Minister Rob Davies: Trade and Industry Dept Budget Vote 2015/16, Parliament, May 22 2015
Madam Speaker
Honourable Members
Director-General and officials of the Department of Trade and Industry and the Council of Trade and Industry Institutions
Leaders of organised Business and Labour
Distinguished guests
The fundamental goal of this Administration is to radically transform the South African economy in such a way that it promotes a higher level of more inclusive growth. This is the only sustainable way we will be able to achieve reductions in poverty; unemployment and inequality that we all agree are urgently required.
In identifying the path towards higher levels of sustainable growth, it is important to reflect on past experience. In the 84 quarters between 1993 and 2014, the South African economy grew at 5% or more in only 16 of these quarters. The growth in those periods was overwhelmingly driven by import intensive consumption and the now ended commodity super-cycle.
Neither of these factors will drive growth into the future. More importantly higher levels of inclusive and sustainable growth and radical economic transformation require that we bring about structural change that will do two main things: first, place our productive sectors firmly at the heart of a new growth path that will move us further up the value chain - and second, significantly broaden the base of economic participation. These two components together are what we understand as radical economic transformation.
Honourable Members, The 7th iteration of the Industrial Policy Action Plan (IPAP) which we launched earlier this month seeks progressively to raise the impact of our interventions to support industrial development and the re-industrialisation of our country.
This is an exciting but challenging task. Since its inception, IPAP has had to contend with a global great recession and its lingering aftermath as well as with a number of strong domestic constraints. In these tough circumstances, its impact has been on a scale that has been less than optimal in relation to the demands of re-industrialisation in South Africa. That?s why it?s up scaling – as signalled in the President?s State of the Nation Address and nine point plans - has been identified as a key priority. For now though, it is important to note that in the challenges we have faced, in the global and domestic headwinds, some very significant successes have been achieved.
The overall diversity of the economy and many of its critical industrial capabilities have been retained; and a range of strong and viable policy platforms and programmes have either been built or strengthened.
The fact that South Africa continues to be seen internationally as an environment conducive to investment is reflected in the fact that the stock of foreign direct investment in South Africa is equivalent to around 45% of our GDP. Inward flows have continued to grow, and over the last five years South Africa has accounted for the bulk of new investment projects in Africa, with major investments arriving from the USA, the Eurozone and – increasingly significantly - from China, India and other Asian countries. In 2013 alone, over 130 foreign firms either entered South Africa or expanded their investments here – that is to say, about 3 firms per week.
In October 2014, The United Nations Conference on Trade and Development recognised TISA, one of the divisions of the dti, as the Global Winner for attracting investment in sustainable development.
The current pipeline of potential investment projects that we are monitoring and facilitating includes R 25.3 bn from foreign and R18.5 bn from domestic sources. Aggregating funding from both sources, it is expected that upcoming investments will likely be distributed as follows: R28.8 bn for the green economy; R7.96 bn for advanced manufacturing and R5.74 bn for mainstream manufacturing. Madam Speaker, our report on successes is evidence based. In the automotive sector, 2014 saw a rise in the volume of vehicles. Total vehicle production for 2014 amounted to 545 666 vehicles of which 276 404 were exported. In February this year, BMW South Africa celebrated the production of its one-millionth 3 Series sedan at the Rosslyn plant in Pretoria.
To use but one specific example of further investments; Mercedes-Benz South Africa expanded its production capacity in its East London plant by investing R5.4 billion in plant and equipment creating 550 direct and 400 indirect jobs. In support of this expansion, component manufacturers in East London invested approximately R1, 3 billion in plant, equipment; and building infrastructure to support the production of the new C Class, and in the process creating 800 new jobs. Let me emphasise again: These investments would not have happened without focused government support, its commitment to partner with the private sector and the increasing impact of its industrial policy.
To reinforce these points, allow me to dwell for a moment on a particularly illustrative case study – that of the Clothing, Textiles, Leather and Footwear sector.
Not so long ago, the demise of this sector was regarded as a foregone conclusion. In this House, we heard some members imploring us not to support what was seen as a lost cause. So-called "soft touch industrial policy" was cited as the way to go – in other words, abandon support for sectors which were for one reason or another experiencing difficulties.
I am glad government chose to ignore those views; and I am equally happy to say that during the past few years we have been able to report on both the steady competitiveness improvements that have taken place across the sector and the many jobs that have been saved and created, particularly in KwaZulu-Natal and here in the Western Cape.
the dti’s Clothing & Textiles Competitiveness Programme has, since its inception, been aimed at supporting change in the CTLF manufacturing sector to enable it to stabilise and grow.
Let me give you a sense of the most important numbers in a review of the CTCP recently conducted by the IDC.
