Department of Trade and Industry Minister Dr Rob Davies, MP Tables Budget Vote 2012/13

Mr Speaker
Members of the National Assembly
Officials of the Department Trade and Industry (the dti) and the Council of Trade and Industry Institutions (COTII)
Leaders of organised Business and Labour
Distinguished guests
Ladies and gentlemen

Mr Speaker, as Karl Marx famously put it more than a century ago, “Men make their own history but not in the circumstances of their own choosing”.

This administration took office in the midst of the most severe global economic crisis since the 1930s, just as the South African economy plunged into recession, declining by 1.3 per cent in 2009 and losing close to a million jobs.

Nearly 200 000 of these lost jobs were in the already fragile manufacturing sector.

Given this bleak backdrop, we had no choice but to act decisively by intervening as assertively as possible into the economy so as to protect our people’s livelihoods and their already imperiled dignity.

This commitment to saving jobs required us to:

• Sharpen  our interventions to support industrialization;
• Reform certain regulations to improve the business operating environment;
• Drive diversification of export markets for South African products.

the dti‘s primary purpose in supporting this government’s overall strategy is to Create Decent Employment through Inclusive Economic Growth.

This commits us to contributing to the New Growth Path’s target of creating 5 million decent jobs by 2020, while simultaneously raising the growth rate and reducing inequality.

Now, mid-term, is the moment to reflect on our progress.

In February 2010, my department published the Industrial Policy Action Plan 2. While this built on the National Industrial Policy Framework and the Industrial Policy Action Plan introduced in 2007, it sought to bring about an historic shift in the scale of our industrial policy, which was necessary to put our economy on a more labour-absorbing growth path that would in turn require structural changes to our economy.

Now we are putting productive activities at the fore in order to bring about a major shift from the consumption driven, and import intensive, growth path we had been on in the years before the Great Recession of 2008-9.

We have made a number of significant breakthroughs, Mr Speaker, which I am glad to bring to the attention of the House:

  • Firstly, we have stabilised the Clothing, Textiles, and Leather and Footwear industries;
  • Second, we have turned around the automotives industry;
  • Thirdly, we have helped prompt an increase in employment in the Business Process Services (BPS) sector;
  • Fourth, we have assertively adjusted public procurement so that it can act as a vehicle to promote local production.

Mr. Speaker, we all know of the challenges that have confronted the Clothing, Textiles, Leather and Footwear industries over many years. It had been apparent for some time that the incentive introduced in the 1990s – the Duty Credit Certificate Scheme – was not working and having a perverse effect of stimulating more import competition.

Accordingly, we energetically engaged our counterparts in the Southern African Customs Union (SACU) and replaced it with a Production-based incentive in 2009.  The new scheme – the Clothing and Textile Competitiveness Improvement Programme (CTCIP) – supports investments that raise competitiveness and has already resulted in greater job stability and even some employment growth among those companies accessing the programme.

Under this new programme, disbursements totalling R112m have been approved, R14.4m of which was disbursed to 106 companies, which combined with the R310m disbursed under the Production Incentive scheme has supported 48,384 direct and indirect jobs.

A major breakthrough, Mr Speaker, was the agreement reached with one of the major retailers in the industry, Foschini, whereby it has agreed to procure garments from South African SMMEs.

This is precisely the sort of commitment to our local economy that we need from South African companies.

Honourable members, in spite of coinciding with the global economic crisis, the Clothing and Textile Competitiveness Improvement Programme has not only stalled employment losses in 2010 but led to a modest increase in employment in 2011.

In the circumstances, this is a remarkable achievement.

In the case of the automotives sector, the transition from the Motor Industry Development Programme (MIDP) to the Automotive Production and Development Programme (APDP) by 2013 has largely been completed, helping to build sufficient confidence in South Africa’s capabilities and policies, even in the midst of global stagnation, to support over R15bn investment commitments from both assemblers and component suppliers.

These include investments by major international companies such as Ford, VW, and Daimler Chrysler. This has been accompanied by large increases in the number of vehicles assembled locally and by the production of component parts in South Africa.

Turning, Mr Speaker, to the third main area of progress, significant advances have been made in the Business Process Services sector, with a number of foreign operators locating in South Africa with over the last year, creating over one thousand new jobs.

A further set of approved projects will create approximately 11,000 jobs over the next 3 years:

  • 3,400 young trainees were trained under the Monyetla II Programme
  • The first Amazon customer service centre in Africa was established in Cape Town to service global English and German speaking clients.

Mr Speaker, this shows that where there is the will, there is the way: we can compete in the global economy.

But as the President has repeatedly emphasized, increasing the basic skills of our people will continue to be critical for our future prosperity.

