Recent Unrest: DTIC, IDC NEF & SASRIA on economic recovery support interventions, with Minister & Deputy

Meeting report

Opening remarks
The Chairperson announced the two items on the agenda for the day. The Minister of Trade, Industry and Competition, Minister Ebrahim Patel, would lead the briefing by the Department of Trade, Industry and Competition (dtic), the Industrial Development Corporation (IDC) and the National Empowerment Fund (NEF). That presentation would be followed by a briefing from the SA Special Risks Insurance Agency (SASRIA).

Briefing by the Minister of Trade, Industry and Competition
Minister Patel introduced the team accompanying him. He explained that there was one presentation but representatives from dtic, NEF and IDC would present particular slides.

The Minister began with a broader overview pulling the entities together.

The Minister stated that the unrest had been highly coordinated. Widespread unrest and looting/damage of businesses had occurred in parts of KwaZulu-Natal and Gauteng from 9 to 18 July 2021. The unrest had resulted in the loss of many lives, undermined business and consumer confidence and caused very significant damage to property. It had been coordinated, disrupted supply-chains and had caused loss of business to many firms. 70% of the damage had occurred in KwaZulu-Natal and 30% in Gauteng.

The dtic Group had developed an integrated response that included the Department of Small Business Development and other parts of the state at national level; the KwaZulu-Natal and Gauteng provinces and a number of metros and district municipalities. 18 separate actions represented the “overall response” by the  dtic.

The Minister made a number of observations. Financial support was normally rolled out following extensive discussion and careful planning, with programmes announced and entities awaiting applications. The challenge was that the unrest (the looting, arson and wilful damage) had created a context akin to conflict- zones and natural disasters, which required rapid action with limited resources for applicants. Faced with the unusual circumstances, some initial innovations had been made and based on an assessment of progress, further adjustments had been put in place. He presented four phases that were being followed in supporting businesses that had been affected.

The IDC was expanding the types of support available, with a better blend between loans and grant funding.
The application system was being further simplified, removing red-tape and reducing the extent of paperwork required. New customized credit/investment guidelines had been developed and the qualification criteria had been expanded. Expedited approval processes had been introduced, with committees meeting on a daily basis as required to assess applications. The unrest had highlighted the urgency of building a more inclusive economy to reduce the opportunities for those seeking to undermine the democratic order to find fertile conditions in communities: but it had also raised the need for new approaches: spaza shops, township retailing, access to shopping malls, etc. The key focus was to scale-up and speed up, so that the economic benefits flowed to communities and to the wider economy within the district development model. Post-investment and mentorship support was critical to help businesses to recover. Work had been done on developing greater partnerships between business and communities, e.g. between Isithebe businesses and Mandeni community.

The Minister concluded by stressing that law and order was critical for investment and consumer confidence.

Ms Malebo Mabitje-Thompson, Acting DG, dtic, informed the Committee that the dtic was working with the Departments of Small Business Development, Agriculture Land Reform and Rural Development and other departments in the recovery phase, as well as with the provincial governments of KwaZulu-Natal  and also Gauteng. The dtic had focussed on collaboration to ensure a co-ordinated approach to the relief efforts.
As a collective the IDC, the dtic and NEF had put forward a total funding package of R3.75 billion in support of the various business recovery interventions: dtic – R2 billion; IDC – R1.5 billion; NEF - R250 million.

Mr Tshokolo Nchocho, CEO, IDC, stated that the IDC had surveyed its clients to determine which clients had been directly or indirectly affected. The IDC business partners that had been impacted the most were in Chemicals; Medical and Industrial Minerals, Mining & Metals, Textile & Wood and Machinery business units. Deferments were being considered on a case-by-case basis in line with the deferment criteria and IDC liquidity requirements. The estimated number of jobs impacted or affected by unrest at its clients stood at 64 706. The uncertainty on the part of workers/employees was part of the social impact of the unrest. A R1.4 billion Post-unrest Business Recovery Fund would be used to assist all businesses, existing and new clients. Funding was at concessionary rates to ensure significant development impact.