As at 31 March 2015, a total of R 3.7 billion had been approved under the programme, of which R 2.6 billion had been disbursed since inception in 2010.
The share of employment in the sector by companies drawing on the CTCP has increased from 28.8% in the base year of 2009 to 38.7% in 2014. The Manufacturing Value Addition (MVA) increase attributable to the CTCP between the base of 2009 and 2014 is R 3.9 billion (exceeding the disbursements by 50% or R 1.3 billion). By contrast, the overall non-CTCP sector experienced declines in output and value added over this same period.
I can also confirm that we have made good on my promise to this House last year that we would be launching a significant programme to increase value addition in the exotic leather and animal hide industries through the National Leather Cluster. This cluster has now been established at the Vaal University of Technology and is up and running. Its work will be directly responsible for the creation of 2,000 sustainable jobs and a reduction of R1.4 billion in the trade deficit through import replacement by local retailers.
Madam Speaker
The full benefits of all the CTCP interventions will only be realised in the medium to long term. But even in the short term, the data is conclusive:
CTCP interventions have already demonstrably contributed to improved overall competitiveness, sustainability and employment growth for its recipients.
And here’s the clincher:
At a cost to date of R2.6 billion disbursed, the CTCP has facilitated the creation of R3.9 billion of additional MVA as well as saving over 68,000 jobs and achieving a total net gain of 6, 900 new jobs.
Honourable Members
CTLF is just one of the major areas of the dti intervention. As you know, we spread the net much wider. And in this regard I?m pleased to report that one of our continuing flagship incentives offerings, the Manufacturing Competitiveness Enhancement programme or MCEP, has continued to perform very robustly. Since its inception, just three years ago this month, it has provided support for a total of 236 projects across a wide range of sectors - with an investment value to date of R3.8 bn and the maintenance of an estimated 28, 000 jobs.
At the same time, it is worth noting that our central emphasis on manufacturing does not by any means exclude interventions in key employment-creating service sectors: most notably Business Process Services and the local film industry.
the dti’s contribution to the Business Process Service sector has to date produced some outstanding results. To use but one example, In the first 3 months after being revised and re-launched, Business Process Service incentives were the critical catalyst for recent new investments by MTN Group Management Services and Full Circle Contact Services totalling R16.3 billion and creating an estimated 6, 300 jobs over a five-year period.
Our film and video sector, to borrow a phrase from social media, “is trending”. In the past financial year alone, the industry contributed R3.5 bn to the economy, whilst supporting 25, 000 jobs. The Film and Television Production Incentive underwrote 137 film productions.
There is a clear correlation between the growth in the number of local films that have been released at local cinemas and the introduction of the dti Film Incentive. In the ten-year period between 1990 and 1999, only 34 local films were screened at local cinemas countrywide. In the decade following, this number grew by 129%, to 78 films screened across South African cinemas. (An average of 7.8 new films a year).
However, in the much shorter four-year period between 2010 and 2013, the number of South African-produced films screened at local cinemas rose to 91 – or an average of 23 new films a year. This spectacular growth curve is the clearest possible evidence of the positive impact that the adjusted Incentive Programme has had on the local film industry.
We are now truly on the global film production map, with an impressive recent record of international films, TV series, documentaries and commercials.
Building on this momentum to support local film makers, the dti recently launched a R1 million-threshold South African Emerging Black Film-Makers Incentive Programme. This will tap into an exciting pool of young talent that up to now has encountered many obstacles to realising its full creativity. In ten years? time, we may be looking at a whole new wave or genre of home-grown films that express authentic South African imaginative realities in ways that we have not yet dreamed of.
Honourable Members
Time constraints do not allow for a fuller report on the comprehensive range of the dti activities. However I wish to report in summary that besides what has already been mentioned, this department was involved in a R3 billion new investment by Unilever South Africa and a new Atlantis-based manufacturing facility for components for the wind and solar industries by the Spanish company Gestamp. Other green energy production facilities established were Jinko Solar, SMA Solar Technology and Agni Steel in Coega. In September we launched a R100 million gold loan scheme to support jewellery manufacturers.
In the same month a R1.2 billion glass furnace bottling facility was unveiled by Nampak, supported by governments 12i Tax Allowance Incentive Programme.
On the agro-processing front, just to take one example: in December 2014 Abagold Limited, a local Hermanus-based company that farms abalone announced a significant expansion with support from the dti Aquaculture Development and Enhancement Programme As the company CEO reported at the time:
“The investment in the project is budgeted to a total sum of R112 million and we have already received R5.6 million on our first claim from the dti. Our maximum production per annum used to be 275 tons of abalone, and with the new project, it will grow to more than 500 tons per annum.”
