Speech Delivered by the Minister of Trade and Industry, Dr Rob Davies, on the Occasion of the 2011/12 Policy Statement and Budget Vote Speech – 19 April 2011 E249

Dr Rob Davies Minister of Trade and Industry, Budget Vote 36 2011/12 National Assembly
Members of the National Assembly
Officials of the Department Trade and Industry (the dti) and Council of Trade and Industry Institutions (COTII)
Leaders of organised Business and Labour
Distinguished guests
Ladies and gentlemen

The President often tells us the priority for this administration is not further debate, diagnosis or lamentation but rather implementation. It is therefore a pleasure to deliver this budget vote speech today in what has been a significant month of implementation for the dti.

At the beginning of this month the National Consumer Act came into force. Yesterday, we launched the Companies Commission which will begin to implement the new Companies Act on 1 May. Two weeks earlier, we launched the new iteration of the Industrial Policy Action Plan covering the period 2011/12-2013/14, and in between, we had highly significant engagements with our counterparts, the Trade Ministers of Brazil, China, India and Russia as an integral part of the first BRICS summit South Africa has participated in – an event which also saw the signing of a highly significant MOU on co-operation between business organisations of the BRICS.

Speaker, both the Consumer and the Companies legislation mark important steps forward in reforming and modernising our commercial law to the benefit of the vast majority of our citizens. The Consumer Commission is already making its presence felt as a key pillar in implementing legislation that I am convinced will be of enormous benefit to both consumers and producers struggling against unfair competition from sub standard and shoddy goods. The new Companies Act will provide for a modern, efficient system of company regulation that will reduce red tape and hassle while making necessary regulation more effective. The business rescue provisions in this Act will also allow for the early detection and turnaround of companies in financial distress and this will go a long way towards saving jobs.

Together, these new laws and concomitant implementing mechanisms will fundamentally change the landscape on how business is conducted and in how consumers are protected for the better.

As with almost any other significant new initiative, there will be a number of implementation challenges. Our approach has been that once we were satisfied that sufficient consultation and preparation had been undertaken, we would deal with any issues as they arise from day to day practice; rather than endlessly delay in the vain hope that further and further engagement will deliver a perfect plan on paper. We are thus taking up the President’s challenge to implement rather than to debate endlessly and lament.

Similarly, we are moving forward with the implementation of the IPAP2. Last year when we launched the first iteration of IPAP2 covering the years 2010/11-2012/13, we indicated our view that placing our country on a new higher and more labour absorbing growth path required that we address a number of structural factors that underpinned a reality that even when our GDP growth rates had been relatively high, production driven sectors of the economy has grown at about half the rate of consumption led activities. We identified a need to create a more effective financing framework for industrial development, to reform our procurement to ensure that a larger proportion of infrastructure spent went to locally manufactured inputs and to achieve a better alignment with macro policy, trade policy, competition policy and standards and quality assurance among others. We indicated last year that IPAP2 would be a three year rolling action plan that would be amended, updated and strengthened at the start of each financial year. On 6 April, we launched the latest iteration of IPAP2 – which will cover the period 2011/12-2013/14. We report in that document, as we did in a session with the Portfolio Committee, that substantial progress has been achieved in reaching targets set in the first iteration of IPAP2 and that we are beginning to see positive outcomes in some areas.

To illustrate, firstly, the Automotive Investment Scheme has been completed, leading directly to planned investments by automotive assemblers and component supplier companies of R13 billion – R9bn by the assemblers and R4bn by component manufacturers. Together these investments will support 24 000 jobs. A feature of these investments has been a significant expansion in local component sourcing by the OEM’s which is significant because most of the job creation in the automotive sector will emerge from smaller companies producing components.

Secondly, our programmes have had a positive impact on the clothing industry. Over 200 companies have utilised the Clothing and Textile Competitive Programme and Production Incentive resulting in the retention of 40 000 jobs and the creation of 1100 new jobs.

Thirdly, in the past year, investments of R40 million in the Business Process Services sector led to the creation of 950 new jobs and a further approval of R42 million new investment commitments linked to 806 jobs has been made. Under the Monyetla II Programme, 3,400 recruits are currently being trained of which 70 per cent have been guaranteed employment by the BPO consortium.

Globally Green industries represent an important new growth sector and we have begun to orientate our efforts to play a bigger role in this regard. These efforts have resulted in the revision of building standards that will require higher levels of energy efficiency and mandatory installation of solar water heaters in new buildings. In addition, The South African Bureau of Standards has finalised standards for solar water heaters; wind energy turbines; energy efficient lighting, appliances and products; electric batteries and alternative fuel vehicles and the co-generation of electricity and bio fuels.

We have also met the target set out in IPAP2 to complete the first stage of the complex work to reconfigure the regulatory framework of public procurement. A new framework of regulations developed by a Task Team that included the National Treasury, the dti and Economic Development, has been adopted by Cabinet and we await promulgation in the near future of the regulations by National Treasury.