Ms Philisiwe Mthethwa, CEO, NEF, stated that the NEF had immediately undertaken an assessment of NEF-funded businesses. The NEF had worked with its existing clients, ensuring that 80% of the affected clients returned to operation within a short space of time. The NEF had engaged in a number of Webinars with the dtic and NEF professionals on solutions to providing funding for affected businesses.

Ms Mthethwa informed the Committee that the NEF had recruited 65 unemployed graduates as trainees.

(See Presentation)

Discussion
Mr F Mulder (FF+) asked about the setback to the economy, which was a severe one. Did the Minister or the Department know the real impact that the unrest had had on international investors’ confidence? What effect would that behaviour have had, and will have in the future, on international treaties? He had visited a German company, Behr, that had fortunately not been destroyed because it was most likely a business like that would not have re-invested in SA.

He asked about a principle that he had heard in every Committee. It was an idiom which the government carried over into reality, and which he found a little unfortunate.  Mr Mulder quoted from slide 29: “The unrest highlighted the urgency of building a more inclusive economy, to reduce the opportunity for those seeking to undermine the democratic order to find fertile conditions in communities.” He said, respectfully, that it expressed a view that people could loot because they were unemployed and hungry. That was creating a culture of entitlement which concerned him. It was fact that the more the rate of unemployment grew, the bigger the group of the absolutely poor. The bottom group, and the one above it, had grown greatly. Unemployment had stood at approximately 3.5 million in 1994 but had grown to well over 11 million in 2021. The trend of inequality had grown exponentially between 2008 and 2017 and a new approach was required to establish a real equality in the economy.

Mr W Cuthbert (DA) said that it was nice to see the Minister in a Zoom meeting and not on selfies on a Twitter account. The Minister was fairly independent in his own party and that was largely due to the fact that he was an external appointment and not a Member of Parliament and so he could conduct himself differently from his colleagues. What had he said to his colleagues in either faction about the impact of the political divisions on the unrest that had occurred? Everywhere that the Portfolio Committee had gone, Members had seen political slogans written all over the walls of buildings. There was no doubt that it had been a pre-meditated set of actions and not merely a result of poverty and inequality, even though that had probably led to the opportunistic looting.

He raised a concern about potential restrictions on accessing funds. During Covid-19, certain B-BBEE restrictions had been applied and if one did not comply, one could not access funding. White, Black, Indian and Coloured SA citizens had lost their livelihoods because of the unrest. Did that imply that his department would ensure that all jobs and businesses would be protected, or only those from specific race groups, and if so, why?

Mr Cuthbert queried which line items on the dtic budget had been adjusted to arrive at the R38.9 billion relief package. He had been concerned at the inability of the Portfolio Committee to meet with Toyota which had sent a very strongly worded letter to eThekwini municipality – the letter had been leaked to the media. Toyota was a conservative investment business and one would have imagined that government would do everything possible to keep that company in country and to ensure future investment by Toyota. What engagement had the Minister had with Toyota?

At Cipla South Africa, a large proportion of active ingredients had been destroyed by people who had thrown out the active ingredients and used the bins and drums that had contained those ingredients to loot surrounding businesses. Cipla had said that it would take time to re-establish standards and processes. In the interim, the company need to import the active ingredient. What measures had been taken to assist the company as it supplied 25% of the ARVs in country?

Ms J Hermans (ANC) thanked the Minister and team for a “hope-giving” presentation. SA had to rebuild what had been lost and to “build back better”, term that she had heard from dtic officials and a concept that needed to be implemented. Was there a targeted plan to mitigate foreign capital from being withdrawn from SA? What was the plan for SA to retain what it had?

