Posted: May 15, 2013
Budget Vote 36 for the Department of Trade and Industry by Minister Rob Davies (MP), at the Old Assembly Chamber, Parliament on 15 May 2013
Members of the Portfolio Committee
Director-General and officials of the Department Trade and Industry and the Council of Trade and Industry Institutions (COTII)
Leaders of organised Business and Labour
Ladies and gentlemen
It is common knowledge that the term of this administration has coincided with the most severe global economic crisis since the 1930s. When we took office in 2009, the SA economy moved into recession which cost us close to one million jobs. 200 000 of these or 20% were in manufacturing, a sector which contributes only 14% to the GDP, meaning that the impact of the recession was disproportionately severe in manufacturing.
In this context, it was clear that the global economic crisis had put into sharp relief the necessity to transform a number of longstanding structural imbalances and weaknesses to place our economy on a new sustainable and productive growth path. Guided by the resolutions adopted at the ANC’s 52nd National Conference in Polokwane and the manifesto we were elected on in 2009, this administration tabled the New Growth Path, within which the Industrial Policy Action Plan (IPAP) was identified as the manufacturing job driver. IPAP has become the centrepiece of the dti’s work with all our actions being co-ordinated or aligned to it.
Over the course of this administration, we have institutionalised the tabling at the start of the financial year of a new iteration of IPAP covering the financial year in question and the two outer years. IPAP has moved far beyond vision statements or diagnostics to identify Key Action Plans with defined timeframes to be implemented by various entities developed after consultation with industry players.
Last month we released the 5th iteration of IPAP covering this ANC led government’s last full financial year. Accordingly we highlighted a number of key lessons we have drawn from our efforts over the past five years as well as identifying the broad direction we believe a higher impact IPAP would need to traverse in the future.
One of our major conclusions is that where government has acted purposefully to implement programmes developed in consultation with industry players, business as well as labour – concrete positive results have been achieved. Among our significant achievements has been the finalisation of the transition from the Motor Industry Development Programme (MIDP) to the Automotive Production and Development Programme (APDP) which now includes the Medium, Heavy and Commercial vehicle segments of the automotive industry, including SA’s domestic Original Equipment Manufacturer in the sector – Bell Equipment.
Providing incentives to promote competitiveness and localisation in this important sector of the South African economy has seen production volumes increasing to 539,424 units and exports reaching 277,893 units in 2012. Furthermore, this change in focus in incentive to support and encourage deepened local component manufacturing, has resulted in 128 projects supporting or sustaining 57,197 jobs.
As a sign of confidence in the steps we have taken and in the future of this sector, private investments of nearly R16bn have been secured. These have included both new investors and new lines of operation, by existing investors. Among the new investors in the sector, we have welcomed the First Automobile Works of China which is constructing a truck plant in Coega and the Beijing Automotive Works which is building a taxi assembly line and distribution centre are examples of existing investors expanding their operations. We also saw important new investments by long established OEM’s including Mercedes Benz’s new C-class production in East London, BMW’s increased production capacity in Rosslyn, Ford in Silverton and GM in Port Elizabeth.
The Clothing, Textiles, Leather and Footwear industry experienced a remarkable turn-around, directly attributable to a radical change in our incentive programme with the introduction of the Clothing & Textile Competitiveness Programme 12,205 new permanent jobs have been created in companies benefiting from this programme. A pleasing new development has been key local retailers committing to local procurement in support of manufacturing companies. Over 469 companies were assisted under the CTCP with R1.5 billion worth of applications approved. Approximately 49,888 existing jobs are being retained through the support of the CTCP.
The roll-out of the Renewable Energy Independent Power Producer Procurement Programme (REIPPP) has under-pinned significant investments in renewable energy component manufacture. Significant investments in wind tower manufacturing facilities and solar power plants have been made – including DCD (R300m), Mainstream Renewable Power (R4.6bn) and Sun Edison (R2.6bn).
Mr Speaker, in 2009 we said that the threat of de-industrialisation loomed large and that we must confront this danger with interventions that will promote industrialisation in a systematic and sustainable manner. We also said that the infrastructure roll out, which is our main countercyclical response, must be a tool of industrial development. Accordingly we have sought to strengthen our procurement system to support increasing local industrial production. In this regard we can point to the designations of sectors for local procurement under the Preferential Procurement Policy Framework Act as introducing a sea change in industrial development in South Africa. The first wave of designations has already seen significant new investments in sectors such as transport and capital equipment, and companies are actively ‘tooling up’ to ensure that they are well positioned to take up the opportunities, which arise from the localisation programme.
Sectors already designated include:
Furthermore, localisation is now fully entrenched in a number of key procurement programmes such as the renewable energy generation programme and the fleet procurement processes of State Owned Companies (SOCs).
Moving ahead, work has already begun on assessments of sectors and products for designation including the designation of Valves, Manual and Pneumatic actuators; Power and Telecommunication Cables; and Components of Solar Water Heaters.
