Chairperson and hon members of the NCOP, it is a great pleasure to participate in the Department of Trade and Industry's first budget policy debate here in the NCOP. The current administration has now passed its midterm and I want to use this occasion to reflect on our work over the past three years or so.
As hon members know, this administration adopted an outcomes-based monitoring and evaluation approach. Twelve key outcomes were identified and while the DTI contributes to the realisation of several of these, together with the Department of Economic Development and the National Treasury, we are responsible for the co-ordination of Outcome 4: Decent employment through inclusive economic growth. This commits us to contributing to the New Growth Path's target of creating 5 million decent jobs by 2020, while simultaneously raising the growth rate and reducing inequality.
In terms of the various job drivers identified in the New Growth Path, the main focus area for the DTI is the area of promoting manufacturing growth. Manufacturing, as we have argued repeatedly, is not just a sector, like any other. Manufacturing development is at the forefront of transforming the products of nature into higher value-added products. All countries that have made the transition from developing to developed, or from poor to rich, did this through manufacturing development and therefore manufacturing remains critical to the New Growth Path.
When we took office three years ago, we did so in the context of the South African economy's plunging into a recession, declining by 1,3% in 2009 and losing close to a million jobs. Nearly 200 000 of these jobs were lost in the already fragile manufacturing sector. Given that manufacturing contributes about 14% of GDP, this meant that the job losses in manufacturing were more than proportional. Given this environment and these circumstances, we had no choice but to commit ourselves to a significant sharpening of our interventions to support industrialisation in order to withstand the threat of de-industrialisation, while at the same time diversifying our export market for South African products, keeping in mind the vast and rapid changes in the economic geography of the world economy taking place at the time.
Three years ago I argued in this Council that scaling up industrial policy would require greater co-ordination of actions within government departments operating in the different spheres of government and therefore across the different spheres of government to create a more strategic and smart alignment of various programmes and activities around the overarching objectives and priorities of industrial policy. We acted on this commitment to move beyond policy to action and produced, not a vision document on industrialisation, but a rolling Industrial Policy Action Plan, which we call Ipap 2, which was a three-year rolling document. The first one was issued in 2010.
A fundamental proposition put forward in Ipap 2 was that we needed to make structural changes in our economy if we were to place it on a new, more labour-absorbing growth path. This, we argued, needed to place value-added productive activities at the fore and bring about a major shift from the consumption-driven and import-intensive growth path we had been on in the years before the great recession.
Ipap 2 is operated as a three-year rolling programme seeking progressively to raise the impact of action plans undertaken to support manufacturing. Ipap 2 is still a work in progress, taking place in an environment of global economic crisis. However, to date it has involved the implementation of a number of important new crosscutting initiatives. These include changes to the Preferential Procurement Policy Framework Act regulations to allow the designation of industries for domestic production where procurement is conducted by public entities. The first round of sectors designated in December 2011 was buses; railway rolling stock; power pylons; canned vegetables; and clothing, textile, leather and footwear products. Last month we added oral solid dosage products in the pharmaceutical sector. These designations require all procurement officers in the public sector across all spheres of government and in parastatals to procure from local producers according to specifications in each case.
At the same time we are doing work on reference pricing to ensure that the prices charged are not an exorbitant additional charge and an unfair "rent- seeking" against government.
In addition to this we have sought to increase the quantum of finance available to support industrial development. Much of this work is going on in the framework of the restructuring of the Industrial Development Corporation, which is led by my colleague, the Minister of Economic Development.
This year we added an additional dimension, which was the Manufacturing Competitiveness Enhancement Programme. An amount of R5,75 billion was made available over the current Medium-Term Expenditure Framework to support competitiveness-raising activities by manufacturers. Earlier this week we launched the programme and gave a number of details. However, the central message is that we believe that our manufacturing sector needs to continue - despite the overall climate - to make investments, raise productivity and raise competitiveness. As government we have indicated that we will come to this party and support manufacturers in doing exactly that. Applications are now coming in and we intend to start disbursements in the middle of next month.
