Posted: May 4, 2013
Speaking Notes of The Minister of Trade and Industry, Dr Rob Davies at the Launch of the Industrial Policy Action Plan (IPAP) 2013/14-15/16 held at IDC Sandton on 4 April 2013
15. Industrial Financing and Incentives support for manufacturing
16. Trade Measures: Significant progress has also been registered with respect to implementing a range of trade measures:
The tariffs, standards, and compulsory specifications regime is increasingly aligned to support the manufacturing sector and within our obligations under the World Trade Organisation and a variety of Bi and multi-lateral Trade Agreements.
• The work of the Customs Section of the South African Revenue Service (SARS) has progressed incrementally with major advances against illegal imports; under invoicing and customs fraud involving the use of a real-time electronic system and risk engine; a reference price system and scaled up capacity. The illicit economy is a major concern and illegal imports and under invoicing provide a grossly unfair advantage to manufactures in other jurisdictions and must be stopped. I wish to express our gratitude to the SARS Commissioner, Mr Oupa Magashula and Customs in general for their support as we look forward to an even stronger combined effort in this regard in the years to come.
17. Port Charges: High port charges and port and rail inefficiencies constitute a major constraint to the manufacturing sector because they substantially lower the competitiveness of SA’s tradable goods in export markets. In this context the announcement by the Transnet CEO, Mr Brian Molefe that a full review of existing port charges has been undertaken and this will result in substantial reductions in port tariffs for exports of manufactured goods. This will bring to an end the system whereby the export of bulk commodities and the import of manufactured goods was cheaper than the export of manufactured goods. I wish to express our gratitude to Mr Molefe for this decision. I look forward to a speedy implementation of the new regime and ongoing collective government effort with respect to port, rail and logistics inefficiencies.
18. Input Prices: Very high input prices into the manufacturing sector – especially steel and plastics/polymers remains a major constraint to the competitiveness of domestic manufacturing and an impediment to foreign direct investment. IPAP 2013 signals achievements of the Interdepartmental Task Team on Iron and Steel as follows.
o Measures to restrict the unencumbered export of Scrap Metals will soon be put in place under Minister Ebrahim Patel following the public participation process.
o An intervention led by the IDC to secure competition in the steel sector is well advanced involving a foreign investor on the basis of secure iron ore supply; new technology and conditionalities to ensure that developmental ore prices are passed through as discounted steel prices.
o The amendment of the Competition Act to ensure that the abuse of market dominance in the supply of strategic inputs into manufacturing is curtailed.
With respect to the Sector Specific Programmes the following are key highlights :
19. Automotives, Medium and Heavy Commercial sector:
20. Clothing, Textiles, leather and Footwear: A turn-around in the fortunes of the Clothing, Textiles, Leather and Footwear industry achieved, bringing relief to a sector in distress. Introduction of the Competitiveness Programme halted the employment decline and 12, 205 new permanent jobs created. Local retailers have committed to local procurement in support of manufacturing companies. Retail companies such as such as Foschini are participating in a Cluster Programme and are also supporting CMT operations such as Prestige Clothing. Over 469 companies were assisted under the CTCP with R1.5 billion worth of applications approved.
21. The 2012 IPAP signalled a focus on other sectors where significant domestic capacity and opportunities exist. These include the
• the dti was instrumental in the R1bn investment in metals coating facility (Safal Steel).
• Investment worth R1, 2bn secured to assist HDI owned and controlled SMMEs in the Agro-processing sector.
• Agro Competitiveness Investment Fund approved projects to the value of R76m.
• New R150m Soybean Facility supported under Manufacturing Investment programme (MIP) and other investments facilitated in various sub-sectors e.g. Rooibos and Honey bush, small-scale milling, food processing.
• Agreement has been reached by the Inter-Departmental Team on the design of a fiscal incentive for the biofuels industry. Key benefits:
• Aquaculture Development and Enhancement Progamme (ADEP) established.
• The roll-out of the REIPPP has under-pinned significant investments in the renewable energy component manufacture – various investments in wind tower manufacturing facilities and solar power plants have been made – DCD (R300mil), Mainstream Renewable Power (R4.6bn) and Sun Edison (R2.6bn).
