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Minister Rob Davies: Trade and Industry Dept Budget Vote 2017/18

25 MAY 2017

Minister Rob Davies: Trade and Industry Dept Budget Vote 2017/18

23 May 2017

Madam Speaker       
Honourable Members
Deputy Minister Magwanishe
Director-General and officials of the Department of Trade and Industry and the Council of Trade and Industry Institutions
Leaders of organized Business and Labour
Distinguished guests

In an input to the Portfolio Committee earlier this year, I argued that the dti’s contribution to the promotion of a higher level of more inclusive economic growth must involve intensifying our efforts to promote Radical Economic Transformation in two inextricably linked dimensions.

First, it must involve redoubling our efforts to fundamentally change the colonially- defined structure of our economy as a producer and exporter of primary commodities through industrialization and moving up value chains.

Second, it must mean intensifying efforts to promote greater inclusion of historically disadvantaged black people in positions of ownership, management, leadership and control, particularly but not only in the productive economy.

On May 8 we launched the 2017/18-2019/20 IPAP. This is the 9th iteration of our rolling implementation plan to support industrial development and I sincerely trust that by now we have all accepted the necessity and imperative each financial year to identify the actions we intend to take as government to move progressively to implement higher impact industrial policies.

Key features of this year’s IPAP include:

  1. Stronger emphasis on the most job-creating sectors and “job-rich” industries such as clothing and textiles, agro-processing, and component manufacturing.
  2. Re-doubling our efforts to raise aggregate domestic demand for locally manufactured products through localization of public procurement and persuading the private sector to also support localization and local supplier development. 
  3. Building a stronger system of industrial finance and incentives to support and secure higher levels of investment in the productive sectors of the economy.
  4. Beginning to reposition the economy to prepare for the challenges and opportunities arising from the impending disruptive technological changes of the fourth industrial revolution.

One of the flagship programmes within IPAP is the Black Industrialist programme. This we launched in March 2016 when we said we would seek to support 100 black industrialists over the then Medium-Term Expenditure Framework (MTEF) period ending March 2019. I am happy to report that as of now we have approved 46 projects run by black industrialists, with Government agencies – including the dti, IDC, PIC and NEF deploying over R2 billion in financial support on top of R122m in grants from the dti. Our support has allowed these black industrialists to undertake investment projects of R3.7 billion and is projected to create more than 8,000 direct jobs and close to 12000 indirect jobs.    As we have indicated earlier we have now decided to accelerate the implementation of the programme to support 100 black industrialists. Instead of reaching this milestone by March 2019 we now intend to reach this target by the end of the current financial year i.e. by March 2018.

I need to stress that those benefitting from this programme have passed through a rigorous test to ensure that they are genuine manufacturing entrepreneurs who have met the identified criteria of ownership and personal leadership and who have placed their own funds at risk in developing their businesses. 

These black industrialists are a welcome reminder of South Africans’ tenacity and unbowed entrepreneurial spirit, even in the challenging economic circumstances we find ourselves in. Enterprises benefitting include Yekani Manufacturing, an electronics manufacturing company, represented here today by the CEO Dr Siphiwe Cele; United Industrial Cable, a specialized,  industrial cable manufacturer of copper and aluminium cables for industrial, Mining, Transportation and Power Utilities for underground and aerial installations, represented by Managing Director Mr Andy Matakanye;  K9 Pet Foods represented by Ms Candice Steward and  Micro Finish;  manufacturers of valve guides and valve seats to the Automotive, Locomotive, Marine and Aerospace industries represented by Managing Director Brian Naidoo.  I welcome to the house today these 4 of the 46 black industrialists we are currently supporting and know they will be happy to tell honourable members about their businesses, the economic opportunities and the business challenges they face.

Honourable speaker, our efforts to achieve more inclusive and higher levels of industrial development take place against the backdrop of continued challenges in the global economy.

According to the International Monetary Fund (IMF), the global economy grew by just 3.1% in 2016, the slowest rate of growth since the onset of the Global Economic Crisis. The global growth outlook for 2017 and 2018 remains modest at best, with growth expected to reach 3.5% in 2017 and to 3.6% in 2018.

As Honourable Members know, the South African economy grew by just 0.3% in 2016 after the modest growth of 1.3% in 2015. In part this was due to the impact of the aforementioned global challenges. On top of that we had in 2016 the impact of the severe drought, the slow recovery in the Mining sector with spillover weakness in key parts of Manufacturing and weak business confidence. Unlike some other peer countries, however, we were fortunate to have avoided a recession.