We also proceeded with a number of sector-focused programmes. Work is now complete for the transition from the Motor Industry Development Programme, which expires next year, to the Automotive Production and Development Programme, APDP, which will take over from it. Certain aspects of the new APDP, notably the Automotive Investment Scheme, were fast-tracked and this led in recent times R15 billion in investment commitments from both assemblers and component manufacturers. These include investments by Ford, Volkswagen and Mercedes Benz. We have already seen significant increases in motor assembly volumes and localisation of components over time. I was pleased to see a report today which stated that in the last quarter there had been an increase of over 500 jobs in this particular sector. We are also aiming to complete work on the inclusion in the APDP of medium and heavy commercial vehicles.
The challenges that have characterised the clothing, textile, leather and footwear sectors are well known. We recognised earlier on that the Duty Credit Certificate Scheme which was then being enforced was not working. Consequently, in 2009 we replaced it with an industry upgrading incentive known as the Clothing and Textile Competitiveness Programme, or CTCP.
The CTCP has resulted in significant competitiveness improvements and has brought manufacturers and retailers closer together to take advantage of the proximity, quality and flexibility that domestic manufacturers can offer over competitors. It is worth noting that the implementation of the CTCP overlapped with the global economic crisis, which placed further pressure on that sector. Nevertheless, this intervention not only stalled employment losses, but in some cases we saw firms that took up the incentive programmes offered actually increase employment last year. The lesson we took from this is that if we can do it in this sector, we can do it across manufacturing. Another sector with potential for job growth is business process services, which has been steadily increasing in size and importance to the economy. To date, 23 applications for the incentive scheme have been approved, potentially leading to investment worth R4,1 billion and creating 15 000 jobs over three years. Close to 3 400 young trainees were trained under the second phase of the Monyetla Work Readiness Programme. Of these, 70% were placed directly in employment.
At the commencement of this administration, I indicated to this Council that we needed to improve our co-operation across the different spheres of government in order to promote geographically specific industrial investment, so bringing about a greater degree of industry decentralisation. The Industrial Development Zone Programme, which we have had in place for some years, has had some success in achieving its objectives. But I believe that the conclusion that many of us have reached is that it has the potential to reach much higher levels of activity.
We looked intensively at this programme and some of the shortcomings, and after extensive research and consultation we introduced a new piece of legislation, on which there is currently consultation: the Special Economic Zones, or SEZ, Bill. Based on our learning from past experience, the SEZ Bill recognises the need and potential of a broader category of regionally specific SEZs and the existing industrial development zones, IDZs, operating as they are under the Manufacturing Development Act. IDZs will still be part of our tool box, but the SEZ Bill will allow us to develop a wider range of potential special zones to meet different needs in different areas. At the same time the Bill is looking to improve the governance of the SEZs and also to try to create an environment in which we can provide a higher level of incentives and support programmes for this programme.
Moving forward, in addition to processing this Bill, which will of course eventually come to Parliament and this Council, we are engaged in the work of identifying potential SEZs that can be proclaimed in each province. This work has steadily advanced and we will be discussing this further in a Minmec meeting that will be held tomorrow afternoon.
We are also far advanced in making a determination on the promulgation of the proposed Saldanha IDZ. In rolling out the SEZ programme, there will be capacity-building programmes to enable the various teams across SEZ value chains at national, provincial and local levels to develop the skills for the successful implementation of this initiative.
At the start of this administration we indicated the importance of the development of co-operatives and the co-operative movement. This we have long seen as a major opportunity to provide sustainable livelihoods for many of our people, particularly those in rural areas. A new Bill on co- operatives is currently very close to being tabled in Parliament. This will provide for greater targeted support programmes for the co-operative movement. In the meanwhile we have been doing a lot of promotional work among co-operatives in South Africa. Deputy Minister Thabethe will speak about this issue in greater detail.
Throughout the economy small enterprises form an important pillar of our growth strategy to promote a culture of entrepreneurship. Based on our research and international experience, we have seen incubation programmes be among the most successful small business support initiatives. We therefore set ourselves the target of scaling up this initiative. The programme already has a national footprint, with about 30 incubators in the country, but our conclusion is that these are on far too small a scale. Our team in the Small Business Unit, as well as in the Small Enterprise Development Agency, are setting out to double these in the next few years.
