M Mpahlwa: Economic, Investment and Employment Cluster media
briefing

4 October 2006

Direction from the July 2006 Cabinet Lekgotla

Coming out of Cabinet's July Lekgotla, the Cluster has been tasked with work
that will ensure that its work going forward will be strongly grounded.
Included in this will be the identification of a Critical Growth Path mapping
the Cluster's contribution to halving unemployment and poverty by 2014, an
integrated services strategy for the support of small enterprises and an
integrated infrastructure investment plan.

This report provides an update on priority projects of the Economic
Cluster's programme of action for 2006/07.

The Cluster focus groups are as follows (with lead departments in
brackets):

* ensuring aligned and supportive macro-economic approaches (National
Treasury - NT/ Policy Co-ordination and Advisory Services in The Presidency -
PCAS)
* building a competitive and labour-absorbing economy (Department of Trade and
Industry - dti/Department of Science and Technology - DST)
* massively increase public investment (Department of Water Affairs and
Forestry - DWAF/Department of Transport - DoT)
* Equity and development (Department of Public Enterprises - DPE/Department of
Provincial and Local Government - DPLG)
* Ensure priority skills for the economy (Department of Labour - DoL/Department
of Education - DoE)

Key issues from the Cluster focus groups

In terms of the macro-economic group, the work of our International Panel of
Experts (the Harvard team) is on track. By October 2006 the Accelerated and
Shared Growth Initiative for South Africa (AsgiSA) Task Team and the Economic
Cluster will seek to integrate the relevant aspects of the Panel's work into
their proposals for the January 2007 Cabinet Lekgotla.

Infrastructure impacts of AsgiSA have been modelled and the implications are
being processed by National Treasury and DPE. The preliminary results of this
work indicate that infrastructure spending will, in general, have a crowding-in
effect on private sector investment. In addition, the Economic Cluster is
engaging on the issue of improving the quality of data and National Treasury in
particular is engaging with Statistics SA in this regard. This focus group will
also be undertaking research on the drivers of savings.

We are on track to present the biofuels strategy to Cabinet in October 2006.
The literature review was completed and submitted on 30 June 2006 and the task
team is due to conclude its net economic cost-benefit analysis by the end of
September 2006.

The National Industrial Policy Framework (NIPF) has been drafted and the
latest version was tabled and discussed at the July Cabinet Lekgotla. Cabinet
suggested more inter-governmental consultation should take place and the
document be processed by the Cabinet Committee on Investment and Employment. It
has been agreed that the framework will be finalised in time to support the
preparation for the January 2007 Cabinet Lekgotla.

In terms of bringing down the costs of Information and Communication
Technology (ICT), the initial set of policy directives was pronounced in the
Minister's Budget speech in May 2006 and additional policy directives are being
finalised for gazetting by November 2006. The Broadband Development Advisory
Council has been appointed and its first report is due at the end of 2006. The
Local Loop Unbundling Committee has been appointed and will report in six
months. The New Partnership for Africa's Development (NEPAD) broadband network
(including EASSy) protocol was signed by seven of the participating countries
on 29 August 2006 in Rwanda. The sub-marine cable is planned to be operational
in 2008.

The strategy for business process outsourcing and offshoring (BPO&O)
identified and quantified five streams that have all been initiated. The
targeted marketing campaign has been launched and negotiations with key
companies are currently under way, having achieved some successes already. A
training programme to train an initial 1 000 and ultimately 30 000 people has
been designed and a proposal for its funding prepared for the DoL. The
Department of Communications (DoC) have finalised an ICT incentive package for
10 developmental call centres. This project will aim to create employment in
economically depressed areas.

On the basis of the consultations held to date between NT and the dti, the
package of incentives is being finalised for submission to Cabinet in October.
All necessary mechanisms for the administration of this programme have been
developed and initial funding has been committed.

In terms of the promotion of tourism, the tourism Customised Sector
Programme has been finalised and public comments incorporated. The airlift
strategy has been developed and was approved by Cabinet. The tourism sector
skills plan has been adopted and a national tourism conference on skills
development is scheduled for 19 � 20 October 2006. A national tourist safety
and security strategy has been developed and a consultative workshop took place
in August between national and provincial departments to review safety and
security measures taken by provinces.

The need to strengthen the positive impact of tourism on the second economy
has been identified and Stats SA, through the economic cluster, is leading a
process to address the quality of tourism data.

In our project aimed at promoting research and development (R&D) through
increasing public sector R&D and increasing total R&D spending to 1% of
Gross Domestic Product (GDP) (led by DST), the economic modelling of a tax
incentive for private sector spending on R&D has been completed. The
Minister of Finance has introduced a stronger dispensation within the tax
environment that favourably reduces the cost of doing R&D. In terms of
2006/07 private sector spending on R&D, it will allow for 150% expensing
treatment of spending by private sector as well as a higher rate of
depreciation for capital equipment used for R&D. Processes are far advanced
for the necessary amendments to tax legislation needed for implementation of
the tax allowances and information sessions are being planned to raise
awareness within industry.