Mr S Mbuyane (ANC) asked how far the online survey had assisted the Department and entities, especially in the rural areas of KZN. Had the simplification of red tape assisted rural areas to access the application system and assistance? Was there an organisation that could assist in re-building critical infrastructure such as hospitals, as had been done in the Strand in 2017?  Looking at the impact on the Master Plans, especially in the sugar industry, he asked what interventions could assist the small-scale farmers who had lost everything, even their crops. What were international investors and foreign-owned companies doing about including SA demographics in the ownership of the companies and on their boards, etc. How were the foreign-owned companies including black SAs in their ownership models?

Mr W Thring (ACDP) asked about the amount of damage to property. Was there an update on the amount of damage caused to property? Foreign direct investment was important. There was a potential for losing multinational companies as a result of the unrest. Some companies had indicated that they would not be coming back. What was being done? AMCOR (previously Nampak) in the Pinetown area had suffered damage that amounted to R1,5 billion just to get the company back to an operational level, excluding the loss of profit, and so on. Mr Thring’s guesstimate was that the loss to the economy might be far more than R20 billion.

His other concern was for the small traders. SMMEs grew the economy. Big companies ended to downscale; SMMEs were always looking to grow. Small hawkers or companies lacked the knowledge and financial knowhow to grow their businesses. The dtic had to support local traders, although he hastened to say that’s he was not hitting at foreign development. He was worried that the smaller traders were being missed. Would the pipeline of communication be effective? What was the timeline for companies that had lost all their records? The turnaround time had to be reduced. Were there measuring instruments to ensure that the communication methods would be effective?

Minister Patel provided the response from dtic and its partners. He agreed with Mr Mulder that the events were a substantial setback for the economy. The dtic had given international investors the reassurance that the security forces were in KwaZulu-Natal and that the President had spoken about the deep lessons that had been learnt and the efforts that were being taken to protect human life and property. He spoke about addressing the challenges to the law and about addressing those challenges in a constitutional democracy. That had been highlighted for investors. He had spoken to a number of different foreign investors, e.g. the Global Head of Ford Motor Company. Ford had a history of 97 years in SA and he had taken Ford through the rule of law and how it had to apply to all and that there would be no avoidance of accountability and no permission for violence. At the end of the discussion, Ford had accepted his reassurances and the discussion had moved onto looking to export vehicles made in SA to countries in Africa. The point was that investors experienced many different scenarios, including some very challenging times and what big investors wanted to know, was that societies were able to learn the lessons from events such as those and that the big companies would be afforded the security necessary to operate.

The Minister highlighted the fact that it was the speed with which government could address the law and order issues, hold people to account and ensure that the prosecutorial authorities prosecuted the leaders and held them accountable, that was critical. Investors looked for that kind of sign. If there were no consequences, it could occur again and again.

He noted that Mr Mulder was concerned about the narrative that the violence was excused because people were hungry. He agreed that government could not excuse that behaviour on hunger. He had visited plants where companies had indicated a sophistication in the attacks on them: their fire retardant systems were disabled; their sprinklers were deactivated; blood banks had been attacked, clinics with dialysis machines were attacked. It was a pre-meditated attack to disable commercial and industrial activity in SA. It was a law and order problem that had to be addressed. He hoped he could rely on the support of the FF+ for support. However, the point was that when those with matches in their hands flung matches, they would catch fire because of unemployment and hunger. There was a need to remove the large number of people who would react to such matches. The base on which those people who started such activities could rest, had to be removed. He found it heart-warming that society had stood together in defence of the Constitution. Government wanted to avoid the situation where people with matches would find such large support.

The Minister knew that Mr Mulder was sometimes troubled by the way in which measures sought to introduce equality and those measures could have been carried out in a better way but he had no doubt that people who voted for Mr Mulder’s party and those who voted for the ruling party would see the importance of addressing the masses of people excluded from the economy. The issue of inequality had been highlighted by the events, although everyone had been aware of it beforehand. Government would roll out further measures to create greater inclusion - the choices were difficult, but the high levels of inequality to be addressed. He had seen so many retail opportunities captured by large businesses that had buying power and could bring lower prices because they had buying power but, unlike the situation in most countries, there was no chance for people in SA to get into “mom and pop” shops.

