Department Economic Development & ITAC 2018/19 Annual Performance Plan; with Minister

Meeting report

The Chairperson said that the meeting was the last one for the consideration of annual performance plans (APPs) for the term of office of the Committee, and no APPs would be considered in 2019 because it was an election year. It would therefore be important to gauge how much progress had been made. 2010 was the year when the Economic Development Department (EDD) had become active and it was also the year when its first strategic plan was developed. The National Growth Path (NGP) had been developed and it had been followed by the National Development Plan (NDP), and the former had been the enabler of the latter. There were also accords that had been signed by the Department with other stakeholders which were meant to assist with the integration and coordination of policies.

Minister’s Overview

Mr Ebrahim Patel, Minister of Economic Development, said the introduction that had been given by the Chairperson contextualised what they would be doing at the meeting. At the start of every administration, government adopted a five-year medium term strategic framework (MTSF) -- a five-year view of the government as a whole -- which was then published. Each department from there developed its strategic plan, which was also for five years, but it was specific to that portfolio. The Cabinet minister responsible for that portfolio then tabled in Parliament the annual plan to give effect to that five year vision and the five year-year strategic framework. This was the last one of the current MTSF that would be tabled before the Committee.

Each year the targets were reviewed, and some of the targets grow over the five years and the annual plans were adjusted to reflect that. Secondly, any significant new developments that may require adjustments to the APP were taken into account. Generally speaking, however, attempts were made not to change the annual plans significantly year by year so that the Department and the entities know the dashboards of performance that were expected, and they could keep on improving.

Feedback from Parliament, investors, unions and other government departments sometimes led to the raising of the bar of performance, but the aim was to try to remain faithful to the APP. This was the context in which the annual performance was tabled. The presentation would provide a summary of the projects that the Department intended to work on, taking account of the request by the Committee that there should be a little more granular detail on what exactly would be happening in the year

The core mandate of the EDD was to:

• Identify priorities for job creation, inclusive growth and industrialisation;
• Oversee and provide strategic direction to Development Finance Institutions (DFIs);
• Provide strategic direction on competition policy and trade administrative matters through oversight of regulatory bodies (competition authorities and the International Trade Administration Commission);
• Provide technical support and secretariat services for the Presidential Infrastructure Coordinating Commission.

The International Monetary Fund (IMF) estimated that the global economy had grown by 3.6% in 2017, while South Africa’s economy grew by 1.3%. The recovery was driven largely by agriculture, as the impact of the drought receded partly in some provinces. Private sector investment improved in 2017 after two years of decline, while public sector investment moderated slightly. An estimated 102 000 jobs were created in 2017, and unemployment stood at 26.7%.

Annual Performance Plan

The APP seeks effective ways of producing quality products and impact. The following were the priorities in the implementation of the APP:

• Facilitating social dialogue and implementing accords;
• Implementation of the jobs drivers;
• Promoting and unblocking productive investment;
• Expanding infrastructure development and increasing localisation of infrastructure  inputs and industrialisation programmes;
• Supporting economic inclusion such as boosting youth and women entrepreneurs, providing funding to black industrialists and tackling market concentration;
• Strengthening oversight on economic regulators and DFIs.

There were three programmes in the EDD with six strategic objectives to provide direction. There were 23 key performance indicators to give effect to the strategic objectives and 182 products or outputs from the KPIs.

The Department’s nine-point plan had been developed under the following headings:

1. Resolving the energy challenges;
2. Revitalising the agriculture and agro-processing value chain;
3. Advancing beneficiation and adding value to mineral wealth;
4. More effective implementation of the Industrial Policy Action Plan (IPAP);
5. Encouraging private sector investment;
6. Moderating workplace conflict;
7. Unblocking the potential of small, medium and micro enterprises (SMMEs), co-ops and township and rural enterprises;
8. Cross cutting areas to reform, boost and diversify the economy, such as the water and sanitation infrastructure;
9. Growing the ocean economy and tourism.