In addition to the strategic use of localisation in Government procurement, the dti also uses a variety of incentives to support and encourage investment in the manufacturing and value-added services sectors.
A case in point is the Manufacturing Competitiveness Enhancement Programme (MCEP). Grants to 214 enterprises have been approved valued at R1,35bn; 41, 626 jobs are expected to be retained as a result with a total investment outcome of R5,37bn.
I am pleased to report that the MCEP is currently operating on an average of 2 months turnaround time. Considering the large numbers of applications and the amounts of funding involved this is an excellent rate and the feedback I am receiving from a range of firms is very positive indeed.
Through the 12i Tax incentive, we have supported 26 projects involving investments valued at R32,6bn, creating or sustaining 3,326 jobs over the last four years.
Additionally, we can report that the European Outsourcing Association awarded SA its prestigious Offshoring Destination of the Year Award.
Over the past three years, we have seen investments in Business Process Services with a value of R1,3bn supporting 4,500 new jobs. Our change in the support programme for Business Process Services attracted key foreign investors such as Amazon, and SERCO, which opened its International Business Process Outsourcing (BPO) service delivery centre at Newspaper House in Cape Town with 500 seats and plans to increase to 1,500 – 2,000 seats to service a R1bn contract for Shop Direct in the UK. Significantly, the skills development support provided by the dti has led to a high proportion of young people finding employment in the sector, and we have accepted the target in the Youth Employment Accord of ensuring that at least 80% of new jobs created in the sector go to young people.
Mr Speaker, at the beginning of this administration, we identified the film industry as having significant potential. Our efforts to work with industry to unlock this potential have resulted in an impressive roster of locally shot blockbuster films. They include Chronicle, Safe House, Jock and the Adventures of Zambesia. I recently had an opportunity to see some of the rough cuts of the film “Mandela”: Long Walk to Freedom” and can report that we can be proud to have been associated in supporting what I have no doubt will be one of the very most important films South Africa has ever produced.
Mr Speaker, in short we believe that our record speaks to what can be achieved from industrial policy and that we have laid a basis to strengthening our efforts to reindustrialise our economy in the future. As the current iteration of IPAP argues, industrial development in the future will need to be built on 6 pillars.
We believe that what we need in future is a higher impact industrial policy rather than a lighter touch programme called for by some of our critics.
South Africa’s history does not however, allow us to grow the economy, to industrialise, without addressing the legacy of disadvantage, discrimination, and underdevelopment left by Apartheid. However, while one element of economic transformation is consistently about redressing the injustices of Apartheid, it is important to recognise that there are also sound socio-economic reasons for aspiring to a much more inclusive and egalitarian economic model. the dti considers entrepreneurship, cooperatives and SMME development as not only central to broadening economic participation but also as key to efforts to ensure a more vibrant and effective productive economy. In other words, by broadening economic participation to encompass participants excluded in the past, we develop a stronger entrepreneurial base for the future.
It is for that reason that in 2009 all SMME support programmes were reviewed to improve outputs and impact. One result of this exercise was that we decided to prioritise incubation programmes based on the evidence both in SA and elsewhere that such programmes which seek to actively support productive SMMEs in their start up phase dramatically improve survival chances. In line with this new priority and to leverage private investment, the dti introduced the Incubation Support Programme (ISP) in September 2012 with the aim of establishing 250 incubators by 2015/16.
To date 13 projects have been approved with a total project value of R373 million in renewable energy; information and communication technology; agro-processing; chemicals; mining; and clothing and textiles sectors. Currently, the seda Technology Programme (STP) has 42 Incubation Centres in the 9 provinces in different sectors such as biotechnology, mining, agro-processing, construction, jewellery, automotive, metals and renewable energy. To date, 376 new enterprises have been created, 2,247 SMMEs were supported, 28% of which are women-owned and 2,161 jobs were created.
We will in future also encourage universities and science councils to host incubators. These incubators will be used to develop hi-tech and high-growth sectors.
Honourable Members, since 2009, we have made steady but important progress to ensure that the Cooperatives sector receives the attention the potential of this sector deserves. We have reviewed the Cooperatives Development Act and when the new Amendment Bill is signed into law will establish a Cooperatives Development Agency, to provide more focussed development support to cooperatives. We will also establish the Cooperatives Tribunal to adjudicate over conflicts as well as an Apex body to represent the interests of cooperatives.
Honourable Members will be well aware of the efforts the dti has made over time to increase the participation of black people in the economy. In line with the changing landscape, B-BBEE legislation and proposed new Codes of Good Practice were introduced in 2012.
This BEE Bill seeks to eliminate fronting. It will establish a B-BBEE Commission to deal with complex fronting and thus enhance compliance with the legislation.
The Codes of Good Practice have been revised to incentivise stronger performance in enterprise development and supplier development becoming key features of broad based black economic empowerment. The shift to enterprise development and supplier development are intended to support a stronger symbiotic integration of black owned enterprises in key value-chains in the economy. It will ensure that big business plays a key role in developing a viable supplier base that will be able to take on opportunities in both domestic and international markets.
the dti views women empowerment as one of its priorities and it is in the process of developing a National Strategic Framework on Women’s Economic Empowerment.
