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29 May 2008

Government's programme of action in recent years has focused on accelerating economic growth and deepening economic transformation, particularly to create a sustainable basis for a labour absorbing growth. To address this necessary shift from a macro economic stabilisation to a microeconomic transformation, government adopted the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) in 2006. AsgiSA calls for an active industrial policy among other interventions.

In response to this call, cabinet, after an intensive and broad based consultation process and inter departmental deliberations, adopted the Department of Trade and Industry's (DTI) National Industrial Policy Framework (NIPF) and Industrial Policy Action Plan (IPAP) in 2007. The Department of Trade and Industry's programme of action is primarily informed by AsgiSA targets, and a drive towards a transformed and growing economy that generates employment opportunities and reduce inequalities.

The DTI's strategic objectives are
* Promoting the co-ordinated implementation of the Accelerated and Shared Growth Initiative.
* Promoting direct investment and growth in the industrial and services economy, with particular focus on employment creation.
* Raising the level of exports and promoting equitable global trade.
* Promoting broader participation, equity and redress in the economy and
* Contributing to Africa's development and regional integration within the New Partnership for African Development (NEPAD)

An integrated implementation approach is vital in achieving the above listed strategic objectives. To this end, the DTI has consolidated its interventions into the following themes
* Industrial development
* Trade, investment, and exports
* Broadening participation
* Regulation, and
* Administration and co-ordination.

The DTI is pleased to announce that implementation of its programmes and interventions, in various sectors has resulted in significant milestones and achievements.

Industrial Development

The conclusion of the National Industrial Policy Framework (NIPF) and its endorsement by Cabinet in 2007 is a landmark achievement in the DTI's work on industrial development. The NIPF serves as a guide and an integrator of the DTI's work in support of AsgiSA goals. It also plays a significant role in enabling co-ordination of government's programme of action; and focused partnerships and co-operation with private sector, industry, and labour, in tackling the challenges of industrial development.

Capital/transport equipment and metals, automotives and components, chemicals, plastic fabrication and pharmaceuticals, forestry, pulp and paper and furniture have been identified as four lead sectors in which growth interventions and key actions will be undertaken.

The focus of the work on industrial development will be on sectoral action plans which will be prioritised and implemented within the framework of government's programme of action for the economic cluster. In this regard, significant progress has been made in finalising key sector strategies, with some being targeted for immediate implementation during the 2007/08 financial year (e.g. chemicals and pharmaceuticals, automotives, metals and capital equipment, forestry, pulp, paper and furniture, and clothing and textiles).

In addition, implementation of business process outsourcing and tourism strategies is ongoing. The development and implementation of sector strategies interventions will be a continuous process, with priorities determined for each period, to ensure the broadest possible stimulation of growth and employment in manufacturing and services sector.

The Chemicals and Allied Industries, and the Metals and Engineering Sectors summit agreements were signed in April 2008. These agreements will serve as a framework within which government, business and labour will engage in pursuit of sustainable solutions to constraints affecting the sectors.

The national industrial participation programme has been a key contributor to industrial development, and thus far 150 projects have been implemented, involving US$7,5 billion in investments and exports and 12, 000 direct jobs created.

Incentives for industries and enterprises

Several incentive programmes administered by the DTI have made a vital contribution to growing industrial and services sectors, as well as small and medium enterprises. The Small and Medium Enterprise Development Programme (SMEDP) has been the leading incentive, with 11,309 projects approved since its inception in 2000, and R12,7 billion in incentive value, of which R2,3 billion has been disbursed. From April 2006 until April 2008, 2 501 projects have been approved for R2,96 billion incentive value, of which over R6 000 million has been disbursed.

The DTI is pleased to announce that the work to revise the SMEDP incentive programme has been completed. Details of the replacement programme, named the enterprise investment programme will be announced in the government gazette of June 6 2008. Applications to the programme will be accepted from 21 July, so as to enable finalisation of the information technology (IT) platform necessary to enable efficient administration of the incentive.

The enterprise investment programme will initially comprise of two distinct sub-programmes, namely the tourism support programme and the manufacturing investment programme. The guidelines regarding project selection and approval for the new scheme reflect lessons learned from implementation of the SMEDP and will also incorporate the principles of additionality and reciprocity as propagated in the National Industrial Policy Framework.

The Strategic Industrial Projects (SIP) programme has had 45 approved projects by the time it expired in July 2005, with an estimated ongoing investment value of R28,7 billion relative to the R10 billion investment allowance of the programme. It is estimated that 8,446 direct jobs and 104,545 indirect jobs will be created from these projects, and 22 of the projects have already established with actual investment value of R10 billion.

The Critical Infrastructure Programme (CIP) has had 19 projects approved to date with qualifying investment value of R32 billion and infrastructure investment of R9,2 billion. A related programme to support industrial infrastructure, the Industrial Development Zones (IDZ) programme has also been attracting growing investment, currently valued at over R28 billion, and work is advanced on its review to clarify intergovernmental roles and strengthen its legal basis.