In 2016, The Manufacturing sector grew by just 0.7% sustained primarily by the food and beverages; automotive; chemicals; electrical machinery; and the radio, TV and communications subsectors. The outlook for the SA economy this year is slightly more positive, with the Agricultural sector recovering from the drought and commodity prices increasing somewhat.  However business and consumer confidence remains far too low. This means that if we are to achieve the NDP target of 5% GDP growth by 2030, we will need to be more decisive in implementing policy and resolute in defending our national interest.

With regard to the 9-Point Plan (the government’s programme to promote higher levels of inclusive growth) the Dti is tasked with leading and coordinating the implementation of three components, namely, the Implementation of a Higher-impact Industrial Policy; Advancing Mineral Beneficiation; and Scaling-up Private-sector Investment.

I am pleased to report that significant progress has been made in implementing IPAP programmes, sectorally and transversally. As well as the Black Industrialist programme to which I have already referred; revitalising industrial parks and special economic zones, can both be identified as programmes that can assist in promoting greater inclusion in manufacturing production. Many of these programmes have leveraged significant investments supporting job creation or retention in various manufacturing sub-sectors.

Madam Speaker,

It is important to state that the jobs and investment we managed to create would not have been possible without a deliberate effort by our government to support our industry. This was acknowledged in a recent report by the World Bank entitled “South Africa Economic Update” released in January 2017. This report supported public industrial financing as a tool to strengthen industrial development and it argued that, investment tax incentives had discernibly benefitted South Africa by encouraging investment in agriculture, manufacturing, trade and services sectors. It further states that the investment generated by tax incentives far exceeded government’s foregone revenue.

A case in point is Aspen Pharmacare’s investment of around R3 billion in new high tech, manufacturing capability over the last 18 months which has led to the introduction in South Africa of new complex technologies such as high potency oncology production, creating global export platforms. Indeed, this is a good example of how IPAP and our country's industrialization programmes are working.

Madam Speaker

In reporting on the automotive sector we must note that notwithstanding the withdrawal of GM, which has been overwhelmingly due to developments within the Company, the net investment trend has been positive. There are number of reasons for this: In 2014 the Automotive Investment Scheme (AIS) was amended to enable component manufacturers to earn an additional 5% on all qualifying investment as part of deepening and strengthening local component manufacturing, the most job rich part of the automotive value chain. This, together with the certainty we provided to the automotive OEMs through introducing the programme and communicating it in advance are the reasons we have seen higher investment recorded in the automotive sector.

Notable investment initiatives in this sector in the in the last financial year include the following:

Beijing Automobile International Corporation’s multi-billion rand investment in a vehicle manufacturing plant in Coega, which is set to create 2,500 direct jobs. The plant will manufacture pick-up trucks‚ SUVs and sedans for the African market. The plant will likely have an initial capacity to produce about 50,000 cars, trucks and sports utility vehicles. The BAIC investment is an outcome of the Forum on China-Africa Cooperation (FOCAC) that was held in Johannesburg in December 2015.

Toyota SA opened a R6.1bn assembly line to produce the Fortuner and Hilux. R1.9bn will go towards supplier tooling, R1.4bn to in-house tooling and the rest will be committed to in-house facilities and buildings to cater for new press machines. The project attracted five new international suppliers, while creating around 2,000 new jobs in the supply chain.

The tender for Supply, Maintenance and Financing of 150 Commuter Buses to Great North Transport was awarded to Mercedes Benz SA and Marcopolo SA as the bus-body builder. The approved total bid price including repairs and maintenance is R511m over the next five years. 

The current APDP is due to run until 2020and we are now engaged in an inclusive consultative process with all key stakeholders to develop an automotive Master Plan that will inform our motor industry programme thereafter. In addition to sector-specific incentives such as for autos, for Clothing and Textiles; and for Aquaculture, we also have various open architecture incentives such the Manufacturing Competitiveness Enhancement Programme (MCEP) and the 12i tax incentive scheme.

In the last financial year, we supported 270 projects in various manufacturing sub-sectors through the MCEP. Our support attracted private-sector investment to the value of R3.4bn with over 62,000 jobs retained.  The   12i tax incentive scheme supported 49 projects with a projected private-sector investment amounting to R25.7bn while the Aquaculture Development and Enhancement Programme supported 17 projects with a projected private sector investment of R383m.

Through our support, we have been able to establish a competitive Business Process Service (BPS) industry in South Africa. The BPS is crucial in our economy as it employs mostly young people and generates export revenue. In the course of the 2016/17 financial year, six (6) new projects were approved with projected export revenue of R4.5bn over the next five years. Critically, about 10,466 jobs were sustained of which 90% are occupied our youth.