These very significant amendments allow for the designation of sectors for local procurement, alignment with B-BBEE codes and to provide for simultaneous account to be afforded to important cost considerations. the dti has developed a sector designation methodology, and research is currently being undertaken with the view to incrementally designating sectors. The implementation of these regulations will represent a significant step forward in supporting local production and will, we are confident, result in growing businesses including a number of new small businesses. This growth of local business should also result in employment growth. I want to thank my colleagues the Ministers of Finance and of Economic Development for the collegial way we were able to work together on this important initiative.

The introduction of new localization and supplier development criteria within State Owned Enterprises (SOE’s) will similarly encourage new processes and systems to improve and leverage local procurement. That 90 of 100 locomotives procured by Transnet will be produced in South Africa is a signal of the very significant impact local procurement policy can deliver, particularly as government rolls out infrastructure development projects over the next few years. That 72% of a R4,2bn ARV tender was awarded to local manufacturers at a substantially reduced cost, is another example of what can be achieved.

As local manufacturers gear up to new opportunities, advancing and reform of industrial financing becomes critical. In line with IPAP2 objectives, the Industrial Development Corporation has reviewed its business model and balance sheet and identified about R100 billion over the next five years for investment in the New Growth Path and IPAP2 sectors.

Going forward, the 2011/12 to 2013/14 Industrial Policy Action Plan, envisages creating 43 000 direct and 86 000 indirect jobs following from the implementation of carefully identified transversal and sector specific interventions. A feature of the latest iteration, like the first, is that actions are tied to timeframes measured in quarters from the date of implementation.

IPAP2 then is not a wish list. It is an action plan which, like any other, will require sustained and focussed work and perseverance if it is to succeed. Progress must be measured, both internally within government and reported in Parliament and bodies like Nedlac. We remain committed to regularly reporting on progress as well as challenges we may face.

Of course, our ability to achieve our goals will depend also to some degree on the external environment – on factors which by definition, are beyond our control. In this regard, it is important to note that recovery from the global economic crisis has been slow. GDP growth in 2010 was 2.8% compared to the decline of 1.8% in 2009. Manufacturers have expressed their concern to the dti that the continuous appreciation of the Real Effective Exchange Rate to the highest levels on record in 2010, arising from massive short term capital inflows and a large current account deficit, represents a significant barrier to South African exports.

Speaker, notwithstanding these environmental conditions, the dti continues to be confident that there are significant opportunities for job creation both in value added productive sectors in general and through small enterprise development in particular. My colleague, Deputy Minister Thabethe will speak to some of our achievements in SMME development and I would like to make just one point. We have established an advisory group to look at areas where we could potentially achieve greater impact in our SMME support programmes. This was motivated by a sense that we are not making sufficient headway in realizing the potential of enterprise development. An early conclusion is that one of the areas of greatest potential success and, this is also borne out by international experience, is incubation programmes. The problem we face we face in South Africa is that we have between 30 and 40 recognised incubation projects whereas Brazil has 4000. Ramping ourselves up will be a major challenge and one in which government cannot achieve the necessary results on its own. We will accordingly be seeking more active partnerships with business and are looking at ways to tweak B-BBEE programmes, as well as direct SMME programmes to the develop the necessary synergies. In this connection I am pleased to indicate that SEDA is planning to roll out support for 250 incubation schemes over the next 5 years, as the first phase towards a target of 1000 small business incubators.

Regarding economic empowerment more generally, the BEE Codes of Good Practice were promulgated 4 years ago and we are now in a better position to assess their impact. The Presidential Advisory Council has made several policy recommendations to allow for greater participation by black people in productive activities and to tackle what is now emerging as increasingly complex practices of fronting. To this end, the dti and the Presidential Advisory Council are focussing on reviewing the BEE Codes of good practice and possibly amending the B-BBEE Act. This could entail, amongst others, refinements to ensure greater policy coherence in the application of B-BBEE across government and to strengthen access to procurement opportunities through the now approved and aligned PPPFA regulations. We are also looking at ways to strengthen our efforts to combat the fraudulent practice of fronting.

Speaker, co-operatives offer great potential as an accessible form of involving many people in economic activity and job creation. In the past year, 100 new small scale co-operatives with approximately 500 new job opportunities were established utilising the support structures of the dti.

This is not sufficient and we will shortly be introducing a Co-operatives Amendment Bill as well as a co-operative strategy to strengthen our programmes and address a number of evident shortcomings. Fundamentally these will seek to put in place cooperative specific institutions including a cooperative development agency, a cooperative tribunal, a cooperative advisory council and a cooperative academy. The new strategy is a product of extensive engagement with stakeholders and also with the DHET, which is working towards the establishment of a Co-operative Training Academy to provide customized skills development.

Speaker, our trade and investment programme is an important pillar in our overall strategy to support growth and the drive for decent jobs. A Trade Policy and Strategy Framework document was completed and adopted last year.

Promoting closer mutually beneficial ties as well as developmental regional integration in Africa and Southern Africa remains our top priority.

