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

  1. The Industrial Policy Action Plan (IPAP) 2013/14 – 15/16 is the 5th iteration of the three year rolling action plan and covers the last full financial year in the term of the present administration. It is located in the vision of the National Development Plan and forms one of the principal pillars of the New Growth Path.
  2. IPAP is predicated on the need to bring about significant structural change to the South Africa economy. The existing growth path is led by the consumption driven sectors, which are growing twice as fast as the productive sectors.
  3. The economy is import intensive especially with respect to value added products.  Stronger domestic growth in the manufacturing sector is imperative.
  4. High structural unemployment is a constant, oscillating between 22,5% and 25% if the narrow definition is used.
  5. The economy is characterised by extensive financialisation, but only a small percentage of investment is channeled towards the productive sectors.
  6. Macro policy has been unable to address the challenge of a volatile and hitherto overvalued exchange rate, which has had a serious negative impact on the tradeable, value-adding manufacturing sector.
  7. IPAP 2013 focusses on value added production with state support centred on nurturing and defending industrial development. IPAP is based on need for sustainable long-term development that is underpinned by higher growth, exports and labour-intensive, value-adding economic activity in the production sectors, led by manufacturing.
  8. IPAP has sought to assert state leadership in a context where the state largely steers but does not row.
  9. IPAP Identifies a range of complementary policies that needed to be aligned, integrated and in some cases subordinated to Industrial Policy such as trade policy, export and investment promotion, industrial finance, public procurement, competition policy and so forth.
  10. Successive IPAP iterations set out Transversal and Sector Specific Programmes and Key Action Plans, with time-bound milestones and the identification of the lead and supporting agencies responsible. This has served as useful tool to strengthen intra-governmental integration and coordination.
  11. The IPAP format has also served to strengthen and deepen government, parliamentary and public oversight and accountability for the targets and milestones it contains and has been an important mechanism for stakeholder engagement especially with industry and business.
  12. It is for these reasons that IPAP 2013 is presented in a new, hopefully more, user-friendly format. We have included a poster insert, which sets some of governments supporting instruments and institutions, hopefully in a similar user -friendly manner and to demonstrate that the IPAP is underpinned by and integrated with other programmes.
  13. The deployment of a wide range of inter-locking policy instruments over the past 5 years has resulted in a significantly more conducive environment for the manufacturing sector but importantly created a springboard for deepening and extending industrial policy across sectors to achieve government’s development objectives in future. At a transversal level these include:
  14. Procurement:
    The deployment of a range of new procurement policy levers has produced a sea change in the general environment of industrial development. These instruments include:
  • Eight sectors have been designated for local production. Three sectors are set to be designated shortly: Valves, Manuel and Pneumatic actuators, Power and Telecom Cables and Components of Solar Water Heaters.
  • The Competitive Supplier Development Programme (CSDP) has effected significant progress to deepen localisation and supplier development in the large fleet procurement processes of State Owned Companies (SOCs).
  • The ‘new’ National Industrial Participation Programme (NIPP) has been finalised. The associated Regulations will be gazetted shortly. New NIPP will ensure weaknesses in public procurement above a US$ 10 million threshold are addressed within a more rigorous and robust system.
  • Localisation in the renewable energy generation programme; and
  • Increasing acceptance and implementation of localisation targets across the spectrum of state procurement regimes.

It is a matter of concern that although government has successfully used the procurement instrument to support local manufacturing – the private sector has not come to the party and commitments contained in the Procurement Accord remain largely on paper. There are numerous examples where private sector support for localisation and supplier development could make a significant difference – mines (capital, mining and transport equipment); private health care (medical supplies and pharmaceuticals); retail (supplier development and support across a range of sectors including agro-processing) and so forth.

15.  Industrial Financing and Incentives support for manufacturing

  • The incremental re-orientation of the Industrial Development Corporation (IDC) towards industrial development objectives has come a long way. R102bn was set aside by the IDC some of it at concessional rates for various sectors. R26bn has been utilised to date. I would like to take this opportunity to thank Mr Geoffrey Qhena the CEO for the IDC’s ongoing support.
  • The inception and successful roll-out of the Manufacturing Competitiveness Enhancement Programme (MCEP) providing support to manufacturing for competitiveness upgrading; energy efficiency; feasibility studies, clusters and so forth adds to the existing extensive suite of government incentives. 149 applications for the MCEP have been approved over the last financial year with commitment grants valued at R716m disbursed. The new and substantial Spatial Economic Zone (SEZ) incentive will come on stream this year.
  • The 12(i) Tax Incentive has supported large manufacturing investments worth R6.8bn, with 1,115 jobs expected to be created.

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:
A major advance has been the finalisation of the transition from Motor Industry Development Programme (MIDP) to the Automotive Production and Development Programme (APDP) which includes the Medium, Heavy and Commercial vehicle segments of the automotive industry, including SA’s only domestic OEM in the sector – Bell Equipment. Private sector investments worth approximately R16bn including in the public transport segment of the industry have been secured. These include – First Automobile Works truck plant in Coega, Beijing Automotive Works taxi assembly plant, Toyota SA’s taxi assembly line and distribution centre, Mercedes Benz new C-class production, BMW’s increased production capacity in Rosslyn. Production is up to 539 424 units and exports have increased to 277 893. The strengthening of local components has been bolstered by the Automotive Investment Scheme with 128 projects supported sustaining 57 197 jobs.

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
Metals, Capital and Transport Equipment, Agro-Processing, Green Industries, Pharmaceuticals and  Business Process Services sectors. Highlights include:

• 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:
o R8.9bn annual savings on the balance of payments
o The creation of 55,000 new jobs
o Reduction of 498,000 tonnes p/a in CO2-equivelant emissions

• 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:
IPAP 2013/14-1015/16 builds on successive iterations of IPAP and sets out certain new and embryonic policy directions and plans. These identify and seek to open up very significant and exciting opportunities for the domestic manufacturing sector. These areas of work require further research, stakeholder engagement and planning and will find expression in the 2014 IPAP:

• 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
Tel: (012) 394 1650
Mobile: 079 492 1774
E-mail: MSMedupe@thedti.gov.za
Issued by: The Department of Trade and Industry
Follow us on Twitter: @the_dti

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