 250 000 jobs
dependent on the sector. Support for industry is crucial as the alternative
would be to import all vehicles with the result that we would lose the
automotive assembly manufacturers and the local components manufacturing base,
as well as other affected upstream manufacturers.
The market has become more competitive since 1994 due to reductions in
import duties and the availability of more brands and models of cars. Component
exports increased dramatically from 1995 from R3.3 billion to R44.1 billion in
2008. This has decreased to R28 billion which could be attributed to the impact
of the global economic crisis on the local economy. Mr Powels further noted the
strategic importance of the automotive sector as it contributes 5.9% to Gross
Domestic Product (GDP). This underscores
the importance of the automotive sector to the South African economy and its importance
to the export market which contributes 11.8% to the total South African export
basket and it is therefore critical to sustain this important manufacturing
base.
Mr Powels further highlighted the long-term strategy of VWSA with its
focus on five key elements, namely:
-
platform
reduction i.e. producing few models, while increasing volumes,
-
a renewed
manufacturing environment,
-
an increase
in local content,
-
skills
development, and
-
the
development of new products.
In response to the factors that contribute to the competitiveness of the
sector, Mr Powels alluded to the fact that labour represents a significant cost
element but that labour needs to understand the threats and competiveness to
industry and moderate their expectations accordingly. Investment in the automotive
sector can lead to improved competitiveness and the South African industry
should be aiming to breakthrough in 5-7 years. Mr Powels acknowledged that the
APDP provides policy certainty required to invest until 2020. Although,
2.2 Grupo
Antolin
The Committee was briefed by Mr N Grobbelaar, Manager at Grupo Antolin
South
The main focus of Grupo Antolin is to provide door trim panels for about
471 vehicles per day for VWSA. The use of specific raw material/inputs is
imposed by VWSA with 80% imported from the prescribed foreign suppliers, but
the potential exists for the use of a local supplier in future. Mr Grobbelaar was of the view that it would
take 2-3 years for the localisation of the inputs to materialise. However, leather
used in vehicles is locally sourced unless it is substituted with vinyl. The
DTI has approved R41 million under the Enterprise Investment Programme (EIP).
Under the EIP, the recipient is expected to comply with agreed obligations including
jobs creation before funds are released. Initially, Grupo Antolin employed only
20 people but it has since increased to 96 employees. Currently, Grupo Antolin
is only supplying VWSA but would expand if it can reach other original equipment manufacturers (OEMs) cost-effectively.
2.3 Dynamic
Commodities
Dynamic
Commodities is located within the Coega IDZ and exports frozen foods. It was
founded in 1996 and produces sorbet, frozen lemon juice and frozen peppadews. The
products it produces are highly labour
intensive and the company employs about 1 200 people directly, with most
workers employed all year around, and approximately 1000 indirect jobs via
their suppliers.
According to their CEO, although high volumes are produced it is not
reflected in higher profits mainly due to the exchange rate. Due to the recent strike by transport workers
that affected the harbour and coincided with their peak demand season for
sorbet, they lost their sorbet advantage in certain American supermarkets due
to the resulting insecurity of supply.
2.4 Coega Development
Corporation (CDC)
The Coega Development Corporation was established in 1999 by the Ministry
of Trade and Industry and is fully owned by the South African Government. The
rationale behind the establishment of the CDC is that it would advance
industrial growth in
The CEO of
CDC, Mr P Silinga, proceeded to brief the Committee on recent developments within
the CDC. He informed the Committee that
the CDC has a total number of 15 investors with a total value of R30 billion.
This led to the creation of 24 000 jobs within the Coega IDZ. Examples of
the success can be seen in the level of investment generated such as Dynamic
Commodities, an agro-processing concern located in the IDZ, which achieved
substantial and sustainable growth through its presence in the IDZ.
