Statement of the Portfolio Committee on Trade and Industry on its position and resolutions regarding Industrial Policy Action Plan (IPAP2)
2 Sep 2010
- In a recent series of public hearings, the Portfolio Committee on Trade and Industry engaged more than 38 stakeholders from government departments including National Treasury and the South African Reserve Bank (SARB), public entities such as Transnet and Eskom, key unions, business organisations and various industrial companies, including several green industries, the pharmaceutical industry and agro-industry as well as academics. While not an exhaustive list, the committee believes, this gave a broad overview of a representative table of opinions. A number of chairpersons whose portfolios are directly involved with IPAP2 participated in the public hearings.
- It is becoming evident that the impact of the global economic crisis can be better weathered with industrialisation. While the committee acknowledges that the sound macro fundamentals dealing with trade balances and inflation assisted in South Africa combating the worst fall out from this crisis nevertheless the Committee believes the time has come to develop a greater coherence between macro and micro economic policies.
- IPAP2 finally shifts South Africa economically out of the impact of the apartheid system that regrettably tried to ensure the vast majority of South Africans were not adequately skilled for industrialisation and the manufacturing vehicle.
- The committee has resolved to actively address IPAP2 regularly during its oversight which it recently undertook in the Eastern Cape when it visited industries in Port Elizabeth, East London and Umtata that included a visit to VWSA and Coega.
- The automotive manufacturing industries with their upstream and downstream infrastructure, which the committee visited during its Eastern Cape oversight programme, have mushroomed in the area during the last year, in particular over the last six months, including the manufacturing of chassis and vehicles with more than 70 percent local content.
- Another critical issue arising out of the public hearings and deliberations on IPAP2 is the Acerlor Mittal South Africa (AMSA) and Kumba Iron Ore and the information and communication technology (ICT) inclusion by AMSA, to get hold of a mineral license. The Committee has already committed itself to beginning a process within the next two weeks that will dig down deeper into the impact of the reckless disregard by AMSA with regard to pricing and Kumba’s involvement. The Committee will be calling experts in from the Competition Commission, manufacturing owners, economists, academics and other key people to share with the committee the views on the impact of a strategic iron ore and manufactured steel sector.
- The Committee believes we cannot allow the negative pricing impact of steel to erode IPAP2 and impact negatively on the poor and workers. The radical increase in cans has directly impacted on the cost of canned goods such as pilchards. Other manufacturing sectors using steel have had to absorb part of this massive price increase or face, in some instances, severe constraints in their production.
- One of the critical components of IPAP2 is value-adding as illustrated above and public procurement, which is currently, being amended by National Treasury to bring it into line with the objectives of IPAP2.
- The high cost of capital relative to our key competitors must be addressed, if in the committee’s opinion we are to succeed with IPAP2. The committee also resolved that development finance must be addressed directly: IDC legislation must be amended to ensure it no longer operates like a commercial bank but as a Developmental Finance Institution.
- The committee has also appealed for a review of other funding to be used such as a percentage of pension funds which continues to be under discussion.
- The Minister of Finance, Mr Pravin Gordhan, confirmed to the Chairperson only yesterday that R20 billion over a five year-period for tax incentives has been released for direct use to incentivise IPAP2 projects. The committee in its deliberations on IPAP2, called for incentives including tax measures. So this announcement, very recently came as a welcome major measure.
- IPAP2 is a radical shift to grow a developmental economy by taking deliberate decisions to ensure that investment targets production sectors of the economy and to arrest the decline in manufacturing and accelerate skilled employment creation.
- The committee believes that IPAP2 places South Africa on a New Developmental Growth Path, but to ensure that this is not lost sight of, the Committee has resolved to monitor this on a quarterly basis through engaging the Department of Trade and Industry.
- In the committee’s opinion, a comprehensive response and integrated policy is an essential requirement to scale-up South Africa’s industrial policy. To this end, the Committee welcomes the commitment of IPAP2 to the development of a stronger coherence between macro and micro economic policies in relation to exchange and interest rates, inflation and trade balance imperatives. Trade policy will now be informed and directed by our industrial policy and not the other way around.
- This does not mean that we will ignore the need for South Africa to be a reliable trading partner that can be depended upon. The Committee believes that we can be both a reliable trading partner and focus on our challenges without resorting to a reckless disregard for the realities of global trade demands. Although up to now we have been too cautious however IPAP2 has insisted that our trade policies are strategic in their development and implementation.
- Services and their development are intrinsic to this industrialisation and value-added manufacturing development. This is already apparent in the Eastern Cape, especially the Port Elizabeth area, in respect of vehicle manufacturing which has in turn given impetus to a number of value-added suppliers of local content and services. The VWSA group having effectively exploited Motor Industry Development Programme(MIDP) has moved to a 74 percent local input. Companies, such as Grupo Antolin producing vehicle interiors, including headliners and door panels and, Bentler producing chassis components comprising 75 percent local content. Dynamic Commodities, not associated with vehicle manufacturing but frozen fruit, is a labour intensive production plant with a high export component.
- IPAP2 brings together the once divergent macro and micro economy. The committee is calling on the Reserve Bank to address the currency overvaluation and volatility. The Committee, during its engagement with SARB requested a serious review of current monetary policy measures.
- IPAP2 demands that the objectives of broad based empowerment (BEE), ie the broadening of the base of black Africans direct involvement in the mainstream from boardrooms to ownership and in the manufacturing of up- and downstream products in the value-adding chain becomes a reality and that the current tendency towards elitism is surgically removed.
- The committee welcomed the direct inclusion of competition policies to ensure input costs for productive investments and affordable goods and services for the poor and working-class households is an intrinsic part of IPAP2. However, the committee will through regular engagement with departments ensure that this is not simply a paper commitment but is implemented effectively. The cluster of committees involved in IPAP2 will, of course pursue this more directly.
- IPAP2, in the committee’s opinion, will only work if the public and private sectors unite in a common platform of enterprise and workers through their respective unions are part of this charter of collective commitment to industrialisation. The private sector will make its profits but in a manner that will not only be more sustainable but cognisant of the country’s commitment to industrialisation. Hence, the overwhelming positive response from the private sector, unions, academics and manufacturing drivers by the captains of industry and the welcoming support from business organisations and National Economic Development and Labour Council (Nedlac) gives the committee confidence that IPAP2 is on the right track and can succeed.
- Yes, we acknowledge the many challenges that remain: high cost of capital, insufficient scarce skills, transport and energy costs among others but this cannot be used to put the brakes on an industrialisation programme that will take South Africa out of the current stagnation in employment growth, which for years indeed decades has not been able to break through the 23 percent barrier. Jobs in great numbers will be created not 50 000, but millions.
The committee believes that this targeted outcome can be achieved through the implementation of IPAP2 using manufacturing as a vehicle for services expansion. IPAP2 is no dream. IPAP2 is an achievable, implementable programme to which the entire cabinet must commit themselves wholeheartedly.
Even the most serious of our challenges can be overcome as Japan, Korea, Brazil and India have proved. In many ways, South Africa is starting off with a greater number of human resource assets, which the Committee believes we should harness more effectively.
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Issued by: Parliament of South Africa
2 Sep 2010
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