WEDNESDAY, 28 MAY 2008
PROCEEDINGS OF NATIONAL ASSEMBLY – EXTENDED PUBLIC COMMITTEE (E249)
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Members of the Extended Public Committee met in Committee Room E249 at 14:31.
House Chairperson Mr G Q M Doidge, as Chairperson, took the Chair and requested members to observe a moment of silence for prayers or meditation.
APPROPRIATION BILL
Debate on Vote No 32 – Trade and Industry:
The MINISTER OF TRADE AND INDUSTRY: Thank you, Chairperson,
Members of the National Assembly, representatives from provinces, from the department and the institutions of the Department of Trade and Industry, representatives of business and labour, distinguished guests, ladies and gentlemen, a key principle in economic thought is the concept of choice. And often what you choose not to do is as important as what you choose to do.
At the inception of democracy, we set ourselves the objective as government of overcoming the apartheid legacy of stagnation and discrimination in the economy, massive inequality and unemployment and poverty and gave ourselves the equally massive task of simultaneously transforming the economy as a fundamental condition for achieving our objectives as stated in the Reconstruction and Development Programme and reasserted in Asgisa.
We made strategic choices and embarked on a process to pursue these objectives and have achieved undisputed, substantial success on which we must continue to build to be able to accomplish the objectives and tasks we have set for our democracy.
In this regard, our economy has been growing steadily since 1994 and underwent truly significant growth over the last decade. Most recently the economy grew by 5,4 % in 2006 and by 5,1% in 2007. Fixed investment has grown dramatically from 15% in 2004 to 21% in 2007. Real income per capita, or the average income per person, rose at around 4% per person annually since 2004. The rate of unemployment fell from 31,2% in March 2003 to 23% in September 2007. This translates into an increase of approximately 1,8 million employed people in South Africa; a significant development that shows that the economy has turned the corner on unemployment.
Chairperson, all things point out that we have built a stronger economy than the one we inherited in 1994 and this achievement should not be downplayed or denied in the transient theatre of politics or because of the fickle fashionability of much of present day commentary. There are challenges and constraints some of which are as a result of our success and to that extent do not present a cul-de-sac, but rather point us to the things we must still tackle.
For instance, in manufacturing, during 2007, the strong growth in the domestic economy resulted in many sectors operating near full capacity, which has meant that they could not respond to the higher domestic demand which has been met through rising imports. This has also meant that firms are investing in new capacity to be able to respond to this higher demand in the economy, which has resulted in the strong growth in imports of capital goods putting further pressure on the current account deficit.
Having observed these positive changes it is important to restate, however, that for this government economic growth has never been an end in itself in our economic policies. The overall objectives have been and remain the reduction of inequality, addressing the challenge of poverty and providing more and more jobs. Equally, our success in achieving macroeconomic stability is also not an end initself. It is a stepping stone and establishes the conducive conditions for us to undertake much more complex longer-term initiatives and strategies focusing on the real economy.
It is in fact through Asgisa that we have made these strategic choices in how we leverage macroeconomic success in support of stimulating the real economy and how we become an effective developmental state, capable of tackling the more palpable, more real challenges facing our people of creating jobs, adding value, creating wealth and ensuring greater inclusivity and equity, by focusing on the binding constraints and identifying the necessary responses and interventions.
In this regard our challenge as the Department of Trade and Industry is to elaborate a comprehensive industrial policy and action plan as a strategy for stimulating and transforming the real economy in order to make a stronger contribution to pursuing our objectives.
However, to realise this, on the back of our achievements in the macroeconomic environment, we are now at a critical juncture that requires strategic choices to be made. In further building our economy, we must identify areas where there can be greater value added and importantly, by making sure that we make full use of our natural resources and our people.
In turn, it helps solidify an ability to withstand macroeconomic concerns in relation to the current account and macroeconomic balance. In this regard, we have, with the assistance of national and international experts, done a deep analysis of the economy, identifying gaps and constraints and this required of us to elaborate a comprehensive, well-analysed national road map that was broadly canvassed in government and the private sector and most importantly, enjoys strong political consensus and commitment.
In going about elaborating the industrial policy we have had to focus on analysing and understanding the dynamics and trends in the economy to better identify opportunities and constraints and to design the necessary interventions, taking into consideration too, the challenge of marginalisation. We have done this and must now implement the actions and continue to strive to do so in a purposeful, concerted and effectively co-ordinated manner, better to realise our objectives. With the passage of time, these interventions will evolve. It is a dynamic process and involves self-discovery on the part of all the relevant stakeholders. In the process, we are mobilising and deploying resources and are committed to be firm in the choices we are making and in our following through.
