National Council of Provinces (NCOP) Budget Vote Speech Delivered by the Minister of Trade and Industry, Dr Rob Davies, MP, Old Assembly Chamber, Parliament, Cape Town

National Council of Provinces (NCOP) Budget Vote Speech Delivered by the Minister of Trade and Industry, Dr Rob Davies, MP, Old Assembly Chamber, Parliament, Cape Town

Honourable Members
MEC’S and Heads of Departments
Ladies and Gentlemen

We have repeatedly indicated in addresses to this Council that the promotion of economic growth, development and decent jobs requires us to work together across the three spheres of government as well as in active collaboration with non-state stakeholders including business and labour.

Achieving a higher level of synergy of effort is becoming an increasingly evident imperative as we move forward in a number of areas of responsibility to the dti, including industrial policy, the promotion of Small, Medium and Micro Enterprises and cooperatives, the management of specific regulated activities such as liquor and gambling, and international trade and investment promotion.

Our department’s main contribution to our collective national effort to place our economy on a new growth path capable of creating 5 million new jobs by year 2020 is through the implementation of our Industrial Policy Action Plan-which is both our flagship programme and the programme which shapes and informs all of the activities of the dti.

In April this year we released the latest iteration of our rolling three year Industrial Policy Action Plan (IPAP2). This took place against the background of pleasing news that year on year growth for the 1st quarter of 2011 was 4.9% for the manufacturing industry, the highest of any of the economic sectors recorded. However, employment growth in the sector continues to lag behind output which remains a major concern and focus of attention as we move forward.

Amongst other things, the latest iteration of IPAP2 highlighted a number of successes achieved during the year 2010/11. These include;
Firstly, the finalization and strategic implementation of the Automotive Investment Scheme framed an environment which led  by automotive assemblers and component supplier companies to announce investment commitments totalling R13 Billion which will  support the creation of  24, 000 jobs. Of particular significance is the expansion in local component sourcing by the Original Equipment Manufactures (OEM’s) which is important because most of the job creation in the automotive sector will emerge from smaller companies producing components.
Secondly, we saw the implementation of new procurement policies underpinning significant localisation in a number of sectors. An important example was the awarding of 72% of the recent ARV tender to local companies that will result not only in the growth of this sector locally, but also in significant savings for government. We also saw an advance of localization and supplier development programmes within some SOE’s resulting in a commitment to ensure that 90 of 100 locomotives which will be procured by Transnet will be manufactured in SA.

Thirdly, we saw good progress in creating employment opportunities for young people in Business Process Services (BPS) where investments totaling R82 m were announced which will yield in the region of 1800 jobs.

Fourth, with Green industries becoming increasingly important globally, IPAP2 identified significant opportunities for business development and job creation in this area. As part of IPAP2, the South African Bureau of Standards has successfully drafted new standards for solar water heaters; wind energy turbines; energy efficient lighting; appliances and products; electric batteries and alternative fuel vehicles; and co-generation of electricity and bio-fuels. Building standards have also been revised to ensure high levels of energy efficiency and mandatory installation of solar water heaters in new buildings. The IDC saw a significant take up of its specific facility for the production and installation of solar water heaters.

Some of the major steps forward we anticipate making during the current year include further progress on the reform of procurement regulations and processes to support localisation. On 6 June 2011 the Minister of Finance gazetted new preferential procurement regulations, which will come into effect on 7th December 2011. These regulations will empower the dti to designate specific industries, of critical and/or strategic importance where such tenders should prescribe that only locally manufactured products will be considered or that only locally manufactured products with a prescribed minimum threshold for local content will be considered.  the dti is currently hard at work to ensure that when the new regulations come into effect we will be ready with a number of designations to ensure that as our infrastructure investment programmes advance they will act as a catalyst to local industrial development.

Work to leverage more from the balance sheet of the IDC has already unlocked between R70-R100 billion. to finance new initiatives and this year we anticipate finalising our work to identify a new model of developmental financing for industrial development that we hope can result in an increasing quantum of funding being available at cheaper rates.

Chairperson, while manufacturing remains the backbone of the South African economy, due to a combination of several factors, it remains largely concentrated in three main regional hubs. In this regard, there is consensus for the need to regionally diversify manufacturing industries to new economic regions in addition to the current hubs. Industrial Development Zones (IDZ), if effectively managed, can be useful instruments for promoting a more regionally diverse manufacturing industry. During the 2010/2011 Financial Year, two IDZs, i.e. Coega and Industrial Development Zones (ELIDZ) attracted 9 investors with an estimated value of R620m. These investments will support an estimated 4551 construction jobs and a further 1400 direct jobs. These developments point to the potential that exists in the IDZ model, which however needs to be improved and developed. I am pleased to indicate that together with our colleagues in the provinces we have almost completed a policy review which will be the basis on which we propose working together to advance greater regional diversification of industrial development.
In line with these developments, we continue to learn from our efforts to promote the development of small businesses and co-operatives. An early conclusion of our ongoing review is that we need to give more priority to incubation programmes that both our own experience and that of other countries, tells us is a particularly promising way to grow real entrepreneurs. The problem we have is that there are only around 40 recognised incubation projects in South Africa, whereas Brazil has several thousand.  Small Enterprise Development Agency (Seda) has embarked on a programme to roll out 250 incubation programmes over the MTEF period and I trust that Seda will work with both provincial and local government agencies to ensure that this programme delivers what we need.