Another key
achievement is the development of the Nelson Mandela Bay Logistics Park (NMBLP),
situated near VWSA. General Motors South Africa’s (GMSA) new parts and
accessory warehouse will be located in the IDZ. Companies are exploring automotive
assembly, component manufacturing, logistics and distribution opportunities in
one location to sustain the South African automotive sectors’ and their
competitive position in the global environment. Mr P Silinga believes that the
NMBLP is the channel for automotive investment linked to the IDZ. This became
the region’s automotive hub that contributes about R11 billion to
municipalities’ turnover and makes up 60% of the
Enabling infrastructure development remains a key focus area for the CDC
in order to promote investment. Most of the projects are multi-year projects
with the key focus on municipal and bulk infrastructure. Investment in the
necessary infrastructure and enabling systems are important to create and
establish an environment conducive for growth. The CDC adopted a multi-sector
strategic approach to identify industries for relocation. In addition, the CDC
seeks to increase local content through its infrastructure and facilities
support for the automotive industry and other opportunities that may benefit
from export opportunities.
In their submission to the Committee, CDC highlighted a few challenges namely
funding, policy alignment and the absence of IDZ incentives, particularly tax
related incentives for investing companies. CDC was of the view that failing to
address these constraints would lead to opportunities lost with respect to the
creation of jobs and further investment, as well as delays in the social
upliftment of surrounding communities. The collapse of entire projects would
have a negative impact on investment confidence, especially in the
With respect to policy limitations, CDC highlighted the fact that IDZ regulations
were not updated in the IPAP2 context, with no IDZ specific incentives. It
would be crucial to ensure the continued resourcing of the IDZ to meet policy
requirements and to address the lack of alignment with other legislation.
The CDC also identified key areas that require continuous political as
well as financial support. These are the Combined Cycle Gas Turbine (CCGT) power station project, the
Petro SA oil refinery project, the relocation of the Manganese Terminal to
Saldanha, the upgrading of the rail line between Sishen and
CDC
indicated that Coega IDZ and NMBLP offer incentives to investors in terms of
providing top structures for manufacturers. However, internationally, similar
zones offer tax incentives to investors and often relax local laws as well. CDC
has considered a tax holiday in conjunction with the National Treasury but this
has not been realised yet. This has played a limiting factor in terms of
attracting investors and has contributed to delayed projects. Another key
factor contributing to delayed projects has been the energy crisis. In
addition, the lack of coordination between the port and the IDZ is perpetuated
by being run by different management and being overseen by different
departments.
CDC
is expected to meet current national objectives despite the fact that the
legislation governing it does not require this. It has suggested that a process
of aligning policy is embarked on.
CDC
has had a positive experience working with the SETAs. It is using a model where
SETAs provide funding to CDC, which has the capacity to train individuals and
the business relationships to assist in placing trained individuals.
Furthermore, CDC has attempted to train some of the construction workers to
improve the sustainability of employment, which peaks during the construction
phase and then declines dramatically in terms of operational employment.
2.5 Small Enterprise Development Agency (SEDA)
SEDA is an agency of the DTI, which was established in December 2004,
through the National Small Business Amendment Act, Act 29 of 2004. It is
mandated to implement government’s small business strategy; design and
implement a standard and common national delivery network for small enterprise
development; and integrate government-funded small enterprise support agencies
across all tiers of government.
SEDA’s mission is to develop, support and promote small enterprises
throughout the country, ensuring their growth and sustainability in co-ordination
and partnership with various role players, including global partners, who make
international best practices available to local entrepreneurs.
Mr L Dibi, the provincial manager, informed the Committee that between 2004 and 2008
there were 24 enterprise information centres (EICs) privately run in the
Currently, established or existing businesses are not confident about the
relevance of the business support services government is providing but SEDA hopes
to change this perception through the positive experiences of local business. For
example, SEDA assisted a small auto component manufacturer to achieve its ISO
accreditation to comply with the required quality standards to be eligible to
supply components to VWSA.
Mr Dibi also highlighted the core services provided by SEDA:
·
Alerting
businesses about tenders by categorizing tenders according to price and other
criteria and forwarding this information to the appropriate small businesses
and tailoring notifications to the needs of each sub-sector.
·
Facilitating
exposure to international exhibitions to enable SMMEs to learn how to price and
compete appropriately.
·
Supporting
enterprise development by assisting SMME’s to access the markets. However,
there has been limited success in accessing international markets through the
Trade Point facility, which is an internet-based gateway to global networking.