Moving from the national to the global scene, the economic crisis has created an imperative for us to strengthen South-South trade and co- operation, as well as to advance regional integration. Our fellow Brics countries, namely Brazil, Russia, India and China, have emerged as the most dynamic economies in the world today. They are leading a structural shift in the global economy in which developing countries are gaining a growing share of world trade at a significant rate.
Our entry into Brics was a major milestone for South Africa. It was particularly significant that it came at a time when we could influence the emerging programme of intra-Brics co-operation. We have indicated that we hope that the hosting of the Brics summit here in South Africa next year will see the launch of the Brics-led development bank.
However, building our trade investment relations with these new centres of global economic growth will require purposeful engagement. In particular, what we need to develop is trade that is based more on value-added products and particularly on value-added exports by South Africa. It is significant that China has agreed in our comprehensive strategic partnership agreement to co-operate with us in promoting more value-added exports to their country, as well as to invest in the beneficiation of mineral products in our country. Last year we led a successful trade mission to China, where we indicated 10 potential products that we believed we could export to them.
With respect to African integration, what we have seen and noted is that as the world economy is unfolding and as the crisis takes its current form, it is no longer possible for countries to grow and develop at the speed that some of our fellow Brics countries have done based on exports to the rich countries of the world. Countries such as China and India are all turning to their large domestic markets as the basis of their next phase of growth and development.
The problem we have in Africa is that colonialism divided us into 54 countries. However, as a continent, or as significant parts of the continent, we are starting to have the kinds of populations and economic strengths that sustain a successful industrialisation effort. African industrialisation is increasingly being widely recognised as the name of the game. We need to turn the current growth spirit that Africa is experiencing into a sustained developmental and industrialisation effort.
Accordingly, South Africa has strongly supported the Tripartite Free Trade Agreement initiative between SADC, the East African Community and the Common Market for Eastern and Southern Africa, or Comesa. This was launched in South Africa last year. A key feature of this Tripartite FTA is that it is an initiative based on the concept of development integration. This includes a market integration component and the establishment of a free trade area. However, it also recognises that infrastructure development, as well as co-operation to promote industrialisation and real economic development, is critical if we are to achieve the objectives of building intra-African trade.
Our efforts to date to promote foreign direct investment have been proceeding positively. In 2009 we set a target of attracting foreign direct investment worth R115 billion by the end of the 2012-13 financial year. I am able to report that the investment pipeline thus far indicates that we have attracted R65 billion's worth of committed and potential investment projects.
According to Sars figures we are witnessing a shift in the composition of capital inflows into South Africa from portfolio investment to foreign direct investment, FDI. The new investment initiatives that have contributed to this trend include greenfield manufacturing plants, which have been established by a number of manufacturers, including Unilever, Procter & Gamble, Kimberly-Clark, Nestl, FAW Motors, Kiran Global Silica and LG, among others. The Unilever plant in KwaZulu-Natal, an agro- processing plant, stands out as a world-class facility and its design standard is setting the norm for all future Unilever plants globally, especially in regard to environmental impact standards.
In closing, I believe we are on a path of continuing to consolidate the progress we have made in stabilising and growing the manufacturing sector and in diversifying our trade and investment relations so that we can take account of the change in global architecture.
I have also sought to indicate that, as we move forward, we see it as imperative that we strengthen our partnerships with provincial governments and municipalities. We have a number of areas, in addition to the ones I have mentioned, where we need to co-operate. These include statutory requirements around policy council meetings in the areas of liquor and gambling. I am pleased to report that recently we had a highly successful meeting of both the National Liquor Policy Council and the National Gambling Policy Council. The National Assembly has already produced a report on the Gambling Commission, which we put in place a few years ago. I do hope the NCOP will also take up the challenge to engage with this particular report and that it will recognise - as I think all of us have recognised so far - that we need a new framework around which to understand gambling roll-out, rather than taking an ad hoc approach to particular individual requests.
The challenge of liquor regulation remains a profound one. We all know that liquor abuse is a very serious problem in our country and that the existing framework is not achieving adequate results. The liquor regulators at both national and provincial level have produced a first draft - which has been sent away for some improvements to be made - of a potential programme for improved liquor regulation.
This has been a summary of some of the areas where we have been co- operating. I believe we need to strengthen our co-operation. I look forward to that happening and I sincerely hope that this Council will support the Budget Vote of the DTI.