Another component of the DTI support is on infrastructure development projects. During the past year, a grant under the critical infrastructure programme for the construction of the R16,3 million bulk infrastructure for the Dream World Film City that will be located in Cape Town, has been approved. The project involves the construction of a one stop media production facility encompassing, amongst other services, eight film stages, production facilities, digital studio services and outdoor production areas.

The project is envisaged to crowd-in an estimated R1 billion investment and create more than 4,000 employment opportunities in addition to contributing to the economic potential of areas such as Khayelitsha, Gugulethu, Langa and Mitchell's Plein.

Besides this direct infrastructure, we also recognise the importance of providing distribution infrastructure in areas where the facilities to view our films are either very poor or completely absent and therefore increase the accessibility and viewership of our creative products.

The film and television production rebate is another successful incentive, which since inception in 2004 has had 31 productions approved, with R1,8 billion in local expenditure. Films that were supported by this incentive include
* The Oscar winning Tsotsi
* Blood Diamond.

In addition, the large budget film production incentive programme has approved 49 productions for a total rebate of R351 million. In turn, these projects are estimated to have accounted for R2 billion worth of spend in South Africa for goods and services at their completion. Of this amount R1.4 billion was direct foreign expenditure.

The Business Process Outsourcing and Off-shoring (BPOO) incentive was launched in 2007. The grant is provided depending on the value of qualifying investment cost and employment creation. The grant ranges between R37 000 and R60 000 per seat and is offered to local and foreign investors establishing projects that aim primarily to serve offshore clients. Since its launch in 2007, ten applications were received, of which nine were approved. The approved projects will result in 9132 jobs and R658 927 995 in investment.

Support for technology and innovation is a critical element of the work of the DTI in supporting industrial development. During 2006/07, the DTI endorsed 85 projects to the value of R250 million through the Support Programme for Industrial Innovation (SPII), and assisted 746 researchers, 3,178 students and 371 industry partners through the Technology and Human Resources for Industry Programme (THRIP). The DTI through the Small Enterprise Development Agency (SEDA) technology programme (STP) is supporting 26 incubators in different industrial sectors country wide to support Small Micro Medium Enterprise (SMMEs).

Trade, Investment, and Exports

The DTI's international engagements aim to forge terms and conditions of South Africa’s integration into the global economy. In particular, we seek to enhance higher value added exports, and to promote trade and inward investment. Over the past five years, in the Doha Round, the DTI played a significant role in consolidating the "G20" group of developing countries which has effectively changed the dynamic in the World Trade Organisation, and placed developing countries, at the centre of negotiations, for the first time in the history of the global trade system.

A free trade agreement with the European Free Trade Association (EFTA), comprising Switzerland, Norway, Lichtenstein and Iceland, was concluded. The agreement offers full duty free access for South African industrial exports to those EFTA, providing new opportunities for the South African textiles and clothing industry.

Much of the DTI's international engagements involve support for African economic integration within the New Partnership for Africa's Development (NEPAD) context and with a particular focus on Southern Africa. The department has played a major role in building new structures and common policies in South African Customs Union (SACU), while seeking to link this work to broader integration efforts in Southern African Development Community (SADC).

In advancing integration in both SACU and SADC, it is increasingly clear that trade integration must be complemented with determined efforts to build diversified production capacity in the region. The most immediate and serious challenge to regional integration in Southern Africa arises from the Economic Partnership Agreement (EPA) negotiations with the European Union (EU). The DTI is concerned that the EPA threatens to undermine the SADC agenda as well as create divisions within SACU.

In regard to export development and promotion, focus in the past three years has largely been on the European Union, North American Free Trade Agreement (NAFTA), SADC, North-East Asia, and China.

It is important to note that:
* Exports to the European Union were double that to the NAFTA at R95,7 billion
* The top manufacturing exports are basic precious and non-ferrous metals (R54,5 billion), iron and steel (R52,9 billion), motor vehicles (R32,7 billion), general purpose machinery (R23,6 billion), and chemicals except fertilizers (R15,7), and waste metal and scrap (R10,3 billion).

In regard to investment facilitation, there a few strategic investments are in the pipeline. Domestic investment projects include
* PetroSA's R145 billion to establish CTL plant, refinery, infrastructure at Coega.
* Sasol's R4 billion Mafuta project (CTL refinery).
* PFG R773 million expansion to manufacture automotive glass in springs, Gauteng.

With regard to foreign direct investment, the DTI is pleased no announce that
* Heineken will establish a R7.7 billion brewery in Sedibeng, Gauteng. Heineken International is committed to partnering Black Economic Empowerment (BEE) companies to set up new glass bottling and canning plants. The company has also committed to create opportunities by procuring various services including construction, distribution, warehousing, transport, marketing and adverting from South Africa companies.
* Lafarge/Orascom will invest in a R3.2 billion cement plant in Mafikeng, North West. The company will enter into a partnership with local communities.
* Teletech from the USA in the services sector is setting up a 10 000 seater BPO facility in Cape Town.

