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Progress Report Briefing by the Honourable Minister of Trade and Industry, Mandisi Mpahlwa
10 March 2009

Introduction

Over the course of the ending term of the current administration, government has been implementing a range of interventions aimed at growing the economy, halving unemployment and poverty. These interventions are outlined in Accelerated and Shared Growth Initiative (AsgiSA) and have been implemented by Economic Cluster of government departments.

The AsgiSA interventions and Economic Cluster Programme of Action were informed by several analyses of the economy, to identify constraints and challenges to accelerating shared growth and to identify measures to address these. The constraints which were also highlighted in the mid-term review included:

* lowering the cost of doing business, including barriers to entry and high mark-ups in input industries
* significantly lowering the cost of telecommunication
* systematic co-ordination of administered prices
* acceleration of the contribution of education and skills to economic growth and labour absorption
* financing of small enterprise initiatives and programmes
* management of the exchange rate
* government implementation capacity.

Furthermore, government conducted a 15 year review which made the following key findings as regards the economy:
* macroeconomic stabilisation created space for growth and redistribution
* current confluence of negative indicators shows need for faster action on growth
* constraints that require restructuring productive capacity
* co-ordination in economic policy development and implementation requires improvement
* impact of second-economy interventions require scaling up
* regulation regarding competition and state owned enterprises (soes) need strengthening
* energy and food security are becoming more prominent issues.

In developing the Cluster's programme of action, the Cluster sought to identify those cross-cutting interventions that are likely to be most critical to the achievement of the 2014 goals. The Cluster’s current Programme of Action (POA) which has been under implementation over last three years has the following overarching elements viz:

* increasing economic efficiencies
* promoting dynamic sectors
* integrated support for small and micro-enterprises.

In addition, the Cluster identified the following areas for more enhanced focused to effect the structural change in the economy needed to sustain higher long term growth.
* ICT Infrastructure, especially broadband
* public transport
* energy
* second Economy

However, the emergence of the global economic crisis that has begun to filter through the real economy also poses challenges for the government economic POA. However, the crisis re-emphasises the need to continue implementing the interventions identified, as these address the long term structural constraints to the economy and seek to promote a fast growing, dynamic and resilient economy. This will also ensure that the economy is in a good position to take advantage of the opportunities that will arise when the global economic crisis ends in the medium term.

At the January Lekgotla, the Economic Cluster presented an outline of responses to the global economic crisis which was the basis on which government engaged its social partners (business, labour and community) under the auspices of National Economic Development and Labour Council (Nedlac), in the ongoing task team process that was launched by President Motlanthe in December 2008.

Indeed, the proposed framework to respond to the global economic crisis draws from the government's Economic Programme of Action and seeks to adapt it to the current economic environment.

The following is an update on the implementation of the Economic Cluster programme of action and includes the Apex priorities which were integrated into the Cluster's programme in 2008.

Promoting economic efficiencies

Progress has been made with regard to review of competition policy and legislation, as well as in undertaking more active enforcement. The review was completed in December 2007 and the drafting of the Amendment Bill began in 2008, culminating in the Bill being adopted by Parliament and referred to the President for assent. The Amendment Bill gives competition authorities additional tools to deal with uncompetitive behaviour and complex monopolies in the economy, which hamper the development of more labour-intensive downstream industries.

The work on the Capital Expenditure programme remains critical to address inefficiencies in the economy and drive industrial development. On energy, the Energy Master Plan was approved by Cabinet in 2008. Eskom has also begun with its built programme. In addition, mothballed power-stations Camden, Grootvlei and Komati are planned to return-to-service by 2011. Energy conservation in mitigating electricity challenges in the short-term, while the Electricity Build Programme and other interventions, such as that of encouraging Independent Power Producers, are being implemented. Resources of the National Energy Efficiency Agency, Department of Minerals and Energy (DME) and Eskom, have been pooled to reach a bigger target market and ensure that an integrated approach is followed.

In January 2009, the Cabinet Lekgotla approved the broad policy framework that will guide the Water for Growth and Development Initiative. Progress has also been made in the construction and maintenance of water infrastructure, as well as gaining a better understanding of water challenges that face us.

The information communication technology (ICT) policy landscape has been transformed through the promulgation of the Electronic Communications Act (ECA) in 2005. The new Act seeks to introduce a licensing regime, competition within the sector, and facilitate the rolling-out of infrastructure to increase access. A comprehensive ICT Infrastructure Development Plan was presented to the July 2007 Cabinet Lekgotla.