So, in taking this industrial policy framework forward, in putting in into practice, we will be dealing with sectoral interventions, technology support, industrial upgrading, sharpening our industrial finance programmes and interventions and leveraging the entirety of levers and instruments throughout government and society. One such example is the role we play in identifying and supporting the supply of appropriate skills for industry.
We have said so before and would like to reiterate that having an industrial policy framework has enabled us to clarify for ourselves how the different areas of our mandate hang together in the actions we undertake and to sharpen the actions we have to undertake, which we have organised into the themes of industrial development, international trade and investment, broadening participation, regulation and administration and co-ordination.
Additionally, the framework has also taught us how we relate to other departments and the necessity for interdepartmental and intradepartmental relationships within the framework of the economic cluster. In this regard, we have made good progress and will continue to address the challenges that do emerge from time to time in such broad co-ordination efforts we are undertaking.
Hon members, allow me to now share with you how we have gone about implemention in each of the areas I have mentioned, including some specific actions undertaken and some of the challenges we face.
I will begin with industrial development. Here we are fast-tracking implementation of the four lead sectors that have been targeted on the basis of intensive research and interaction with stakeholders. This, however, does not constitute the entirety of our actions. We will continue in these and other areas to elaborate more detailed plans, through similar processes that we have undertaken up to now.
At this point in time, the metal fabrication, capital and transport equipment, automotives and components, chemicals, plastic fabrication and pharmaceuticals, as well as forestry, pulp and paper, and furniture sectors are enjoying focused attention.
In this regard, the manufacturing of metal products and capital and transport equipment has already been benefiting from public investment in electricity and transport, as well as the mining and commodity boom generally. Consequently, we have already seen significant growth in output and employment in these sectors since 2004. However, there is much more untapped potential that can be unlocked in these sectors.
The department is working closely with the Department of Public Enterprises, Eskom and Transnet to help build competitive South African suppliers in order to leverage the benefits of the public capital expenditure programme. In this regard we are looking closely at the costs of intermediate inputs into manufacturing with a number of import tariffs having either been removed or currently under review.
We are encouraged by the more active role of the competition authorities in responding to anticompetitive behaviour in relation to inputs into these sectors. Firms in these sectors will be able to benefit from the Enterprise Investment Programme to be launched in July of this year, as well as other support measures that are currently being developed.
The National Tooling Initiative was launched in March 2008 and the first phase of the National Foundry Technology Network will commence in July of this year. These are important components of an industrial upgrading programme to allow firms to take advantage of the significant new opportunities emerging from the massive infrastructure investment being undertaken.
The automotive sector remains at the centre of manufacturing policy. Since 2005 the sector has almost doubled in size with a tenfold growth in exports. We believe – as does the industry – that it is possible to redouble this figure by 2020. Indeed, we are alive to the need to bring certainty to the matter of the support that government can make available and we are working with the industry, and this work is centring on the review of the Motor Industry Development Programme. When we conclude this work, we will outline the new programme towards the Vision 2020. The quid pro quo that will be expected of industry for this support will be to accelerate their levels of productivity growth and to fundamentally deepen the component industry in South Africa. To support the deepening of component capabilities we have been rolling out the first component of a three-year supplier development programme through the Automotive Industry Development Centre.
By August the revised architecture of the programme will be announced. We are also encouraged by recent investment commitments which indicate the industry's confidence in South Africa as an investment destination and as a production platform integrated into global supply networks. Recent investment commitments indicate the industry's confidence in South Africa as an investment destination.
The downstream components of our chemicals value chains remain underdeveloped relative to their potential and we remain concerned about input costs into the industry and in this regard a review of import duties on upstream chemical products is expected to be completed in June of this year.
With respect to the forestry sector we have secured an agreement with the Department of Water Affairs and Forestry to fast-track the issuing of water licences which will facilitate the afforestation in the Eastern Cape of 3 000 ha in 2008, 8 000 ha in 2009 and 10 000 ha per year thereafter in the Eastern Cape.
In addition, we are engaging the clothing and textiles sector to address the challenges with a view to placing the sector on a sustainable footing. The introduction of quotas on certain clothing and textile products from China has helped to slow the flood of imports into South Africa. However, such measures alone cannot restructure the sector. Therefore we are finalising a package of measures which includes: A competitiveness-based incentive scheme to replace the Interim Textile and Clothing Development Programme, or generally known as the duty credit certificate scheme, taking due consideration of progress with the review of that scheme that is currently under way in Southern African Customs Union.