·
Providing
access to finance as there is currently only a 12% success rate in gaining
access to finance for SMME’s through conventional funding mechanisms. SEDA also
assisted cooperatives with accessing the Cooperatives Incentive Schemes.
·
Providing
small enterprise training and mentoring relevant to stakeholders’ needs. SEDA
has also received assistance from CSIR but with limited success.
·
Business
registration was facilitated by SEDA.
·
Subsidising
business services, such as business cards and signage, for signed projects between the value of
R7 500 and R10 000.
Challenges faced by SEDA relate to the fragmentation of service as
municipalities are creating similar services. A coordinated approach is
required to ensure that the appropriate services are provided to SMMEs. A key
constraint for SMMEs is gaining access to markets making connectivity to the
rural areas crucial.
The Committee enquired about the challenges that
faced SMMEs and cooperatives. In terms of accessing finance, SEDA indicated
that banks
have responded that some of the requirements for successful applications
include references to markets and that the business owner or leader must have
experience in the business and must demonstrate a good understanding and
knowledge of the business. They have also indicated that a deposit is not
mandatory. However, despite these guidelines, SEDA found that the banks are
still rejecting applications without any further explanation. One of the key
challenges is that business owners do not have a clean credit record. In this
regard, the Eastern Cape Development Corporation assists businesses that have
been awarded contracts with interim financing to improve their credit records.
Another
critical challenge is SMME’s ability to penetrate markets. Often, SMMEs do not
produce goods at the appropriate quality, price and quantities required by
buyers. An enterprise development route is being considered to facilitate a
link between companies that must meet their BBBEE requirements with SMMEs. SEDA
has also decided to move their exhibitions to malls and extend these over
weekends to facilitate sales.
The
Committee emphasised the need to improve access to rural areas. Currently, SEDA
is targeting its efforts in the Alfred Nzo, OR Tambo and
The
Committee is of the view that real empowerment involves building skills and
knowledge, and expressed concern about the availability of mentorship
programmes. SEDA responded that Khula was primarily responsible for mentoring
SMMEs but agreed that mentorship was critical to the success rate of a
business. In this regard, SEDA has moved away from a performance management
system that rewarded business advisors for the number of businesses they had
assisted with three solutions to measuring whether businesses were adopted and
are growing over time.
In
terms of training provided, training is conducted based on needs determined
from clients. Social offices are also approached in rural areas when running
these training groups. Training is specifically targeted where there is a need
for that type of training and the focus is on individuals interested in running
businesses. SEDA has also hosted co-sessions with the South African Revenue
Service and commercial banks on financial literacy for businesses.
SEDA
also has regular meetings with critical role players such as the Departments of
Public Works and Agriculture. There is a project with construction SMMEs to
move them from CIDB (Construction Industry Development Board) Level 1 towards
Level 9 in the Coega IDZ. SEDA is assisting with this in conjunction with the
Department of Public Works. Furthermore, Community Development Officers have
been trained regarding cooperatives through the Department of Social Affairs. There
is coordination at the Council of Trade and Industry Institutional level in
sharing resources and coordinating programmes.
SEDA
has requested Parliament’s assistance regarding the governmental use of the 10
products for preferential access by SMMEs and adherence by government departments
to the 30 day payment settlement arrangement for SMMEs as administered by SEDA.
SEDA
has made the following observations while working with cooperatives:
-
Cooperatives that have started up
independently tend to be very resilient. These are usually characterised by charismatic
leaders and when these leave, the cooperatives tend to have problems.
-
Cooperatives are being targeted for
training.
-
Primary cooperatives should focus on
production and be supported by secondary cooperatives.
-
CIS should then be targeted towards
secondary cooperatives, where the secondary cooperatives should work purchase and
manage equipment, such as tractors, and focus on business development. The
secondary cooperatives would then provide integrated services to a few primary
cooperatives, which would reduce costs and time for all the cooperatives.
-
The role of cooperative members and
the purpose of a cooperative are not clearly understood, as the strength of
cooperatives lies in its numbers and the contribution of each member.
-
There is a perception that cooperatives
are a vehicle to receive grants from government and the incentive is not necessarily
to create a business. There have been cases where cooperatives were established
because of local government efforts and once the funds start dwindling, the
cooperatives were dissolved.