The plan details various interventions in dealing with issues relating to cost (both international and national), and access to ICT infrastructure and services. Progress has also been made in the construction of submarine cables. The West African Cable System Consortium is due to conclude its construction and maintenance agreement. In respect of the UHURUnet submarine cable, the Baharicom shareholding structure for the cabling will be concluded in the near future. The cable is expected to be in service during the last quarter of 2010.

Skills shortages continue to pose the constraint to the economy, including the infrastructure build programme, which seeks to ensure that our economy continues to grow in the current global economic slow-down. Various initiatives have been undertaken to promote skills development. The work of Joint Initiative for Priority Skills Acquisition (Jipsa) has been critical in identifying the short-term skills requirements to sustain the economy and better position it for a high growth trajectory. Given the significant short-term skills needs of the country, the Cluster has overseen the streamlining and acceleration of processes for securing work-related business permits. The Cluster is also identifying additional interventions to fast-track skills immigration, which will include the development of a skills importation strategy.

We have finalised consultations on the revised National Human Resource Development (HRD) Strategy with social partners. The work of Jipsa will be integrated into the new structure, which will oversee the implementation of the new HRD strategy.

On public transport, the strategy that was presented and approved by Cabinet in 2007 identified a number of challenges to the efficient functioning of the public transport system. A number of interventions are being rolled-out to begin addressing the challenges that are prevalent in the public transport system. Both the Taxi Recapitalisation Project and the Bus Rapid Transit System are being rolled-out in partnership with provinces and metros.

With regards the Integrated Infrastructure Plan, the first draft was submitted to Cabinet for consideration and further work is underway to complete this work as soon as possible. The aim of this plan is to ensure that policies, strategies and infrastructure plans of various sectors in government are coordinated and optimised to support overall government objectives rather than just sectoral imperatives.

On economic regulators, a framework is currently underdevelopment to ensure a consistent overall approach to economic regulation in the country.

On climate change, at the July 2008 Cabinet Lekgotla, the Cluster presented different scenarios to mitigate the impact of climate change and work is underway to develop the necessary policy responses

Promote dynamic growth sectors through the implementation of the industrial policy

Industrial Policy Priority Sectors (IPAP)

The IPAP identifies four key priority lead sectors where interventions will be prioritised to unlock growth and realise employment potential. These are capital/transport equipment and metals, automotive assembly and components, chemicals, plastic fabrication and pharmaceuticals; and forestry, pulp and paper and furniture. These sectors and others to be identified going forward have been targeted on the basis of following criteria; employment and growth potential, investments, exports and government’s ability to intervene.

With regards to the automotive sector, the review of the Motor Industry Development Programme (MIDP) was completed in December 2007. The new replacement scheme (Automotive Production Development Programme) was announced in September 2008. The new programme seeks to promote domestic manufacturing and the development of a competitive components sector. Although the new programme will be fully rolled-out in 2012, some elements will be introduced in the next financial year, including investment allowance. A task team has also been established to develop a response to the challenges that face the industry as reduced demand continues to negatively affect car sales and threaten the survival of supplier industries.

In chemicals, the two-year tender for the supply of anti-retrovirals (ARVs) was awarded in mid 2008, with 84 percent of the R3,6 billion contract allocated to domestic ARV manufacturers. Feasibility studies on the domestic manufacture of active ingredients and anti TB medicine are currently underway. Initiatives in the pharmaceutical sector are crucial to ensure that government procurement is leveraged to develop certain industrial capabilities and facilitate industrial development.

On the metals sector, a National Foundry Technology Network is fully operational 17 companies have been benchmarked and technology upgrading has commenced. The jewellery incubator has been established at gold zone in Germiston to cover training and small, medium and micro enterprise (SMME) development. A preliminary report on the study of the limitation and rationale for the exportation of scrap metal was completed in December 2008.

On the forestry sector, afforestation suitability mapping is still in progress in Mzimvubu and Umzimkhulu catchments. The forestry sector skills plan has been submitted to the Department of Labour for its further attention and action, and a task team has been established to work on the skills development strategy for the forestry sector. A draft funding policy for small growers has been completed and will be presented to the forestry functional management committee. On the sustainability of timber supply, a call for proposals for the development of a saw timber strategy has been issued.

On clothing and textile, work on developing a competitiveness programme has been concluded. This programme is focused on improving the overall competitiveness of the sector and putting it in on a sound footing for the long-term. The programme also includes industrial and technology upgrading initiatives. The Industrial Development Corporation (IDC) is finalising the establishment of a unit to administer the programme.