A dedicated interdepartmental Illegal Import Task Team will tackle the issue of smuggling and underinvoicing and a systematic review of input costs along the value chain will be undertaken. Most of this work will be completed by the end of this year, particularly in relation to the replacement incentive scheme. In addition a medium-to long-term innovation and technology plan for this sector will also be developed.
We are making very good progress with regard to key Asgisa sectors.
The rollout of the business process outsourcing incentive scheme is already showing substantial success with nine approved projects. These will generate 9 132 jobs and investment of R658,927 million. A major global business process outsourcing and off-shore operator, TeleTech, has been successfully recruited to set up shop in South Africa. This signals that South Africa is beginning to take its place in this high-growth global sector.
In tourism, the department will roll out a customised tourism incentive programme under the broader umbrella of the Enterprise Investment Programme. This programme aims to stimulate job creation and promote tourism investments outside of traditional destination clusters – which are Durban, Johannesburg and Cape Town.
On industrial financing, the Industrial Investment Programme, which really is the revamped and redesigned SMEDP will be launched in July 2008 and will support investment predominantly in the manufacturing sector as well as nontraditional tourism areas.
In addition, we are working with National Treasury to give effect to a package of R5 billion in tax incentives. We expect this work to be completed by December 2008. In March a revised film and television incentive programme was launched with aims to deepen local production in the film industry. In addition, we believe that strategic oversight of the policies and operations of the IDC is now possible and is perhaps on a better footing, now that we have an industrial policy and we are engaging them on their role as an industrial development finance institution.
We are fully cognisant of the challenges and complexity regarding the implementation of industrial policy and we know from our experience now that we must improve co-ordination, but as government we must also ensure that the necessary resources are available. In turn, these resources should be utilised with the necessary discipline, accountability and constant monitoring. With all these elements in place we will execute our industrial development mandate with vigour.
Chairperson, as we make progress in developing our economy, it is important that our markets function optimally to attract new entrants and to protect consumers. The modernisation and transformation of the policy and regulatory framework has therefore been a key feature of DTI policy.
In this respect, the development of a national credit policy framework and the subsequent passing of the National Credit Act of 2005 have fundamentally changed the microlending and general credit industry, by instilling responsible lending practices by industry and ensuring full disclosure by both the lender and borrower during credit transactions. It has been said that the Credit Act that we have, if the United States only had that, it probably would have avoided the subprime crisis in the United States.
Our people are now also provided with greater protection than ever before as the drafting of the Consumer Protection Bill has meant that consumer rights are now codified and institutions for the effective resolution of consumer complaints and enforcement of the law will be established.
Furthermore, a policy framework for a new regulatory dispensation for companies culminated in the development of a new Companies Bill that is expected to be passed into law this year. Concurrently, a review of the competition regulatory landscape was undertaken and the resultant amendment Bill is expected to be passed into law during the course of 2008.
These changes impact on every consumer and every business in the country. Most importantly, for the first time in South Africa, our regulatory framework is as much concerned about the protection of each citizen and economic actor in business transactions as it is about ensuring that businesses are protected from unfair competition through collusive practices, amongst other things.
Trading internationally is a competitive endeavour and we are determined that as we ramp up our manufacturing capabilities, the quality of our product should become a defining feature of trading success. It is therefore important that South Africa improve its technical infrastructure to support our industrial, trade and investment policies in particular. We must reach internationally accepted levels of setting standards, testing against these standards and accrediting various suppliers as competent to perform technical measurements.
Then I am therefore very pleased to report that we have made excellent progress and a key achievement has been the finalisation of the Accreditation for Conformity Assessment, Calibration and Good Laboratory Practice, as well as the National Measurement Standards and Measurement Units Acts in 2007. The Standards Bill and the National Regulator for Compulsory Specifications Bill will soon be finalised. The massive project for the legislative reform of the South African technical infrastructure, to place us on par with the best in the world, will then have been completed.
These deep structural changes to the economy are being achieved on the back of continued efforts to increase market access for South African goods and services in particular. We seek to increase higher value added exports, and to promote trade and inward investment. We will therefore forge closer alignment between our global and regional trade and investment engagement and the priorities emerging from our industrial policy. This will be reflected in the markets that we are targeting and prioritising for strategic relationships and partnerships for the goods, services, investment and technology we prioritise for engagement. And it will be reflected more precisely in the negotiating positions we take, including in terms of the new frontiers for trade policy development on such issues as services, competition, and investment.
Market access has increased substantially since 2004, helping to boost our exports and we continue to pursue new markets. In this regard we have pursued negotiations and concluded a free trade agreement with the European Free Trade Association comprising Switzerland, Norway, Lichtenstein and Iceland that offers full duty-free access for South African industrial exports to those markets, providing new opportunities for our textile and clothing industries.