Another major achievement has been the conclusion of interdepartmental work to reform the Preferential Procurement Policy Framework Act (PPPFA) regulations, which will enable my department to designate industries for public procurement by all public entities, including the State Owned Enterprises.

The first wave of designations including Buses, Rolling Stock, Power pylons, Canned Vegetables, Clothing Textiles, Leather and Footwear, and Set Top Boxes was concluded in December 2011 and last month we followed these with the Oral Solid Dose designation in the health sector.

Already, a progressive approach to procurement and supplier development has shown positive results in the awarding of 72 per cent of a R4, 2bn Anti Retroviral tender to SA manufacturers without additional cost to the state and in compliance with B-BBEE considerations. The ‘reference price’ that we will build into the Oral Solid Dose designation is intended to ensure that this tender has a similar outcome.

Funding for these sorts of strategic interventions is crucial. Accordingly, I am pleased to record the fact that the IDC has made available R102bn for industrial policy and the New Growth Path,  including R10bn set aside at prime less 3 per cent over five years.

Importantly, of this amount, R25bn has been earmarked for the Green Economy:  R7.7bn for agro-processing; R6.1bn to support distressed companies; and R500 m for the energy efficiency fund.

Not only must our economy protect jobs and grow to create new jobs, but it must do so in a sustainable and responsible manner, recognising the new opportunities that exist in the renewable and other ‘green’ sub-sectors.

The work we have been doing on beefing up our standards has assisted the growth of a range of new sectors, particularly related to green industries and industrial energy efficiency.

Mr Speaker, it used to be said by progressive leaders that they were too red to be green. Now, we recognise that we are too red not to be green: Sustainable development is about people as well as the planet.

In the same vein, inward investment in green field manufacturing plants by multinationals such as Unilever, Proctor and Gamble, Kimberley Clark, Nestle, FAW Motors, Kiran Global Silica and LG amongst others contribute to our vision of inclusive growth and a sustainable future.

The Unilever plant is environmentally sustainable and will become the design standard for all future Unilever plants globally. This reflects the type of quality investments and companies that set up in South Africa to service the African continent.

Mr Speaker, as we look ahead, we must also recognise how much, and how fast, the world’s economy is changing. Much of the EU, a major market for South African value-added products, looks set to be trapped in economic recession for some time to come. South Africa and Africa are however well positioned, with Africa poised to be the next growth story after Asia.

These circumstances require that we act smartly to mitigate the risks while positioning ourselves for the medium term benefits that will arise as Africa begins to assume its rightful position in the world economy.

In particular, we need to act to ensure that the global economic slowdown does not have a disproportional impact of jobs in manufacturing as it did during the first wave of the great recession in 2009.

In his State of the Nation Address, the President signalled the strategic leadership role that will be played by the Presidential Infrastructure Coordination Commission, which has already gone a long way towards producing a comprehensive and coherent infrastructure plan, capable both of providing a counter-cyclical response to the world’s economic travails, while laying the basis for economic development, including a major new wave of industrialisation.

Our role as dti will be to align industrial policy with this national strategy, and ensure that our industries are well placed to capture a significant share of the market for inputs the infrastructure programme will create.

From the lessons of the Clothing and textile production incentive among others, we have learnt that the way forward for manufacturing is to invest and raise competitiveness, and not wait in the vain hope that the global environment will improve.

It is for that reason that The 12i tax incentive has now been supplemented by the announcement in the budget of the Manufacturing Competitiveness Enhancement Programme (MCEP) which will be deployed towards upgrading the competitiveness of relatively labour-intensive and value-adding manufacturing sectors negatively impacted by the value of the Rand,  the global economic crisis and necessary increases in the cost of electricity.

Trade and competition policies are now more strategically aligned with industrial policy objectives. Tariff setting is significantly more sophisticated, informed by sectoral analysis and priorities.

Campaigns to tackle customs fraud, illegal imports and products that do not meet minimum mandatory standards have been increased.

All these major breakthroughs, honourable members, illustrate a clear demonstration of what targeted industrial support and state-led intervention can achieve.

This is the modern developmental state in action.

While we must inevitably pay close attention to the global economy and its shifting sands, we recognize the importance of small and medium-sized business to a inclusive economy at home.

To improve entrepreneurial capacity, we have begun scaling-up small business incubation programmes through the Small Enterprise Development Agency (seda).

As at the end of December 2011, incubators through the Seda Technology `Programme created 189 new SMMEs and 931 jobs.

To fast track timely payment for SMMEs a call centre was established through seda to facilitate payment within 30 days by government departments and agencies. The National Treasury has issued practice notes to all national and provincial departments including the SOEs on the requirement of 30 day payment to SMMEs in accordance with Treasury regulations with a view to address cash flow challenges faced by these enterprises.