On Business Process Outsourcing (BPO), the roll-out of the government assistance and support programme for BPO has been underway. Since its launch in 2007, 19 applications were received of which 17 were approved. The approved projects will result in 15 000 jobs and R1,1 Billion in investment. So far, as government we have committed R439 million to be disbursed between now and 2012.

The work on BPO also includes targeting designated areas in underdeveloped regions. In this regard, two call centres have thus far been launched in Mangaung and Sisonke Municipalities. On the roll-out of Monyetla Work Readiness Programme, phase one has been completed and over 1,000 previously unemployed youth have been trained, with over 80% absorption rate.

On tourism, key initiatives underway include the tourism enterprise development strategy, airlift strategy, framework for integrated service excellence, review of the current grading system, the tourism HRD strategy, and 2010 plan. On Biofuels, licensing criteria were finalised in May 2008 and approved for publication. These criteria are currently available on the Department of Minerals and Energy website (under petroleum licensing documents).

Industrial policy cross-cutting interventions

Industrial policy cross-cutting interventions are focused on providing a conducive environment for industrial development. The focus of industrial financing is to stimulate growth, employment, and broaden participation in the economy. The Enterprise Investment Programme (EIP) was introduced in July 2008 to replace the Small, Medium Enterprise Development Programme (SMEDP). Work to finalise tax incentives is at an advanced stage. An IT platform is being implemented to improve the administration of the incentives. The online application for EIP was implemented in July 2008.

It is important to highlight that South Africa achieved its target of spending one percent of its Gross Domestic Products (GDP) on research and development (R&D) by 2008. In the same year, R&D tax incentives were also introduced to encourage private sector spend on R&D initiatives. Work on big science initiatives, such as Square Kilometre Array (SKA), is ongoing. These initiatives offer the country an opportunity for the development of new technology, and increasing the number of scientists and engineers. In 2007, Cabinet approved the ten-year innovation plan. The Department of Science and Technology (DST) has continued to establish institutional structures to support the implementation of the plan. On the titanium industry development initiative, an inter-departmental task team has been established and a detailed medium-term strategic business plan for the establishment of a viable titanium industry in South Africa has been developed.

On digital migration, the dual illumination period was officially launched in November 2008.

Integration of small, medium and micro enterprises (SMMEs)

As part of the strategy to improve access to finance for SMMEs, the Khula direct lending business case has been completed and was presented to Cabinet in November 2008. The direct lending strategy is focused on providing finance to the lower end of the market, which is not serviced by mainstream financial institutions.

The process of aligning the Preferential Procurement Policy Framework Act (PPPFA) Regulations with the Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice, has taken longer than expected but the task team is working towards finalising the proposals for aligning the two pieces of legislation. On ensuring the timeous payment of SMMEs by government, a call centre targeted at assisting SMMEs in this regard will be operational by April 2009.

Work is currently underway to finalise the framework that seeks to integrate support for small enterprises across three spheres of government. This framework will focus on the following elements:

* co-ordination of SMME programmes, including provincial networks
* SMME support infrastructure
* Annual joint reporting by all spheres of government.

In terms of employment creation, the Expanded Public Works Programme (EPWP) remains an important component of promoting public sector employment. The programme achieved its 1 million employment target. Phase two of the EPWP will be rolled-out during the next financial year.

Conclusion

The Cluster has made significant progress in implementing several of the interventions identified in its three year programme of action. These achievements are in areas such as promoting economic efficiencies e.g. work on competition policy as well as economic regulation.

In the area of industrial policy, the completion of the framework and implementation of sectoral actions has been vital in promoting coordination of the country’s industrial policy process.

Less was achieved in some POA items, and all work in progress in the Cluster’s POA will be carried forward into the next term of government. The work to improve capacity to co-ordinate and facilitate the implementation of the Cluster’s Programme and securing additional resources to implement Cluster’s interventions will also be prioritised.

As previously indicated, government and social partners met to consider how South Africa should respond collectively to the impact of the global economic slowdown on the local economy. Work in this regard is currently underway to develop specific interventions to assist industries in distress, and safeguard the achievements that we have made in terms of employment creation and industrial development. The team will complete its work in detailing suitable interventions towards the end of March 2009, the details of which will be communicated thereafter.

Issued by: Department of Trade and Industry
10 March 2009