Honourable Members, in 2009 we said that Industrial Policy requires a supportive regulatory environment to foster more competitive and dynamic industries and businesses, and prevent harmful market domination and abuse, and the exploitation of consumers.
Consequently business regulation and the protection of vulnerable consumers over the last four years has been another area of focus.
A key outcome has been the establishment of the Companies and Intellectual Property Commission (CIPC). We took the decision, which I believe has now been vindicated, to go ahead with the roll out of the new Companies Act despite reservations from some quarters. The new Companies Act gives SA:
The innovative business rescue provisions have already shown their mettle as a tool to save otherwise viable enterprises facing cash flow problems from the previous inevitable fate of liquidation. 945 companies including Close Corporations were assisted and 6,624 jobs have been saved. We have also introduced other important legislative changes: These include: The Intellectual Property Amendment Bill for the protection of Indigenous Knowledge which was introduced to Parliament and public hearings commenced in May 2010.
Key reforms to the operation of the National Lottery have taken place. We have responded to criticisms and suggestions made in wide consultation and Cabinet recently approved that the Lotteries Policy Framework and Bill be released for public consultation. In addition, we have introduced Regulations and a Directive to improve the accessibility of Lottery funds by needy communities and causes, improve governance structures on Lottery matters and ensure optimal distribution of Lottery funds for developmental purposes.
The Consumer Protection Act was finalised and implemented during this Administration. Despite some initial teething problems, I am pleased to report that there is now overwhelming support for the work of the National Consumer Commission (NCC) especially in poorer communities which is where the worst abuses of consumer rights has been uncovered.
Mr Speaker, as we look beyond South Africa and our immediate challenges we must not lose sight of the changing global economy.
Negotiations for a T-FTA between the SADC-EAC-COMESA countries are proceeding, but we have said that our efforts in this regard must be complemented by the promotion both of infrastructure development and cooperation to transform productive sectors and industrialise the continent.
Infrastructure development has focused on the North-South Corridor with significant progress on upgrading road links. Projects have been identified for rail, border posts and port development.
The T-FTA will combine the markets of 26 countries with a population of nearly 600 million people and a combined GDP of US$1 trillion. In summary, this key initiative will provide market scale that could launch a sizeable part of the continent onto a new industrialisation trajectory. The T-FTA will also form part of an Africa-wide FTA, which will create a market of US$2.6 trillion.
Speaker the election of Roberto Azavedo of Brazil as the next Director-General of the World Trade Organisation creates an important new opportunity to advance a multi-lateral trade agenda informed by the mandate agreed at the 2001 Doha Ministerial to the place the needs and interests of developing countries at the heart of the work programme. We know Mr Azevedo well and actively supported his candidature particularly after the unfortunate elimination of the AU endorsed candidate in the first round. We congratulate Mr Azevedo and look forward to building a strong working partnership in advancing the WTO’s work,
South Africa’s participation in the BRICS grouping, is a significant component in this diversification strategy as it provides important opportunities to build South Africa’s domestic manufacturing base, enhance value-added exports, promote technology sharing, support small business development and expand trade and investment opportunities.
It is for this reason that a key priority for us is to develop a work programme that will promote more value-added exports among the BRICS Members.
In the coming year, we will focus on strengthening SA’s relations with BRICS and other fast-growing emerging economies. In addition, the National Export Plan will shift to the implementation phase as we seek to develop a new layer of emerging exporters to lead SA export diversification.
Mr Speaker, in conclusion, are all these efforts bearing fruit or are the pessimists right? Let me just say that in one week last month, I participated in 3 key investment announcements, by Proctor and Gamble in Gauteng, Johnsons Controls in East London and Tellumat in Atlantis. Investment announcements by these three companies amount to R2,4 billion. In fact over the period from 2010/11, the dti has facilitated investments of R125,5bn.
However of greater significance than the value of the investment is the strong vote of confidence that these companies’ have provided in the SA economy. These are not investments that were made on the spur of the moment; these companies have rigorously assessed the SA market, considered the potential risks, and compared SA to other potential investment destinations. After considering all these factors, these companies – and many more like them – have chosen to invest and create jobs in the SA economy. These investors have not been put off by our challenges but recognise that Africa is the next growth frontier and that South Africa as the most industrialised country on the continent is of key strategic importance. They have accepted the necessity for broad based black economic empowerment, for them to be active in responding to our skills challenges, and they have not been put out by our industrialisation and localisation programme. In fact many of them have embraced these challenges and our initiatives as necessary developments that will lead to a stronger economy.
Mister Speaker, in closing, I do not believe that we could have made these advances without the support of the people in the dti and its family of institutions. I am proud that what we have achieved, we have achieved with a staff that has a much more diverse profile than the dti of 1994. This new profile, so much more reflective of the demographics of South Africa is emerging as a strength that will lead us into the future. Thank you to the Deputy Ministers and the Director General.