20-Year old Kwanele Tom, who is employed on Abagold's Sulamanzi farm, adds “Since I joined the company I have learned how to work with abalone and would like to attend the aquaculture training course and other skills training courses. I want to grow with the company.”
Madam Speaker
I have provided examples of some, though far from all the successes that can be attributed to the work of the dti, with the invaluable support of the IDC and our partner departments in the Economic Cluster.
I have done so to make the point that the current iteration of IPAP not only seeks to build on and enhance these successes, but to provide clear evidence in support of our confidence that these successes can and will continue and deepen. On the contrary, on the basis of what I have already outlined today, it is clear that the substantive issues for inclusive growth in South Africa are, in reality, the following:
Firstly: the need for a higher impact, scaled-up industrial policy across other sectors - including stronger incentive packages and tighter conditions for recipients of funding – and with a particular focus on support for key „champion? or winning firms in sectors where SA already enjoys competitive advantages or where potential competitive advantages could be leveraged or new production capabilities gained.
Secondly: the need for government, SOCs and the private sector to build a stronger set of working relationships to jointly unlock the opportunities and overcome the constraints that have continued to inhibit the growth of the manufacturing sector.
Thirdly: the need for increasingly „joined-up? government, where both policy coherence and programme alignment support a „laser-focused? national industrial effort; including intensive work with global and local OEMs, export promotion programmes and enhanced support for Export Councils.
Finally, Madam Speaker, as we look ahead, we commit ourselves to moving forward on the basis of the five key pillars of industrial development that we have identified in IPAP 2015: These are:
Firstly, Infrastructure-driven industrialisation ensuring that the very substantial infrastructure build programme supports local industrial development
Secondly Resource-driven industrialisation aimed at leveraging the mineral resources endowment to support higher levels of downstream beneficiation and value addition, whilst systematically building up both the demand and competitive advantages South Africa enjoys in the upstream mining, transport and capital goods sectors. Allow me to provide you with one example of this work.
Significant industrial development opportunities are emerging in the form of clean energy and mineral beneficiation linked solutions utilizing key SA mineral resources. Fuel cells are one of these representing an exciting window of opportunity for SA to enter and potentially lead in this new high tech resource dependent industries leveraging our PGM endowment, existing fabricators and R&D initiatives. Major platinum mining companies see fuel cells as a possibility to offer growth opportunities for the industry where the continued development of the platinum market is required to ensure long-term sustainability.
In 2015/16, the dti will focus intervention on a multi-faceted and structured approach covering demonstration and market development to increase demand and catalyse the development of the value chain in SA. Investment promotion initiatives to secure potential financing with key technology partners and in collaboration with local R&D initiatives will be key.
In the second quarter of 2015, Impala Platinum in collaboration with the dti and IDC will start the development of a 1.8MW hydrogen-fed fuel cell power solution at their Springs refineries marking the largest single site installation of hydrogen fuel cells in the Southern Hemisphere. These cells will be fuelled from hydrogen off the pipeline supplied by Sasol and Air Products. Impala envisages this to be followed with the execution of a larger installation with the ultimate goal of moving the refineries off-grid. Implats is working closely with local companies as well as a Japanese fuel cell manufacturer and believes there is an opportunity for fuel cells to be locally manufactured.
These exciting fuel cell developments and opportunities is evidence of the need to fast track this potential industry requiring coordinated government effort and strong partnerships between the private and public sector to develop and grow the market and supply chains in SA and the region.
The third pillar is Advanced manufacturing-driven industrialisation
This means, as I have already indicated, a continued focus on key sectors of the manufacturing economy which upgrade the capabilities of the economy as a whole. We need to engage particularly intensively with global OEM”s in these sectors and develop robust conditionalities for public sector support so that growth of the sector achieves our developmental objectives.
It also includes on-going work, not yet completed, to build an integrated system of industrial financing, incentives and export support with a special focus on lead and dynamic companies that can compete effectively in export markets; and, finally, it encompasses a strong commitment to support emerging black industrial entrepreneurs.
Fourth pillar: Procurement
This focuses on strengthening the localisation of public procurement, building on the lessons learnt through the implementation of various policy instruments over the past few years. It includes securing compliance with procurement prescripts in the public sector, training and capacitating public sector institutions for strategic sourcing and supplier development and leveraging other policy instruments such as incentives to support the development of domestic manufacturing capabilities. the dti has designated 16 sectors, subsectors and products for local procurement.
When I launched IPAP 2015 I announced further designations for local procurement in the following product areas: transformers, power-line hardware and structures, steel conveyance pipes, mining and construction vehicles and building and construction. In the case of the last sector, the first round of construction material designations include cement, fabricated structural steel, pipes and fittings, sanitary ware, glass, frames and roofing materials. This means that in the 645 infrastructure projects across the country valued at R3.6 trillion the state must procure the types of products listed above (and other products previously designated) from local manufacturers.