-
Cooperatives need capacity building
and not just funding. A proper business model is required and there must be
shared values and commitment from all members for a cooperative to be viable.
-
There is a need to link cooperatives
with big business to address market access and possibly capacity building.
-
There are many loopholes in the
current legislation and insufficient institutional mechanisms to facilitate
cooperatives.
Currently,
cooperatives are funded by the DTI through the Cooperative Incentive Scheme,
which grants funds to assist in establishing a cooperative. This consists of a
once-off amount to a maximum of R300 000, which is used by the DTI to
purchase assets and/or inputs on behalf of a cooperative. The CIS has
relatively easy criteria to access the funding. In order to receive approved
funding from the CIS, cooperatives are required to provide certified copies of
identity documents for membership verification, tax clearance certificates for
the cooperative and information submitted must be verified. SEDA assists this
clearance process by receiving compliance documents on behalf of the DTI. The
DTI emphasised that not all activities that are applied for by a cooperative
qualify under the CIS and are excluded. This may result in the initial approved
amount being decreased accordingly. Furthermore, a cooperative must have a
commercial outlook and a target market in order to qualify for CIS funding.
The
DTI is formulating new legislation that will establish provincial cooperative
academies, a cooperative tribunal to regulate the sector and a cooperative
agency like SEDA. There will be a formalisation of cooperatives, where 3-4
cooperatives can form a secondary cooperative and then a tertiary cooperative
or apex body. In the interim, there will be a transfer to SEDA of between R5 to
R50 million to train and assist cooperatives.
In
terms of monitoring and evaluating the effectiveness of SEDA’s support to SMMEs
and cooperatives, SEDA conducts an
impact assessment six months after it has provided assistance to a business and
relies on businesses to provide it with information on why it has succeeded. However,
there is a need to capture specific lessons learnt. SEDA runs an 18 month
period database on active and dormant businesses registered for SEDA
assistance. In terms of requests for assistance, 75% of these businesses are
active. Dormant businesses refer to those that have not revisited SEDA after 18
months of receiving support.
2.6 Mzamo Wethu Cooperative
During the Committee’s
oversight visit to the
Members of
the cooperative informed the Committee that they are faced with numerous
challenges such as the lack of water for irrigation, the size of their farm
limits expansion and increased production of their crops, the shortage of
chicken stock and the unavailability of transport to access the potential
markets. Currently, the municipality is only providing water for domestic use
and assistance is required to revitalise the boreholes on farms. The
cooperative informed the Committee that its produce is sold to
2.7 Zenzele Weaving
Zenzele
Weaving is a cooperative that was established in 1999 to assist the local
deaf/disabled community. Initially, there were 5 members; and the membership
has grown to 11 individuals. The cooperative was responding to the great demand
for sewing and weaving that they identified in the community.
Members
and employees of Zenzele Weaving spin and dye wool, design woven products and
weave the final products. The cooperative operates under difficult conditions
and can not always pay salaries. Their main market is the local communities,
where they sell and get orders through schools, but they have found that their
mats are expensive because of the costs of their inputs. They indicated that
they source their raw materials from
The
cooperatives access to markets has improved since it began creating woven
crafts, as the cooperative was then recognised by the Department of Arts and
Culture. However, they are still experiencing marketing challenges to increase
their exposure to other markets.
Over
the years they have received support from various government institutions such
as:
§
SEDA: assistance was hampered due to
issues with accessing markets.
§
National Development Agency assisted
them in 2008.
§
Have received training on how to
weave but create their own designs
§
The DTI: The Enterprise Organisation
(TEO): accessed the Cooperative Incentive Scheme, which was used to purchase a
weaving machine; however, one part of the machine was never delivered. TEO has
been pursuing the matter and may be instituting legal action against the
supplier on behalf on Zenzele Weaving.
2.8 Semani Cooperative
Members of
the Committee were requested by the O R Tambo District Municipality to visit a
cooperative owned and managed by former pupils from
Through some
assistance from the O R Tambo District Municipality, they were able to purchase
machines and the necessary material. Currently, the cooperative is providing
work for more that 10 individuals with disabilities, who would otherwise not
have been productive members of the society. Members of the cooperative
highlighted the challenges they faced, namely a better working environment,
access to the market, better machines as well as material. They also have the
burning ambition not only to serve the local community but also communities in
the rural areas.