Honourable members, since the local content designation of the Clothing, Textiles, Leather and Footwear sector as well as the introduction of the CTCP, significant improvements in terms of jobs, investment and exports have been realised.  Indeed recent employment figures confirm an increase in employment in the sector from 137,816 people in 2014 to 143, 719 in 2015, a net increase in 5,903 jobs. While real output grew 13, 9% from R26 bn in 2009 to R40, 67bn in 2015.

Footwear production increased to 2 million pairs in the first half of 2016 and employment creation in that sub-sector has continued to grow. Exports in the leather and footwear sector have also begun to increase.

The Agro-processing sector is an important labour-intensive sector prioritised in the IPAP. Last year we concluded the Economic Partnership Agreement with the EU with the aim of increasing market access for our agricultural produce such as seafood, wine, canned fruit and sugar.  Also, our partnership with the BRICS is bearing fruit as we saw our export of apples to China growing by 70%.

On the domestic front, working together with the private sector, the dti participated in the launch of a R100 million tomato processing plant in Tzaneen (Limpopo). The factory will address the increased demand for tomato paste in South Africa while at the same time it will create business opportunities for 15 small commercial farmers in the area.

Given the importance of agro-processing for jobs and enterprise development, I am pleased to announce that we have set aside R1bn to fund a sector-specific incentive for the Agro-processing sector in this financial year. The incentive will support both brown and greenfield investments, encourage investment in up- and downstream support services, and for the expansion of infrastructure to be used by farmers and Agro-processors.  I am confident that the Agro-processing incentive will make a positive difference by creating jobs and supporting smallholder farmers, amongst others.  Details of the incentive will shortly be available on the dti’s website.

The designation of sectors and products for local procurement remains one of the key policy levers at government’s disposal to reignite local production in manufacturing. To date, the department has designated more than 20 products with varying minimum local content thresholds. Going forward, we are planning to extend the designation of products to include the yellow metals sector, smart water meters: and fire trucks.

I am pleased to report that through local content requirements, most R2.6bn worth of production value that would otherwise have gone to imports was locked into the local economy  Sectors benefitting included  textiles, clothing, leather and footwear; furniture; electrical and telecom cables; solar water heaters; and power transformers.

Madam Speaker,

As a country it is crucial that we develop our own key industrial productive capacity and capability in key sectors. To leverage the massive public infrastructure development programme and improve our competitiveness in the global markets, IPAP has prioritised the development of the metal fabrication, capital and rail transport equipment sub- sector.

Honourable members will be aware our steel sector was negatively affected by the global glut of steel leading to the dumping of low priced steel products in many markets across the world. The circumstances required us as government to intervene decisively to save jobs and the productive capacity that exists in the sector. We established an inter-departmental Steel Task Team which worked closely with the primary steel producers and the downstream industry.

A number of measures were put in place in addition to the independent determinations of the Competition Commission to fine Arcelor-Mittal and secure its commitment to investment in plant and equipment.

These measures included moderate tariff increases for a range of primary steel products; the introduction of a new steel pricing  mechanism monitored by a Committee established under the auspices of ITAC to ensure that price increases for domestically produced steel are moderated as well as commitments on investment and job creation; Support for the downstream industry -which is the biggest job creator within the iron and steel value chain- also includes a tariff review on a range of downstream products and my colleague, Minister Patel will announce further support measures for the downstream industry in the Economic Development Department budget vote debate taking place this coming Thursday.

Our primary steel industry is still not out of the woods and the global steel market is not only very difficult but has led to some OECD countries imposing triple digit tariff and anti-dumping duties to protect their domestic markets.

However we can confidently state that our multi-pronged interventions have gone a long way to ensure that South Africa remains a steel manufacturing country.  In 2016, G20 countries established the Global Forum on Steel Excess Capacity facilitated by the OECD.  At recent meetings of the G20 and OECD Steel Committee held in March 2017, the Trade Union Advisory Committee to the OECD highlighted that the approach which SA adopted was an exemplary one.  SA’s policy intervention during the steel crisis not only included tariff and local procurement measures but also reciprocal commitments for job retention, investment and upgrading. It was indicated that the policy intervention was implemented with good social dialogue between government, industry and labour.

Madam Speaker

We believe that implementation of Broad-based Black Economic Empowerment (B-BBEE) including the trumping clause will go a long way in addressing economic transformation. The B-BBEE Commission established in terms of the 2013 BEE Act is now up and running to assist in implementing the B-BBEE Act; strengthen the advocacy component; and eradicate fronting.