We have also taken into account, the seismic shifts that are taking place in the world economy that have seen developing countries like Brazil, Russia India and China emerging as new centres of global economic growth and also increasingly new sources of investment and export destinations. By joining BRICS, South Africa will be consolidating its already strong economic links with these economies. Our association with BRICS will enhance cooperation and coordination, and strengthen our collective voice in global fora. We have just returned from our first BRICS summit which outlined a number of new initiatives to strengthen mutually beneficial relations between developing countries. South Africa will work to build on existing trade and investment flows, while encouraging greater inward investment and exports of higher value added, employment generating, goods and services.

As far as investment promotion is concerned we are now involved in targeted initiatives with China, India, Russia, Brazil, Japan, Spain, Germany, France, UK USA and countries of the Middle East. We anticipate that this work programme will translate over the next three years into an investment pipeline of projects valued at R115 billion. This is a realistic target taking into account the results for the past year which show R28, 92 billion in investments resulting in an estimated 13000 jobs. We are aware that the issuing of business permits has been a matter of concern and, an inter-departmental task team headed at DDG level, is being established to fast track the processing of business permits. This committee must ensure that visas for investors are issued within 24 hours and work permits within 5 working days.

Another major development will be our hosting of the SADC-COMESA-EAC summit later this quarter. This is expected to formally launch negotiations for a trilateral “Grand” FTA between the 3 regional economic communities. The tri-lateral FTA will create a sizeable regional market comprising of 26 countries, with a combined GDP of US$ 624 billion and a population of approximately 700 million people. A larger, more integrated, and growing regional market will enhance foreign investment and intra-African trade. All this takes place against widespread recognition that after China, India and Brazil, Africa is the next potential growth story with a growing domestic market being an important driver of that growth.

At the multilateral level, renewed efforts to conclude the Doha Developmental Round this year appear to have come up against major, and perhaps fatal, obstacles. These arise, in our view, from efforts to place new demands in the areas of industrial tariffs and services on emerging economies without any indication of meaningful reciprocity. These unfair and unreasonable demands threaten to undermine the delicate balances achieved in processes to date-balances which we have argued are already tilted against developing countries-and therefore threaten to fundamentally invert the developmental mandate that launched the Doha Round. We remain convinced that the only kind of multilateral agreement worth supporting must be one that deals with imbalances and inequities that disadvantage developing countries and South Africa will therefore continue to add its voice to those who insist that a developmental agenda must remain at the centre of the negotiations.

This year South Africa will host COP 17, an important milestone in the ongoing climate change negotiations. It is increasingly clear to us that the trade aspects of these negotiations will need to be addressed. In particular, we need to ensure that a proper balance is found between making adjustments to avoid catastrophic climate change and securing the space for developing countries to pursue trade and development objectives.

Speaker to come back to the regulatory tasks of the dti, I am glad to report that a review of the Lotteries Policy Framework is underway and we anticipate that amendments will be introduced to the Lotteries Act to make the lottery more effective and efficient in addressing funding gaps in the country. The Gambling Review Commission completed its work in July 2010 and a report was finalised that will be tabled in Parliament as soon as further deliberations on the report are concluded. Coupled with this process, regulations have been published to limit advertising of gambling activities and to address illegal interactive gambling.

The Intellectual Property Laws Amendment Bill for the Protection of Indigenous Knowledge is before Parliament.

Finally Speaker, as we carry out this wide-ranging mandate the dti will continually focus on improving institutional capacity and administrative efficiencies, within a perspective we have adopted of “continuous improvement”.

As knowledge organisation, developing our Human resources are of our strategic importance. In addition to ongoing customised training programmes I am particularly pleased to report that this year we launched a new programme in collaboration with Wits University, to train economists with an industrial policy orientation.

We have again attained an unqualified audit report. Additionally, we participated in a dpsa commissioned Minimum Anti-corruption Capacity audit and were rated as the 2nd top performing national department, one percent behind SARS. Vacancy rates have been reduced from more than 25% to around 16% during the last two years. A Service Delivery Improvement Plan is now in place which seeks to improve the turnaround times on a range of indicators including our incentive schemes and dealing with queries.

As we continue to improve our services, we are aware of the key role other departments play in the effective implementation of many of our programmes. We will continue to utilise the the Economic Sectors and Employment Cluster to facilitate the implementation of IPAP. We will also continue to regularly participate in strategic engagements with social partners in Nedlac to enhance the robustness of our policy initiatives to ensure that they make a significant contribution to employment creation and economic growth.

In conclusion, I would like to thank my colleagues Deputy Ministers Tobias -Pokolo and Thabethe, the Acting DG Lionel October and the former DG, Tshediso Matona, the DDG’s, the Chairs and CEO’s of our agencies, Moosa Ebrahim and the staff of the Ministry, the Chairpersons and members of the Portfolio and Select Committees for their support and assistance over the past year. I have pleasure in requesting the House to support Budget Vote 36.

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