On the regulatory front,   Members will be aware the new Companies Act is now in force. We strongly believe that implementation of this new Act will simplify business registration processes, reduce red tape and enhance transparency of companies. With regard to implementation, since our previous budget vote to this Council, the Companies and Intellectual Property Commission and the National Consumer Commission have been established.  More work will be undertaken in the current financial year to extend the provincial footprint of the National Consumer Protection Act.

Chairperson, we reported previously that in December 2009 we launched a Gambling Review Commission to define a new framework for the regulation and roll out of gambling activities taking into account both business dynamics and the need to protect the public from unhealthy overstimulation.  The Commission has completed its work and Cabinet has approved the submission of its report to Parliament. It will be tabled as the Report of the Commission and it is my earnest hope that Parliament will assist us in defining a sensible and sustainable framework for this activity.

Honourable members, the dti, together with the provinces also regulates the liquor industry. This industry provides employment to thousands of people and is therefore important economically. However the negative impact that alcohol abuse has on our society was recently highlighted at a conference organised by my colleague the Minister of Social Development. The liquor regulators forum has developed a number of proposals aimed at more effectively combating alcohol abuse and I trust that in the next liquor policy council we will be able to engage these in the spirit of working together to achieve more.

In the Presidency budget vote debate in the National Assembly on June 14, the President indicated that we are reviewing the BBBEE Act and Codes to , amongst other things, more effectively combat fronting, including complex fronting, and emphasising the use of BBBEE to support productive activity and training and skills development. A number of proposals have already been discussed in the Cabinet Cluster on Economic Sectors and Employment and are being refined for presentation to Cabinet in the near future.
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Chairperson, it is self evident that in an increasingly globalised world prospects for local and regional economic development are greatly influenced by trends in international trade relations. Conversely, though developments at local and regional level may impact in varying degrees on what happens in the international sphere. Therefore while the primary focus of this Council is on provincial and local economic development, giving effect to this mandate also requires engagement with matters of international economy and trade.

As we all know, the global economy is undergoing a tentative recovery from the worst recession in 70 years and this has significant implications for our economy. In particular, the economic recovery in our key traditional export markets, the US and EU remains slow. On the other hand there is sustained growth in the large developing economies of China, India and Brazil, while Africa is increasingly being seen as the next growth story.

All of this necessitates a process of trade adjustment as we redirect and accelerate our export promotion efforts towards the fast growing developing countries. Already we have seen a fourfold increase in our exports to fellow BRICs, while our imports from them doubled. Our admission to the BRICs earlier this year enables us to participate in a programme to develop a new framework for intra-BRICs cooperation, and we have indicated that what we seek is not just a further quantitative increase in that trade but also a qualitative shift that will see us exporting more value added products to those countries.

We have also identified a need to move forward with the promotion of developmental integration on the African continent. This strategic approach is already bearing fruit. Last year, the Heads of State of the Southern African Customs Union met twice, and those meetings have helped to forge a more coherent developmental and integration work programme for SACU. On the basis of that platform, the dti is focusing on identifying regional value chains that support industrial development across SACU member states.

We also continue to work to consolidate gains made under the Southern African Development Community (SADC) Free Trade Area (FTA). Earlier this month, our President hosted a Tripartite Summit of SADC the East African Community (EAC); and the Common Market for Eastern and Southern Africa (COMESA). This Summit launched a process to negotiate over the next three years a Tripartite Free Trade Area that encompasses all three regional groupings. The economic potential for the T-FTA is in our view considerable. It will draw together the markets of 26 countries, with a combined GDP projected to reach US$ 2 trillion by 2013 and a population of over 500 million people.

Substantive progress has also been made to promote targeted foreign direct investment from a range of countries including China, India, Russia, Brazil, Japan, Spain, Germany, France, UK, USA and Middle East. The work programme will translate over into an investment pipeline of R115 billion of projects over the next three years.  R28 billion of this has already been secured with potential to create 13000 jobs.

Finally, I would like to report on some very specific Local Economic Development (LED) efforts. During the past year as a pilot project, the dti supported the Umgeni local municipality in developing a Business Retention and Expansion (BRE) strategy and Agricultural Development strategy.

The department also supported catalytic projects through the IDC (Vutha’mlilo Fund) to create an enabling environment aimed at economic development. Completed projects included the training and employing of youth through the Local Economic Development Cadet programme in which learners were trained in Economic Development and Governance and were placed in LED agencies and municipalities across the country.

In total, 10 projects were supported by the Vutha’mlilo Fund. They include a forestry initiative in KwaZulu Natal, Business Retention and Expansion across several provinces, a chicory production and beneficiation and tourism project in Ingquza Municipality-Eastern Cape, mining in Mutale, Limpopo, and an energy project in Blue Crane Municipality, Eastern Cape. the dti in partnership with the University of Johannesburg (UJ) concluded an agreement for UJ to offer a capacity building programme to provide skills support to municipalities with regard to economic development.

In conclusion let me thank the Chairperson and members of the Select Committee for all the hard work and support given to our programmes in the past year. I have pleasure in calling on the NCOP to support the budget vote of the dti.