Minister Patel outlined the strategic objectives of the Department’s three programmes, and described the key performance indicators. These included ensuring good governance and administration of the EDD, coordinating jobs drivers and implementing the NGP economic strategy in support of the NDP, facilitating social dialogue and the implementation of social accords, coordinating infrastructure development and strengthening its positive impact on the economy and citizens, promoting productive investment, industrial financing and entrepreneurship for jobs and inclusive growth, and promoting competition, trade and economic regulation in support of job creation, industrialisation and economic inclusion. (See document)

The Departmental budget for 2018/19 was made up of R86.5 million for Programme 1 (Administration), R34.4 million for Programme 2 (NGP and social dialogue), and R951.7 million for Programme 3 (investment, competition and trade).

Discussion

Mr P Atkinson (DA) observed that the key performance indicators were very extensive, and asked whether any of them concerned the fourth industrial revolution. He did not see any of them specifically dealing with that matter and he wondered whether there would be any consideration in the future to adopt KPIs dealing specifically with the fourth industrial revolution.

Ms A Mfulo (ANC) said the Minister in his presentation had indicated that agriculture had made a significant contribution to economic recovery and that there would be a focus on giving support to emerging farmers, but she observed that farmers were struggling even to get loans from the Land Bank for machinery. She asked how many emerging farmers were getting support. On the social dialogue that was intended to save and create jobs, she asked whether the process had already begun. Regarding the jobs drivers, she asked whether the jobs were going to be permanent and decent. She asked what sort of coordination there was between the department and municipalities on funding for township enterprises. She wondered what the function of the Industrial Development Corporation (IDC) was and whether it disbursed funds, because her observation was that when people sought funds they were informed that its role was to buy shares in companies. Regarding the fourth industrial revolution, she asked whether there were any young and creative people who were getting any funding to develop their ideas. She specifically made reference to a young person who was making cell phones, but what was not getting any support.

Dr J Cardo (DA) said he had a broad philosophical question around the strategic plan. The new President had indicated that at some point there might be a paring down of government departments, and there was speculation that such a move could affect the EDD, and that it might be incorporated back into the Department of Trade and Industry. He wondered whether the Minister could reflect on the impact such a potential move could have on the Department’s strategic plan and how the issues that the Department had been driving, particularly around competition, would be affected by such a change in the landscape.

Mr S Tleane (ANC) said he appreciated the trade studies that would be taken around the African regional integration. He asked about the plans to try and establish more business for South Africa on the continent, particularly in Zimbabwe and Angola, so that the volume of exports to those countries could be increased.

The Chairperson thanked the Minister for his work, and acknowledged that a lot of progress had been registered. The strategic plan was being revised and there were 23 key performance indicators still remaining for the financial year, and she asked whether he still believed that it was possible to monitor all 23 of them. She wondered whether the challenge in the implementation the MTSF outcome dealing with the development of the local content was due to that fact that there were too many KPIs, and that was why it was difficult to monitor implementation. There was a requirement that for infrastructure development, 75% had to be local content. The big number of KPIs might be hindering implementation of important objectives.

There were Ministers and Members of Executive Council (MINMEC) meetings, but over the past three or four years no impact reports had been received. She asked what impact they had on the ground and on inter-governmental relations. She asked whether the MINMEC meetings had assisted the Minister to align the provincial and local governments with the national priorities. Provinces had their own priorities and when it came to alignment it became a problem.

Regarding the nine point plan which had been designed as a developmental intervention, she asked to what extent it had been implemented. She observed that it was part of the continuation of the work outlined in the MTSF. She was one person who believed in targeted objectives, and in briefings with the Auditor General and the Department of Performance Management and Evaluation (DPME), it was clear that the entities were shying away from targeted objectives. There was no use having objectives that could not be measured. There was a challenge aligning the programmes of the Department with particular KPI outcomes.

On the NGP, she said it came with jobs drivers and the idea was that growth should produce more jobs. She asked the Minister if he could give figures concerning employment that had been created since 2010.