The
Committee members present praised the initiative of these individuals in
starting their own business. They were of the view that initiatives like this
should receive all the government support required to make it a success.
Through such initiatives, local economic development would be stimulated which
ultimately would lead to job creation. The Committee indicated that they would
liaise with the relevant DTI agencies to ensure that the necessary support is
provided.
3. Concluding remarks
3.1 The oversight visit of the
manufacturing sectors was very constructive. The Committee also had the
opportunity to visit a number of upstream and downstream operations including
community driven projects.
3.2 However, visits to the various community-driven
projects, further confirmed the need for intensive investment related to rural
economic development. This implies that a coherent and integrated
inter-departmental approach should be strengthened particularly for activities
related to IPAP2 and agro industries.
3.3 As part of the cross-sectoral
mandates that Portfolio Committees in the economic cluster have in relation to
IPAP2, Committees should coordinate their oversight activities. This could
enhance oversight over the respective departments. The Portfolio Committees on
Trade and Industry, and of Mining, for instance, is embarking on a joint
oversight visit to Kumba Iron
3.4 In the Committee’s opinion, the
current requirement for the establishment of a cooperative of at least 5
members does not necessarily achieve the twin objectives to create employment
and grow the local economy effectively. Therefore, amendments to the
Cooperatives Act regarding the minimum size of the membership should be
considered. Furthermore government
should allocate resources relative to the size of the cooperative and its
potential impact on employment creation and economic growth.
3.5 Limited and/or poor quality
infrastructure, particularly related to road and rail, makes agricultural
cooperatives in rural areas often unsustainable as it limits access to the
market.
3.6 Access to water for the development
of the rural economy in the
3.7 The challenges of ownership
within the IDZs and cooperative governance amongst the spheres of government
should be resolved to eliminate the constraints that exist to develop the IDZs.
In the Committee’s opinion, significant investments in bulk infrastructure
should be made by Government to continue attracting foreign direct investment
within IDZs. Furthermore, the Committee encourages appropriate marketing of
IDZs to improve accessibility by potential investors, workers and SMMEs.
3.8 The Committee welcomed the
significant increase in the local content of new vehicles, in particular
Volkswagen SA’s new Polo model, as well as the facilitation of this through the
investment by component manufacturers in industrial hubs such as the
3.9 In the Committee’s opinion, the
decision to directly link a committee meeting and a public hearing on
intellectual property in Umtata has proven to be efficient and effective in
ensuring that the oversight role and work of the Committee was better
understood by the attending communities. Furthermore, it gave the Committee a
better understanding of the challenges faced on the ground.
4. Acknowledgements
The Committee would like to thank
participants from the Ministry of Trade and Industry and the DTI at the
meeting, as well as the parliamentary liaison officer, Ms S Naidoo, who has
facilitated the constructive relationship with the DTI. The Committee also wishes to thank
its Committee support staff in particular the Committee Secretary, Mr A Hermans
and the Content Advisor, Ms M Herling for their professional support and
conscientious commitment to their work.
The Chairperson thanks all Members of the Committee for their active
participation during the process of engagement and deliberations and their
constructive recommendations made in this report.
5. Recommendations
5.1 The DTI together with the EDD
should intensify support for SMMEs and Cooperatives through development finance
institutions as part of IPAP2 to successfully broaden participation of
historically disadvantaged groups and productive investment in rural areas to
grow the economy.
5.2 A concern that arose was that the
community driven projects were not supported in a holistic but rather a
piece-meal manner. Therefore, the DTI should address the issue of lateral
linkage with entities falling under them in this regard and other Departments
to avoid unsustainable outcomes.
5.3 The DTI in conjunction with
National Treasury should consider tax incentives linked to IDZs to attract
investors and promote the IPAP2 objectives.
Report to be
considered.
[1] Component manufacturers are expected to deliver
their components in batches to Volkswagen’s plant just in time for those
particular components to be fitted on the assembly line.