In terms of the investment call centre, which is planned to service investors of over R100 million, pre-feasibility for the establishment of the call centre and costing of the project has been completed.

Broadening Participation

The DTI's programmes and projects promoting the broadening of economic participation include the following.

* The integrated small enterprise strategy that will be implemented over a ten year period.
* A baseline study to strengthen the definition of small business in South Africa, the consolidation of the revised Khula strategy and its mandate, as well as strengthening of products and service delivery of the Small Enterprise Development Agency (SEDA) network.
* The strengthening of SEDA to provide targeted procurement and market access platform for small enterprises.
* Stepping up timely payment mechanisms and monitoring measures for small enterprises that supply goods and services for government, and
* The establishment of a call centre hotline to create a facility for small enterprises to register complaints on payment delays beyond 30 days.

In regard to Broad-Based Black Economic Empowerment (BBBEE), the codes of good practice were gazetted in 2007. The focus is now on setting up institutional mechanisms to ensure effective implementation.

This will entail
* The establishment of the advisory council which will be responsible for monitoring and evaluation of Black Economic Empowerment.
* The development of the verification methodology which will serve as a standard guide for verifying BEE accredited verification agencies.
* The alignment of the Preferential Procurement Policy Framework Act (PPPFA) to the B-BBEE Act to ensure uniformity within the public procurement system

In terms of increasing access to finance for micro and small enterprises, the South African Micro Finance Apex Fund (SAMAF) was established in 2006. SAMAF has already disbursed approximately R8,2 million, benefiting about 9 000 savers and 1 700 micro and small enterprises. Black Business Supplier Development Programme (BBSDP) disbursed over R86 million in the past four years.

The Isivande Women's Fund (IWF) was launched in March 2008. The fund aims provide affordable enterprise loans, ranging from R30 000 to R5 million.

Regulation

Effective regulation is essential to facilitating the objectives of the DTI as well as to providing consumer protection and redress, and an enabling environment to private enterprise. The DTI has achieved major progress in its broad regulatory agenda, which includes corporate law reform, consumer law reform, credit law reform, and competition policy and law review. In this regard, the DTI is proud that the National Credit Act was proclaimed in 2005 and its key provision, the National Credit Regulator (NCR) celebrates its first year anniversary this month.

The following bills will be tabled in parliament during the 2007/08 financial year
* Companies bill reform of the company law framework focusing on simplification of the registration process and introduces the rescue mechanism for companies in financial distress.
* Consumer protection bill promotes consumer rights by setting up front the rights and responsibilities of consumers as well as accountability on the part of suppliers. Key to the bill is access to effective redress.
* Competition Act amendments bill focuses on strengthening cartel enforcement, provisions dealing with multi-firm conduct, and introduces a scheme for personal liability.

Administration and co-ordination

It is clear that enhancing the effectiveness and impact of the DTI requires maximum utilisation of the department's existing capacity, as well as drawing on the capacity of its key agencies. The department has made good progress in increasing capacity in the areas of industrial and small enterprise development.

Although the Department of Trade and Industry (DTI) is one of the departments regarded as an employer of choice by graduates and has been a key destination for those seeking fulfilling and challenging careers, the department still has to compete with other stakeholders for a limited skills pool which has been a challenge to reduce the vacancy rate and the staff turnover.

In the medium term, the DTI will work towards building capacity in order to create an enabling environment to implement various policy frameworks that the department has developed and approved to grow the economy. Various strategies will be implemented to develop and attract human capital.

Concurrently, a review of the organisation will be undertaken to enable the department to determine its skills requirements necessary for the implementation of policy frameworks. The DTI will also focus on reviewing its performance management system to ensure alignment of individual and programme or departmental performance.

The administration of R16 billion allocated to the DTI over the past five years to grow the economy has been done in an efficient and strategic manner. High standards of financial management are attested by the unqualified audit reports issued by the Auditor-General for the past five financial years.

The DTI will continue to leverage strategic partnerships with key stakeholders and role players including other government structures and organisations. One of the most significant partnerships is with the European Union (EU).

In terms of the Sector Wide Economic, Employment, and Equity Programme that was developed by the DTI and EU, the DTI will receive 50 million euros over three years to support the achievement of its strategic objectives. The DTI continues to play a leading role in the Trade and Industry Chamber of National Economic Development and Labour Council (Nedlac) and supports export councils.

During the 2008/09 financial year, the DTI will focus on accelerating implementation of its programmes and interventions in pursuit of reaching AsgiSA targets and the industrial policy action plan.

Issued by: Department of Trade and Industry
29 May 2008