Minister’s response

Minister Patel said there were a number of areas where reflection regarding the fourth industrial revolution could be done. The first area was through KPI 3, which dealt with advocacy and analytical reports on socio-economic development. It could also be addressed using KPI 4 on NGP jobs drivers and coordination reports. KPI 4 specifically mentioned the fourth industrial revolution. It could also come under KPI 7. Across the different KPIs, each of them had something to do with the fourth industrial revolution. It was possible to have it under one KPI, but it was more valuable to mainstream it in all the KPIs. However, for reporting purposes, it may be placed under a single focus area.

On Ms Mfulo’s question on agriculture, the partnerships that the Department envisaged were of two kinds, one of which was meant to kick-start black farmers in the market economy. Over a period of a few years, there would be special support given to the farmers, but once they reached a position where they were able to sell their products, the focus had to shift to another group of emerging farmers. The second kind was on-going, where there was no specific timeframe. There was, for instance, a merger agreement that committed to a certain number of black farmers -- about 800 -- to be integrated in a value chain. Even when a specific period of integrating them had elapsed, they would still remain in the value chain. Sometimes an individual farmer may fall out for reasons relating to a farmer’s own decision, because they may get a better deal elsewhere or they may decide to deal in a different crop altogether. Some programmes give once off support and others were on-going.

On social dialogue, there was a detailed set of social dialogues taking place. There was one currently taking place on the Competition Act where there was engagement with social partners on the youth accord. There were discussions on the work that had been done by government at the National Economic Development and Labour Council (NEDLAC) on a range of areas like local procurement. The President wanted to lift the social dialogues which were covering individual areas and place them into a bolder partnership in society. The work that was going to be done was not new, but the aim was to pull the work into something that would have a higher impact. In social dialogue, some issues were relatively easy, especially when there was agreement -- such as the green economy accord, where there were no fundamental interest differences between the parties -- but others that dealt with issues like dedicated investments or wage and retrenchment policies were more difficult.

The jobs drivers covered ten areas. Some of those areas were permanent jobs in the sense that they did not involve a fixed term contract. Jobs in agriculture or in manufacturing were by their nature longer term. They were not permanent in the sense that there were no life-long jobs in the South African economy, but they were long-term in the sense of being indefinite. Some of them were by their nature of a shorter duration, which could be three, five or eight years. These jobs included those that involved special projects, like building a power station. At the completion of the station, those jobs disappeared. There were also short-term jobs which were normally aimed at young people before they got more stable employment.

On the decency of jobs, the national minimum wage was intended to set the basic standards of employment. Government only sets the floor of decency of employment, but the rest comes through collective bargaining by the unions. Decent work was not a fixed concept but depended on the prevailing economic conditions and applied to a particular job market. What would be decent work in agriculture would be different from steel manufacturing.

On township enterprises, more could be done to liaise with municipalities. The liaison with smaller municipalities tended to be better, but it was more complex with the larger metros, as there were often multiple projects that were running and some of those were under the radar of the municipality. Sometimes introducing a project to a municipality slowed down progress because of the bureaucracy, especially if it concerned a small group of about eight people. It was not always possible to liaise with the municipalities, but there was scope to do better. The Deputy Minister, Mr Madala Masuku, was particularly active in linking up these opportunities with the municipalities.

The IDC did not get any money from the government for its core mandate. It had to find money in the market to finance its developmental objectives. It had a share portfolio invested in some companies, and the dividends it gets from there come into the IDC. A small portion of the profit the IDC makes gets paid as a dividend to government and goes to the national revenue fund to pay public servants, and goes to build houses, clinics and other social services and infrastructure. However, most of the earnings of the IDC were retained and were then used, for example, to promote youth entrepreneurship, where a billion rand was invested last year, black industrialists, where R4.5 billion was invested and greater employment creation. That was the development impact of the IDC. In the long run, it was a better system for government to top up its capital for its development finance institutions. The IDC could buy shares in a company and get dividends, or it could give a loan to a company and make a profit on the interest from the loan. It could also give loan guarantees which an entrepreneur or company borrowing money from a bank could use to contract the loan. There were different instruments that the IDC used to support companies in their work.

