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29 August 2007

Introduction

As with previous media briefings held this year, the cycle three report will focus on the four strategic areas from which the Economic Cluster's Programme of Action emanates, namely:

* increase economic efficiencies
* promote dynamic growth sectors
* integrate small- and micro-enterprise service delivery
* strengthen institutional arrangements.

The International Expert Panel (the 'Harvard Group') visited South Africa again in July 2007 and is to release its final papers shortly. Based on the discussions we have had with the team thus far, we have found that much of their input actually confirms the approach of the Economic Cluster in a number of key areas. In particular:

* addressing the current account challenges, as we look to do in the Cluster's Programme of Action, through enhancing the competitiveness of the tradable sectors of the economy to increase exports of goods and services and the reduction of import leakage through programmes such as the Competitive Supplier Development Programme
* the Cluster's Macro-economic Focus Group will work on the relationship of macro-economic variables (including the value of the Rand) and their potential to further support the micro-economic transformation programme
* strengthening government coordination, in particular the development of an overarching framework for economic regulators
* seeking ways to strengthen the structured interaction between government and industry as part of a disciplined process of self-discovery.

This report now focuses on progress of each of the four strategic areas and reflects on some of the major decisions that were taken by Cabinet Lekgotla in July 2007.

1. Economic Efficiencies

The end of 2007 will see the completion of a number of key economic efficiency project milestones within the Cluster's Programme of Action. These projects will be reviewed during October 2007 so as to assist in the development of the Cluster's Programme of Action for 2008.

As previous Cabinet Makgotla have identified the need to accelerate the pace of infrastructure rollout to boost growth, measures to unblock delivery are vital in moving forward. In this regard, a common framework for economic regulators is being developed. Such a high-level framework will ensure a consistent overall approach to economic regulation with details being filled in by government departments that have regulators within their ambit. The Presidency is leading this work and convened a workshop on 4 July 2007; relevant academics, international experts, regulators and relevant departments are currently engaged in the follow-up processes.

One can state at this stage that there is an interdependence between policy-makers and policy-implementers i.e. regulators. This means that clear communication channels between the regulator and policy maker needs to be established in terms of policy objectives. A consistent framework for regulators will thus reduce tensions between department and regulators.

Despite the improving level of competitiveness and the robustness of the competition authorities, there remain high levels of concentration in specific sectors of the economy and anti-competitive practices continue to characterise the structure of key markets and the conduct of market participants. This requires that the state of competition be constantly monitored particularly in such sectors as telecommunications, banking and carbon steel. Strengthening competition policies is therefore imperative to addressing such behaviour in the markets. A review of competition policy has been completed by the Department of Trade and Industry (dti) and consulted with the Economic Cluster departments. Based on these consultations, we will forward our proposed amendments to Cabinet for consideration.

The Independent Ports Regulator has been established and ports regulation finalised. The Ports Regulator Board has agreed to establish a sub-committee that will be responsible for regulations and directives. Upon acceptance of the ports regulation by the board, the draft regulations will be published for public comments.

It is now common knowledge that R420 billion will be spent on infrastructure investment by both government and State-Owned Enterprises (SOEs) with Transnet and Eskom spending R250 billion over the next five years. The strategic question remains: 'Can we leverage this massive spending by the Developmental State to grow key sectors in the economy?' On leveraging the impact on infrastructure rollout, Eskom, Transnet and Pebble Bed Modular Reactor (PBMR) have adopted the Competitive Supplier Development Plan. This will be closely linked to the implementation of the Industrial Policy Action Plan which will focus on creating industrial capabilities in the capital goods sector and maximising the impact of infrastructure investment. The three SOEs have appointed executives to champion and develop plans and are in the process of analysing their expenditure to develop comprehensive strategies.

Discussions are underway to finalise ports and rail investment plans and a Cabinet Memorandum is in the process of being finalised.

The implementation of reforms in the Information and Communication Technology (ICT) sector is underway with a view to introduce competition and to achieve convergence within the sector. The focus is to address the issues that relate to pricing and ensuring optimal access to ICT infrastructure. Subject to licence regulation, Infraco is to ensure the completion of the undersea cable by 2010. This will also reduce the cost of international connectivity through the increased competition in submarine cables. The Cluster will also be monitoring closely the ICT requirements for the FIFA 2010 World Cup through ensuring the sufficient capitalisation of Sentech.

Overhauling the Public Transport network is a vital requirement for inclusive growth. The Cluster has focused on strengthening the public transport network with a view to reduce the cost of living and ensure an efficient public transport network for commuting. The Cluster is in the process of rolling-out the public transport plan that was approved by Cabinet in January 2007. Government has continued to implement the Taxi Recap programme and the rollout is going ahead as planned with 20 000 old vehicles targeted for scrapping in the current year. Over 7 000 old taxi vehicles have been scrapped to date and an amount of R363,55 million has been paid out as a scrapping allowance. On accelerating the implementation of the reformed bus system, a draft plan has been developed and approved in principle by the Transport Lekgotla and MinMEC.

On skills development programmes, a total of 22 priority scarce-skill-artisan occupations have been agreed to with the Sector Education and Training Authorities (SETAs) for immediate prioritisation. Draft service level agreements will be submitted to the SETAs proposing a total target of 20 000 priority scarce-skill-artisans for the 2008/09 financial year. The Cluster is currently undertaking work to align the skills development programmes with the Industrial Policy Action Plan and the Ten-Year Innovation Plan.

The National Skills Fund has allocated R300 million to support the development of the 22 scarce skill priority artisan trades. A draft Skills Development Amendment Bill that transfers the powers for artisan development to the Skills Development Act from the Manpower Training Act and ensures the quality of skills development through the proposed establishment of the Quality Council for Trades and Occupations (QCTO).