• Services sectors such as Business Processing and Film have continued to attract world renowned outsourcers and film productions. SA named Off-shoring Destination of the year in 2012 in UK. R1.1bn investment leveraged through the BPS incentive scheme with 4500 jobs expected to be created over the next three years.
• Sustained dti support through the film incentive has facilitated an impressive roster of locally shot block buster films (Chronicle, Safe house, Adventures of Zambesia).
22. Future Plans:
• Beneficiation: A major study into 5 value chains is being undertaken with the IDC. This is intended to leverage South Africa’s enormous resource endowment into a beneficiation effort that can turn around the country’s existing and unsustainable dependence on the export of unprocessed commodities, whilst providing competitive advantage to domestic manufacturing in the form of developmental commodity prices.
• Regional Integration: The Sub Saharan African region is considered the new global frontier of economic growth fuelled by rising incomes of a growing middle class; mineral and commodity exploitation and regional energy and transport infrastructure investment. These developments present a significant opportunity for mutually beneficial development and range from planning cross-border infrastructure to the effective realisation of up and downstream linkages in resource exploitation, to the realisation of supply into massive construction opportunities. This work is the subject of greatly stepped-up research, stakeholder engagement and detailed planning, in the context of complex institutional and governance considerations.
• Innovation and Technology: Work to strengthen technology platforms that will encourage innovation and technology development and the acquisition and commercialisation of new technologies. Close coordination and the integration of support measures and incentives managed by the dti and the Department of Science and Technology for industry are envisaged.
• Infrastructure: Alignment of IPAP programmes to the roll-out of government’s massive infrastructure development programme, under the auspices of the Presidential Infrastructure Coordinating Committee (PICC) imperative. This offers the possibility of substantially increasing aggregate demand for the key inputs that will be required and, crucially, for the localisation of a wide range of manufactured inputs into the infrastructure build – especially in the construction, metals, capital and rail transport equipment and renewable energy sectors.
• New Export Markets: Continued efforts to explore opportunities to grow the base of South African exports, especially with respect to value-added agricultural manufacturing exports to net food-importing countries in the near and far East and the Gulf states. This entails the strengthening of existing export market research, market and product identification, development and matching, and an export promotion drive that fully includes strategic domestic manufacturers.
• BRICS: South Africa’s participation in the BRICS provides important opportunities to build its domestic manufacturing base, enhance value-added exports, promote technology sharing, support small business development and expand trade and investment opportunities.
23. Constraints: IPAP is implemented against the backdrop of external and domestic shocks compounded by wide-ranging structural challenges which continue to be an impediment to industrial development. These are set out in IPAP and include:
• Slow recovery and continued vulnerability of the global economy particularly with respect to SA’s key traditional trading partners and the difficult process of changing SA’s export profile.
• The speeding up of infrastructure investment given the protracted slowdown in public and private fixed investment expenditure growth in the recent period.
• The volatility and until recently a generally over-valued exchange rate.
• Slow progress with respect to adequately exploit domestic supply opportunities of the public capital expenditure programme and other large public “fleet” expenditure for all SOE’s.
• The monopolistic provision and pricing of key inputs into manufacturing.
• A weak skills system, which does not adequately respond to the needs of productive sectors.
• Significantly, above-inflation increases for administered prices. Especially where huge premiums are added to Eskom tariffs electricity prices and the absence of a uniform municipal tariff structure in and between muncipalities.
• Ongoing high cost and inefficiencies in the rail, ports, freight and logistics systems.
24. The Way Forward
The IPAP 2013 reflects significant achievements; new policy platforms and exciting new opportunities for the domestic economy.
SA cannot maintain such a large current account deficit and a huge manufacturing trade deficit.
Very important that Governments efforts continue to focus on a consolidation of its strengths in the spheres in which we are globally competitive, whilst greatly intensifying our efforts to build a fully diversified, globally competitive, manufacturing sector – the most important pillar of labour-absorbing growth and social stability.
The road ahead requires an understanding of important country-specific opportunities, including those arising from South Africa’s resource endowment and geographical location.
The implementation of the Industrial Policy Action Plan demonstrates that industrial policy works: provided it is well designed, adequately resourced and informed by robust and constructive stakeholder dialogue and partnerships. With a genuinely shared collective commitment between government, labour, business and civil society, the rejuvenation of our productive sectors can be achieved and consolidated.
Sidwell Medupe-Departmental Spokesperson