On the fourth industrial revolution, South Africa did not have the technology to manufacture a major cell phone. Some countries made some components, but it was commercial companies like Samsung and Apple that were the major players in the manufacture of cell phones.

The Chairperson asked how much the EDD was encouraging innovation.

Minister Patel replied that in the innovation strategy led by the Ministry of Science and Technology, it was acknowledged that the big competition in the 21st century was going to be competition over technology and innovation, and countries had to find the right blend. He had often been asked why South Africa was not building a car. Building a car was a great idea, but that would mean entering a market that was already occupied by others. Before going in to a market, it was important to establish whether one had something unique to bring to the market that the others did not have. If one did not, one could end up pouring huge sums of money into something that could turn out to be a white elephant, thereby wasting the country’s money. Having an idea was good, but it must be commercially viable and it must be marketed. Innovation was good, but the big challenge was marketing the innovation.

Responding to Dr Cardo’s question, he said there were both advantages and disadvantages to specialisation in ministries. The disadvantage of having more specialised ministries lay not only in the costs to the tax payer, but also the difficulty of coherence and integration. Specialisation meant having multiple sources of ideas and multiple reporting and multiple oversight systems. There were strong and compelling reasons for the reduction in the number of ministries. Which departments should be merged was a matter that was under discussion. However, there were a couple of advantages that one could see from having one department dedicated to economic development. One of the challenges that the Competition Commission had had when they were with Department of Trade and Industry (DTI) was because they had about 12 to 15 agencies reporting to the Minister, in addition to a huge department with over 1 000 employees. There were also many schemes being administered by the department worth billions of rand. The difficulty was getting a specific focus on competition, especially as competition was a serious problem in the economy. Historically, there had been a lot of cartels and price fixing. The other area that had helped was the IDC, which was for a period mainly nursing its assets base and not aggressively using it. The performance of the IDC had improved under the EDD.

On regional integration, the IDC had provided money for the development of a tin mine in the DRC, for example, and by structuring the terms of the investment, it was possible to ensure that a South African construction company would do the construction work in the DRC, and that South African products and capital goods would be used in the mine rather than goods manufactured in other countries. Capital was used as a means of stimulating the South African economy. It was also important to stimulate industrialisation in neighbouring countries like Zimbabwe and Angola. It was not just important for African solidarity, but it was important for the long-term benefit to the South African economy because strong and developed African economies would be able to buy more value-added products from South Africa.

International Trade Administration Commission (ITAC) Annual Performance Plan

Mr Meluleki Nzimande, the new ITAC Commissioner, prefaced his presentation by making reference to Minister Patel’s contribution to the State of the Nation 2018 debate, where it had been highlighted that industrial expansion was vital. The government would launch a new auto sector scheme this year, focusing on jobs and the localisation of component manufacturing and greater efforts to expand labour intensive industries such as clothing and textiles, agriculture and agro-processing. Trade with the rest of Africa already accounted for the more than 250 000 direct jobs in South Africa. The country would use a combination of the proposed Free Trade Area (FTA), investment and cross-border infrastructure facilities to deepen its economic relations with neighbours.

He said the focus of the ITAC was on creating and protecting jobs, facilitating trade, and promoting the protection and expansion of South Africa’s industrial base. The Commission seeks, among other things, to address disruptions to trade, such as protectionist policies by some countries, especially the developed ones, trade disputes which lead to retaliatory measures, institutional risks to the World Trade Organisation, and a surge of imports into the country that adversely affected local industries.

The main objectives of ITAC were job creation and growth through the effective delivery of international trade instruments, strategic alignment of programmes and projects with the EDD and the national agenda and organisational efficiency and effectiveness

ITAC’s core business units were involved in the following activities:

• Tariff Investigation 1, which deals with agriculture and agro-processing, chemicals, textiles, clothing and footwear;
• Tariff Investigation 2, which deals with motors, metals and machinery, and the Automotive Production and Development Programme (APDP);
• Trade Remedies 1 and 2, which oversees issues of anti-dumping, countervailing measures and safeguards;
• Import and Export Control, which supervises import and export permits with the power of enforcement

The ITAC policy framework was set within the long-term vision of the NDP. The NGP, Industrial Policy Action Plan and the South African trade policy and strategy framework provided the boundaries within which ITAC operates. The NGP concentrates on employment creation and the other documents outline a consistent trade policy which aimed to facilitate structural changes to the economy that would enhance trade.