2. Promote dynamic growth sectors through implementing the National Industrial Policy Framework (NIPF) and leveraging public expenditure and creation of supportive macroeconomic environment.

The July 2007 Cabinet Lekgotla approval of the Industrial Policy Action Plan is a major milestone for the Economic Cluster. The Action Plan will facilitate and support industrial development through the implementation of targeted programmes and serve as a basis for improved co-ordination within the Cluster. Implementation of the Action Plan has already begun. Key action plans in four broad sectors, Capital Goods, Transport Equipment and Metals, Automotive Assembly and Components, Chemicals, Plastics and Pharmaceuticals and Forestry, Pulp and Paper, have been finalised for immediate implementation.

In addition, an industrial upgrading programme will be developed to address the issue of outdated equipment, including in sectors such as Clothing and Textiles. Also a review of selected import duties will be undertaken as a means to drive down input costs and enhance the competitiveness of downstream industries that are more labour intensive.

Implementation of existing sector strategies continue. In the Business Process Outsourcing and Offshoring (BPO&O) sector, the incentive Adjudication Committee has been established and seven applications have been received. Three applications have been approved with a total value of R136,5 million, for the investment support. The South African Bureau of Standards (SABS) has published the recommended practice for BPO&O and BPO2SA. A request for proposals went out on 29 July 2007 for the training of 1 200 previously unemployed youth in skills required for BPO&O. The additional funding for 200 youth has been sourced from Umsobomvu Youth Fund. With regards to the marketing of SA as a preferred destination for BPO global investments, marketing missions were held in London and Philippines.

The Cluster has continued to implement programmes to support the development of the Tourism sector. The Small Business Strategy and rollout plan has been developed. A total of 155 transactional business linkages have been created, with a net value of R117 million.

The Biofuels strategy is to be discussed within an Inter-Ministerial Committee before it is tabled to Cabinet. The strategy will assist government to increase job creation, minimise the current account impact of crude oil's price increases, and secure local energy supplies and use of clean energies.

On Clothing and Textile, the Customised Sector Programmes (CSP) has been finalised and includes key action plans to be implemented within the sector. The broad key action programmes are:

* recapturing domestic market share
* facilitating export growth
* capital and technology upgrade in line with industrial policy upgrading programme
* innovation design and value addition
* create world class labour force
* Black Economic Empowerment
* the formation of an implementation unit.

These key action plans comprise various projects which will be implemented in different phases. Regarding the China quotas, early indications reflect that total clothing imports from January to May 2007 have declined by approximately 15% in volume and value terms compared to the same period the previous year and we will be undertaking a more detailed review to comprehensively analyse the impact of the quotas and ensure that all necessary steps are made to generate competitive local supply.

Going forward, the work to limit illegal and under-invoiced imports is crucial within the sector. Co-operation with the South African Revenue Service (SARS) on illegal and under-invoiced imports is being undertaken. Agreement has been reached with the South African Customs Union (SACU) on a process to develop a SACU-wide strategy for textiles and clothing, including a new incentive.

The Industrial Policy Action Plan (IPAP) has prioritised the forestry sector as a growth area and work continues on addressing the regulatory issues to unlock the potential growth of the sector. The afforestation plan has been completed to grow the sector beyond KwaZulu Natal and Eastern Cape. A draft Forestry Broad Based Black Economic Empowerment (BBBEE) Charter has been developed and launched in June 2007. A target of 25 percent has been set for black ownership and a further bonus point incentive for companies achieving the 30 percent target. This also includes increasing the participation by women and a target of 15 percent has been set for women-owned enterprises.

On cross-cutting interventions, Cabinet has approved the ten-year innovation plan that aims to significantly contribute to transforming the economy towards the knowledge based economy. The plan will focus on increasing investments in:

a) human capital development
b) knowledge generation and exploitation (Research and Development [R&D] activities)
c) knowledge infrastructure
d) enablers to address the 'innovation chasm' between research results and socio-economic outcomes.

In the area of research and development, Cabinet also approved the establishment of the Technology Innovation Agency (TIA) that will act as a bridge between the development of and commercialisation of indigenously developed technologies and that the legislative processes commence on the Draft Bill on Intellectual Property from publicly-funded research.

Action plans are being prepared for Centres of Competence in three major new cutting edge areas. These are Information Security, Titanium metal production and Natural Fibre Composites. This is part of government strategy to increase total expenditure on Research and Development (R&D) to one percent of Gross Domestic Product (GDP) by 2008. In addition a business case and government consultations have been completed on the Draft Bill for the Space Agency.

3. Integrate Small- and Micro-Enterprise Service Delivery

The Cabinet Committee on Investment and Employment is to consider a comprehensive update on the integrated small enterprise service delivery strategy, including the next phase of implementation of the Small Business Strategy.

Related to this work, the 2nd economy framework has been drafted and will be processed through the Cluster for consideration by Cabinet.

We anticipate that the next cycle report will emphasise further developments in the area of integrated small and micro-enterprise service delivery.

Conclusion

It is important to note that there are constraints as well as challenges that have emerged from the implementation of the Cluster's Programme of Action. Improved resourcing and co-ordination remain at the heart of these constraints. Appropriate actions are being taken to address these challenges and fast track implementation.

The implementation of the current Programme of Action for the Cluster is well on track although there are some areas that will require additional capacity to accelerate implementation. Strengthening the Cluster capacity will also be crucial to drive the priority programmes such as IPAP. As part of the improved planning and implementation of the Cluster, research and evaluation work will soon be conducted to analyse the impact of Cluster programmes. We will report on this work in due course.

Issued by: Department of Trade and Industry
29 August 2007