The Minister assured Mr Mulder that government would always work within a constitutionally sound framework but it had to deal with the inequalities and de-concentration of ownership and economic inclusion. He added that relief measures were available for all businesses, including white businesses, although the NEF could legally only focus on black-owned businesses. The dtic and IDC supported transformation but could support all businesses and business was key to the development of the economy. One could see where big malls had been burnt out that local small businesses had also been impacted upon and that was the interconnectedness of an economy. He hoped to develop the economy across many different sites. The country needed foreign capital, local capital, township capital and investment in rural areas. SA needed a suite of programmes.

Minister Patel had hoped that Mr Cuthbert would resist taking swipes and making snide remarks because that was not who Mr Cuthbert really was. He had raised an issue that bothered the Minister and that was the impression of premeditated action. He agreed that it was not some spontaneous uprising led by poor and unemployed people. He had referred to the unrest in slide 4. It was a law and order issue that had to be addressed. Mr Cuthbert had raised the question of equity and he confirmed that all businesses would be supported but he asked for Mr Cuthbert’s support for transformation measures aimed at bringing black entrepreneurs into the mainstream economy as that was critical for building capital bases in rural areas.

Regarding the adapted dtic budget, the Minister stated that three line items had been re-prioritised: the Manufacturing Programme, specifically the Black industrialist programme, the Export Marketing and Investment Assistance (EMIA) Programme and the  Special Economic Zones Programme. The funds would go into interventions as explained by the Acting DG.

He explained that Toyota had been very concerned about the unrest and the security of their supply chain, their manufacturing facility and their warehouses. The dtic had arranged immediate protection for their property and Toyota had issued a statement appreciating the support from national government. Toyota had subsequently met with other spheres of government and Toyota was in SA to stay but the point was that if SA became associated, in the mind of investors, with looting and destruction of property the appetite to invest in SA would decrease and that would cost SA heavily as far as jobs and the economy was concerned. Those things could not be taken lightly.

Regarding Cipla, Minister Patel was pleased to say that the company’s supply chain from international companies had sufficient stocks available until they could commence manufacturing again. The company had stocks in hand and on the water and that would be sufficient. The International Trade Administration Commission of South Africa (ITAC) had gazetted guidelines for a new rebate on imported goods where those goods were not available locally.

The Minister agreed with Ms Hermans that it would not be sufficient just to get back to where the economy was before the unrest; the country needed to do more, and was doing that. One example was a facility in KwaZulu-Natal had been badly damaged. It had sold food to workers in Mandeni, like a Cash and Carry. There was no reason why the Department could not help locals to set up such businesses which would build ownership in the community. It was interesting to note the role played by the taxi association. Taxi owners saw that the economy was being affected and their business would be affected and so they had taken action to protect their business by protecting malls and business premises. When people have a stake in society, they take action to protect those assets. He was hoping that those examples would support the idea of inclusion. It was necessary to  determine a wide range of methods of doing that, and he hoped that the country was able to stay the course.

He had met with AMCOR and viewed the damage when the embers of the factory were still smouldering. It was a big global company with Finnish investors that did very specific packaging that was not available from other companies. He had engaged with the company and had given the company various options. The factory had been completely burnt and would have to be rebuilt from scratch. Cipla management was looking at options as to if and where to rebuild but ultimately the decision was dependent on the foreign investors. The unrest had deeply hurt SA’s efforts to get investments. He had visited a black husband and wife team that had built up a business near AMCOR over many years and the entire business had been destroyed in a single day. The CEO, a black woman, had been stunned. The Minister was adamant that the unrest had not been in support of transformation; it had dealt a blow to inclusiveness in the economy.