Honourable members, accelerating economic development in the townships and rural areas is critical in addressing unemployment, poverty and promoting inclusive growth. In this regard, the dti prioritised the revitalisation of industrial parks, the first phase of which focuses on building appropriate infrastructure required to attract and retain investors. Thus far, 6 of the 10 targeted industrial parks have been revitalised at a cost of R278 million, including Seshego (Limpopo), Botshabelo (Free State), Isithebe (KZN), Babelegi (Gauteng), Vulindlela (Eastern Cape) and Komani (Eastern Cape). We are confident that the programme will attract more businesses to locate in the parks thereby increasing the economic growth and employment of these economically depressed regions.

On advancing mineral beneficiation, government is committed to leverage the comparative advantage derived from the abundance of platinum. South Africa has the world’s largest known deposits of the platinum group metals (PGM) estimated at about 80% of total global reserves. Whilst SA is a major supplier into the global market it is mainly at a primary level, with the current beneficiation of PGM’s in SA standing at less than 15%. Government is therefore committed to exploring additional avenues to beneficiate PGMs including the frontier industry in the PGM value chain; development of a fuel cell manufacturing industry.

We know that a number of companies are exploring the opportunities arising and in February this year for instance, Isondo launched its fuel cell plant on the sidelines of the Mining Indaba.

Furthermore the dti, the Gauteng Industrial Development Zone (IDZ) and Impala Platinum are undertaking a feasibility to assess the viability of establishing a fuel cells industrial park in Springs.

Additionally, the dti in partnership with the German government hosted 58 delegates for a fuel cell bus workshop from 20 - 21 February 2017 in Cape Town. The purpose of the workshop was for German metropolitan municipalities to share fuel cell bus deployment learnings with their South African counterparts. Part of the outcome of the workshop is an undertaking to attract three South African metros to adopt or demonstrate fuel cell driven buses with the intention of using that potential market to secure investment in fuel cell manufacturing in SA.  Indications are that fuel cell buses have the lowest emissions amongst public vehicle transport options and as a result global deployment is already on the increase.

Also, working with the industry we are piloting a fuel cells powered bus in one of our townships in the City of Tshwane.

In the titanium beneficiation value chain we can report that Tronox opened the R3.3bn Fairbreeze sands mine in KZN for the production of titanium dioxide creating 250 direct and 1,000 indirect jobs. the dti is supporting  work to assess the viability of the proposed establishment of a world scale titanium pigment plant in the Richards Bay IDZ. The R3.9 billion proposed investment by Nyanza Light Metals in the IDZ will create 550 permanent jobs when the plant is operational while1, 200 indirect and 800 direct jobs will be created during the construction phase.  

Madam Speaker,

South Africa is inextricably linked with the continent and in light of this the country’s engagement in promoting developmental regional integration continues unabated. 

In the short time available, I will mention just two issues. First, we have agreed with a number of our partners in the East African Community to target the completion of the tariff schedule negotiations between SACU and the EAC by July. This will be an important, commercially meaningful step, towards the implementation of the Tripartite SADC-Comesa-EAC Free Trade Area and a significant step towards our eventual goal of a Continental FTA.

Second, SADC has developed its road map towards its regional Industrial Development Action Plan. In August this year, South Africa will assume the chair of the SADC and I want to indicate that we will spare no effort to ensure that our Regional Economic Community is actually implementing its regional industrial programme before we hand over the chair next year.

Efforts to intensify exports and investment in Africa, has led to the establishment in the dti of Trade Invest Africa to lead our efforts to facilitate exports and investment to Africa across all sectors including Services, while also developing source markets for South Africa’s import demand. Companies that will be supported by Trade Invest Africa will be those that subscribe to the voluntary “Guidelines for Good Business Practice by South African Companies Operating in the Rest of Africa” to ensure that our private-sector subscribe to principles of good corporate citizenship whilst flying the South African flag in the rest of Africa. I must mention, Madam Speaker that this dti initiative has been well received and encouraged by the African Union as a positive framework to be used as a model by other countries.

The final component of the 9-Point Plan that we are responsible for is private-sector investment. A key commitment of the 9-Point Plan was the establishment of an investment one-stop-shop (Invest SA) composed of the relevant regulatory staff across Government. Invest SA already has physical premises in Pretoria and will be rolled-out to three Provinces in this financial year.

In concluding, I wish to use this opportunity to welcome Deputy Minister Magwanishe to the dti family and to thank him for the work he has already done. To the DG and all the staff of the dti, whatever has been achieved has been achieved through our collective efforts.

Finally, the Chairs of the Portfolio Committee and Select Committee have been an invaluable source of support and we will continue to rely on your wisdom as we take forward our journey of steady but continuous improvement.