ITAC followed a developmental approach to tariff setting that avoided both blanket increases and blanket reductions. The tariffs were adjusted to safeguard the economic needs of the country, ensuring that it remained competitive. ITAC had identified infrastructure development, agriculture, mining, green goods and manufacturing as the main jobs drivers of the economy.

There were three trade remedies employed by ITAC -- anti-dumping duties, countervailing duties and safeguard measures, with anti-dumping duties being the most frequently invoked instrument locally and globally. From 1995 to 2017, ITAC had initiated 13 countervailing investigations compared to 229 anti-dumping investigations, four safeguard investigations and only two countervailing investigations. Safeguard investigations had involved lysine, frozen potato chips, hot rolled steel and cold rolled steel. The investigation into frozen chicken portions under the Trade, Development and Cooperation Agreement (TDCA) with the European Union had been initiated in 2016, and was awaiting a decision from the Minister of Trade and Industry.

The investigations into steel were meant to determine whether the country should increase its tariff rates from the local rates to those of the WTO, which were higher in order to protect local steel manufacturers. A safeguard duty of 12% had been imposed on hot rolled steel in August 2017 to stem declining production and sales. A customs duty of 10% was imposed on structural steel. The steel industry was relatively labour intensive and was, therefore, crucial for employment retention and creation. The Minister of Economic Development had established a committee for steel under ITAC in June 2016, with a term of five years. Its purpose was to monitor the impact of changes in import tariffs. It comprised the Commissioners and industry representatives, and mades recommendations twice a year.

Wheat, maize and sugar were part of the staple diet of South Africans and were therefore very important. In 2016, the Minister had directed ITAC to evaluate and investigate a review of the dollar-based pricing system formula for these crops. The idea was to establish a fair level of protection that would encourage farmers to plant wheat, maize and sugar. A new formula had been created, called the Real Effective Exchange Rate (REER), which was intended to address the negative impact of exchange rate fluctuations. It was one of the variables used in calculating the duty to be imposed.

Discussion

Dr Cardo asked for an update on the price amendments

Mr I Pikinini (ANC) asked how much progress had been made on steel down-streaming. He requested more information on how duties were imposed, and how anti-dumping could be prevented.

An EFF Member asked why ITAC was waiting for the Minister’s response on its trade remedy investigations.

Mr Tleane asked why there was no import duty on maize, and yet there duties of 42% and 24% on sugar and wheat respectively. She observed that the reporting of ITAC was not clear, and they were using too many abbreviations which did not make sense the Members.

Ms C Matsimbi (ANC) asked what was wrong with South African chickens for the country to have to importing chicken. Noticing that there was only one woman in the ITAC delegation, she asked how many females there were in the organisation.

The Chairperson read through some of the performance indicators. Strategic objective number one was meant to ensure contribution to employment, creating growth and development through effective delivery of international trade instruments. The output on anti-dumping, however, simply said output investigation under consideration. The performance indicator was the turnaround time of the anti-dumping investigation. She asked what their baseline target was. There had been no preliminary determinations made within six months of initiation. She asked the ITAC delegation what they would say if they were in the shoes of the Committee Members. On the annual targets, the information indicated that 80% of the annual targets had been achieved within six months of initiation. The information was stating that 80% of preliminary determinations had been achieved, while in the baseline targets there were no preliminary determinations. She found herself confused with such information.

Mr Tleane said the style that ITAC was using in reporting was confusing and not helpful. He requested the Chairperson to ask them to go back and correct the information, and return to the Committee.

The Chairperson asked the other Members whether they understood the information that ITAC had presented, and all of them said they did not understand.

The Committee resolved to call back ITAC after they had amended their report, and agreed to meet with them on 24 April.

The meeting was adjourned.