Cipla was re-building its business. The company had initially reported massive damage but it had transpired that the damage was less than it had seemed, unlike other parts of the economy where damage was often greater than supposed.

The Minister informed Mr Mbuyane that the online survey had not just been online, it had been announced via the media and dtic/entities team members had taken the survey into rural areas. The survey had shown that a large number of businesses had been uninsured. The packages being put together would address the uninsured rural enterprises. The survey had not been the only method of checking. The IDC team was working in rural communities.

The presentation had included a slide on the sugar industry. The Minister hoped to strike a deal in that area and would let the Committee know if he succeeded.  He told Mr Mbuyane that a wider vision of empowerment had been communicated to international investors: shares by workers in the company itself. Companies such as Pepsi had taken that approach to empowerment and more would be following suit.

Minister Patel informed Mr Thring that there was no reliable update to the damage to property as the Department was waiting for reports from the independent assessors checking for SASRIA. He agreed that small and medium enterprises were very, very important and the dtic support would focus on them. The intention was to do more things to promote local businesses in SA and in specific communities. Regarding the Kings Park factory, he had raised the concern relating to the destruction of records with IDC and NEF and the institutions would be nimbler in providing support but needed to strike balance between speedy support and adhering to the Auditor-General’s requirements.

The Minister apologised for taking so long with his response and concluded that, although the resources were limited, the funding packages had pulled all the challenges and resources together, including the Small Business Development Department and National Treasury

The Chairperson stated that there would be a debate in plenary on the same issue that day and the reports had added value to the Members, but there might be follow-up issues and the Portfolio Committee might need to re-engage with the Minister, the Department and the entities.

Presentation by South Africa Special Risk Insurance Association (SASRIA)
Mr Dondo Mogajane, DG, National Treasury, stated that National Treasury was aligned to the work being done by the Department of Trade & Industry. The business of National Treasury was to make money available and it was doing that.

Mr Mogajane informed the Committee that SASRIA was an entity of National Treasury and had provided the entity with R3.9 billion so that it could support businesses to re-establish themselves after the unrest.

Mr Cedric Masondo, Managing Director, SASRIA, made the presentation on behalf of SASRIA. SASRIA had been set up to provide insurance cover to protect assets against certain defined events, i.e. primarily politically motivated acts, acts of terrorism and political riots. SASRIA was the only short-term insurer for special risks in SA.

Mr Masondo highlighted the looting of trucks which had occurred even before the latest unrest. That had to be addressed because, not only was it a question of the high cost of replacing the vehicles and their goods, it was also about the lives of the truck drivers.

The damages had been initiated with the burning of trucks at Mooi River Toll Plaza on 9 July 2021. The looting of bottle stores and shopping centres had started on Sunday night, 11 July 2021. On Monday 12 and Tuesday 13 July 2021, the looting and torching of properties across KwaZulu-Natal had reached the point where numerous major shopping centres were completely looted, and in many cases set alight, causing extensive damage to property. Initial estimates indicated that the damages could be between R15 billion and R20 billion for SASRIA and the total property cost was estimated at more than R50 billion. SASRIA had initiated a Claim with the Reinsurance companies. SASRIA expected claims to total about R20 billion as 50 claims had totalled more than R5 billion. That was not the total damage, but only the SASRIA claims. SASRIA was committed to paying all valid claims.

The Chairperson appreciated the explanation as the Committee had acquired a better understanding of SASRIA itself. There were no questions from Members.

Committee Programme
The Committee Secretary stated that the parliamentary programme had been extended to mid-October 2021 so dates had been shifted to accommodate other programmes. There would be no meeting on Friday 27 August 2024. The Secretary warned that the parliamentary programme was still not final.

Members approved the amendments to the Committee Programme.
 
Concluding remarks
The briefing by SABS and NRCS would commence at 9:00 the following day.

The meeting was adjourned.