Internal capacity to focus specifically on the informal, townships and peri-urban enterprises is being strengthened while work on developing the informal sector strategy including the micro finance programme will begin soon.

The review of the BBBEE Act was completed and a new bill gazetted that seeks to strengthen enterprise development and skills, in addition to addressing unintended consequences of previous legislative interventions, such as “fronting”.

Co-operatives are important, if undervalued, part of our economy and of an inclusive growth strategy. The Cooperatives Amendment Bill has been submitted for certification to the State Law Advisors and is due for submission to Cabinet for approval.

In the meantime, 220 small scale cooperatives have been established; 175 trained; and 115 provided with market access covering both local and international markets during the past year.

In an effort to increase market access for cooperatives, through the BRICS mechanism, South Africa and China have agreed to enter into business contracts – “cooperatives to cooperatives” – on the following three commodities: maize, wine and aquaculture.

Furthermore, Mr Speaker, the introduction of the New Companies Act has changed the manner in which business is undertaken in South Africa.

As a result, South Africa has improved significantly in the Africa Competitiveness Report’s index for ease of starting a business.

The introduction of the National Consumer Protection Act in April 2011 to promote fairness, openness and good business practice between the suppliers of goods or services and consumers of such goods and services was also a major milestone.

Lastly, Special Economic Zones are one of a number of new instruments we have developed to create an appropriate environment for foreign direct and domestic investment as well as the development of strategic industrial capabilities.

Special Economic Zones also enable the development of new industrial regions and the strengthening of existing ones.

In order to ensure that the Special Economic Zone programme is effective, a dedicated and integrated legislative framework is being established and we will fast-track its finalization and implementation. This will enable government to effectively regulate all SEZs, including the Industrial Development Zones (IDZ’s).

Mr. Speaker, while developed countries remain important markets and sources of investment and technology for South Africa, our exports to these economies remain well below the peak achieved in 2008, just prior to the global economic crisis. By contrast, the continued and rapid rates of growth in trade and investment with emerging developing economies – with China and India at the forefront – are striking.

As demand and growth in the North is likely to remain constrained in the foreseeable future, South Africa’s prospects for economic growth and development will increasingly depend on diversifying and strengthening economic links with dynamic economies in the South and in Africa.

In re-orienting our trade, South Africa’s trade and Investment strategy will focus on the BRICS countries, high growth markets in Africa, Middle East, Asia and other emerging economies such as Turkey, Indonesia, Chile, Vietnam and Thailand.

Indeed, we observe that Africa has emerged as South Africa’s most important market for our manufactured exports. Africa is well-poised to become the next global economic growth pole, but its full potential will remain unfulfilled unless we collectively and decisively address the constraints imposed by poor infrastructure, small, fragmented markets, and inadequate economic diversification.

For these reasons, we have advanced an ambitious developmental integration agenda in our engagements with our African partners, one that combines programmes for market integration with infrastructure development and policy work to support economic diversification and industrialisation.

We have pursued this agenda with a good degree of success in SACU, SADC and in the recently launched Tripartite Free Trade Area negotiations. As African economies continue to grow and as barriers to intra-African trade are removed, South African firms will find ever-growing opportunities for profitable business on the continent.

And we pledge that as the dti we will be with them every step of the way.

The shift in global economic dynamism to countries of the South also offers other substantial opportunities for South Africa. The economies of the big emerging markets – in Brazil, India and China especially – with large and expanding markets, provide almost limitless opportunities for South African business to expand their operations.

South Africa seeks to increase its exports of higher value-added products and to encourage inward investment to support our beneficiation and industrial development objectives. Our work in IBSA and BRICS is increasingly focused on cooperation to achieve these ends.

We are establishing programmes to share expertise and experience, and to pool access to finance, human capacity and technology in ways that will underpin our economic development objectives.

We aim to structure our economic relations with countries of the South in ways that foster complementarity and mutual benefit, while avoiding destructive competition.

Mr Speaker, the global economy is undergoing deep structural changes and the past few decades have seen the rise of new sources of global economic growth, trade and investment flows that are re-defining global economic landscape.

Global economic power is shifting before our very eyes from the North and West to the South and East.

Economies of the South are the main drivers of recovery from the 2008/9 “great recession”.

South Africa is adapting fast to this new global economic reality – one that is both threatening and full of opportunity, in equal measure.

In this era, no administration can choose the circumstances in which it must govern.

But it can make its own history, nonetheless.

And Mr Speaker, my department of trade and industry is doing everything in its power to enable this government to do just that.

Thank you.

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