This is the strongest signal to date that government intends deploying industrial policy instruments where it believes it can achieve maximum leverage to support industrial development and job creation.
Fifth and final pillar: Regional economic integration
This centres on maximising the opportunities presented to the domestic economy by a growing market on the African continent, driven by high growth in the region, strong consumer demand, infrastructure development and resource exploitation.
The opportunities are significant, and must be energetically leveraged by unblocking obstacles to expanded regional economic trade and crafting clearly-defined programmes of complementary regional industrial development and value chain integration.
Honourable Members
As we have in the past, we will continue to work actively to position South Africa as a competitive and attractive destination for FDI, particularly in value added activities.
In line with these positive outcomes and, my previous reports to this House that we will continuously and consistently seek to improve service delivery even where we are doing well, I am glad to announce today that we will soon be opening a dedicated Investment Promotion Unit and Inter-departmental Clearing House as announced in the President's State of the Nation Address.
Specific details of this enhanced investor support facility will be provided in the near future but we intend to provide greater resources to establish a one-stop shop for investor support, regulatory matters, investment financing and immigration matters. In future investors can expect more and better with regard to aftercare, expansion and retention. The unit will have a specialist focus and skills set for unblocking bureaucratic obstacles, red tape reduction, and administrative barriers and will improve Governments service and response to investors.
The establishment of this Unit will also assist in marketing our SEZs, about which I spoke at length in my input to the NCOP budget vote debate yesterday.
Madam Speaker South Africa has been playing a prominent role in championing developmental integration in the regional economic communities we are members of and in the AU. The Tripartite Free Trade Area (T-FTA) that will be launched at a Summit in Sharm el Shaik next month will signal that we are on track to create a market of over 600 million people with a combined GDP of over $1trillion. Later in the same month, in South Africa negotiations will be launched for the establishment of a Continental FTA that will embrace the entire continent –a market of 1, 3 billion people with a combined GDP of over $2trillion.
These developments follow the extra-ordinary SADC Summit held last month which approved a SADC Regional Industrialisation Strategy and Roadmap. South Africa strongly supports regional and continental efforts to build more industrialised and diversified economies and reduce Member States' over-dependence on primary products.
Members may be aware that the US Senate has now passed a Bill that provides for AGOA to be extended for a period of 10 years and for South Africa to be included. New provisions in the Bill however strengthen the conditionalities that will apply and clearly seek to chart a course “to transform the relationship between the US and Africa from non-reciprocal concessions to reciprocal agreements. In addition, the Bill provides for regular reviews of African countries' trade and investment policies with an emphasis on the openness to US products, and in the case of South Africa, such a review is scheduled to be held within 30 days of the enactment of the Bill.
Notably absent, although indicated at an earlier stage as a possibility, is any improvement in the level of access of AGOA eligible countries' products to the US market.
Agoa commitments remain important to sectors such as autos, chemicals and some agriculture, and agro processing and Government is working hard to remain a beneficiary of Agoa mindful of the 30 day out of cycle review to which we will be subjected. However, the reality is that with the many new conditions and changing dynamics of US trade policy, the value of AGOA is diminishing while its costs are rising. I will raise the matter for discussion in Cabinet in the near future.
Honourable Members, the limited time I have today precludes any substantive reporting on our very important legislative programme. In the coming year we will however depend on your wisdom to assist us in the passage of key pieces of legislation such as the Promotion and Protection of Investment Bill, the Copyright Amendment Bill, the National Gambling Amendment Bill and the Liquor Amendment Bill
Madam Speaker, Honourable Members
All the work I have been discussing is underpinned by the efforts of related development finance and regulatory bodies - namely, the Industrial Development Corporation, the National Empowerment Fund, the Council for Scientific and Industrial Research and the dti’s technical infrastructure institutions - as well as the cooperation of those SOCs that occupy a central place in our industrialisation effort. To the staff of all these institutions and to our own dedicated the dtipeople – on whom all this work rests - I offer on behalf of government as a whole our sincerest appreciation.
The work of the dti is also supported by the oversight of the Parliamentary Portfolio Committee and the Select Committee of the National Assembly and the National Council of Provinces. To the Chairpersons, the Hon Joan Fubbs and the Hon Eddie Makue, as well as honourable members of the Committee, I express my sincere appreciation for your support.
All the work of the dti is also supported by the Ministers and Departments of the Economic Sectors and Employment and Industrial Development Cluster. Allow me to also express my sincere appreciation to these Ministers and their respective departments.
We re-affirm our common goal of taking the inclusive industrialisation of South Africa to a new and higher level.
I thank you.
Issued by the DTI, May 21 2015