The Cluster is reviewing capital expenditure procurement of State-owned
entities (SOEs), assessing how existing government policies are affecting the
ability to optimise the development impact of SOE Capex procurement. An SOE
supplier development policy will soon be ready for Cabinet consideration. A
challenge that the team is taking into consideration is to develop a
procurement policy that will not result in significant price premiums through
giving local industry preference. Hence the focus is on local supplier
upgrading rather than local industry protection. A further challenge is to
rebuild SOE procurement capabilities (of capital goods) through an incremental
process. This project will be enhanced by the development of a system to
monitor infrastructure implementation and impact, utilising accessible
electronic access.

In terms of support for Small, Medium and Micro Enterprises (SMMEs), a
project in the Cluster is considering how government procurement can be
targeted to assist SMMEs. The dti completed an analysis of data on Government
Procurement to determine a list of relevant products and services, for
procurement preference to SMMEs. A proposal on the 30-day payment issue will be
included as part of this proposal. This will be completed by the end of October
2006.

In terms of addressing the financing gap for SMMEs there has been progress
on the Apex Fund and Micro-Agricultural Finance Schemes of South Africa
(MAFISA), unifying infrastructure arrangements. Government is sensitive to
ensuring that financial and non-financial support for SMMEs are addressed
concurrently. Therefore the Cluster has asked the relevant departments to
increase their explicit emphasis on linking financial and non-financial support
so that the chances of enterprise success are increased.

With regards to Olifants River System, the Minister of Environmental Affairs
and Tourism has determined that the need for the proposed dam has clearly been
demonstrated and there is no viable alternative to a supply-side solution for
the envisaged demands on the system. He has, however, taken into account the
appeals received and has ordered that the Record of Decision be amended to
address the identified inadequacies. The Minister will issue a revised Record
of Decision on or before the 13 October 2006 that will take into account some
of the concerns expressed by the appellants and in so doing, ensure that
adequate and proper mitigation of the potential impacts of this development
takes place.

Sentech has submitted a business plan to DoC that should be finalised by the
end of October 2006. A committee comprising key government departments has been
established to ensure the financial arrangements for the roll out of Sentech's
broadband wireless network. The committee will also ensure that there is
sufficient co-ordination with other broadband initiatives such as DPE's Infraco
initiative. The Sentech rollout plan will be included in the integrated
infrastructure investment plan due to be presented to the January 2007 Cabinet
Lekgotla.

Intensify Implementation of Expanded Public Works Programme (EPWP): Finalise
modality for larger projects for access roads and scale up road building
(Department of Public Works - DPW); this activity has now been split up into
two separate activities. The first activity focuses on scaling up the EPWP in
access roads construction and maintenance. The second initiative focuses on
integrating EPWP into large-scale projects using both new and existing funding.
Provincial proposals for rural access roads are currently being consolidated
for funding with the intention of commencing these programmes from 2007/08. DPW
has been working closely with the Business Trust in developing a model that
will enable provinces and municipalities to implement large-scale EPWP
projects.

In terms of street-trading infrastructure, sites for infrastructure
development are being visited and a draft manual for Local Economic Development
(LED)/ red tape and by-laws has been completed. The Cluster has identified
pilot municipalities for the location of the street-trading infrastructure. A
constraint on the success of street trading initiatives is the lack of
organised and well-governed street trader networks which can work with
government to integrate street trader activities into formal sector value
chains.

In terms of our attempts to achieve our 2006/7 annual targets for the
National Skills Development Strategy, work has been completed on the framework
of occupations to assist in the identification of scarce and critical skills.
The project is aligned to the Joint Initiative on Priority Skills Acquisition
(JIPSA) to ensure that the skills are in place to meet the objectives of
AsgiSA, whilst also addressing some of the fundamental longer term skills
requirements of a growing economy. This has identified priority skills
requirements in the following areas: world class planning and engineering
skills for the 'network industries' (water, energy, transport, communications);
town and regional planning skills, engineers and artisans; planning and
management capacity in the public healthcare and education systems;
mathematics, science, ICT and communications in schools, and ICT.

JIPSA has taken a targeted approach to its work, focusing initially on the
critical issue of artisans and engineers. Proposals are well advanced to train
an additional 1 000 professional engineers per annum, and up to 50 000
additional artisans over the next four years. A strategic focus on network
design and construction skills for the ICT industry is being considered, and a
problem analysis with respect to town and regional planning skills has been
initiated. In the coming months, JIPSA will engage with the Departments of
Education and Health to help identify and address key planning and management
skills in these sectors, and to strengthen critical skills in the school
system.

The Employment Services System will be implemented in phases until December
2008. Phase 1, which will include skills profiling, scarce and critical skills
and reporting on the filling of placement opportunities, will be completed by
March 2007. Phase 2, to be completed by December 2007, will include the
development and implementation of Sector Education and Training Authority
(SETA) performance management.

Expand Intermediate and High-Level Skills: Maths and Science Schools
(Dinaledi Schools); a monitoring team of retired maths and science teachers has
been appointed to visit 108 schools in September. This is in addition to the
national and provincial visits and will be important in evaluating the roll out
of this programme. The monitoring visits have provided an opportunity to
ascertain progress on targets set for increased numbers of higher-grade maths
and science school-leavers and to determine additional needs. As a result of
the visits, 3 500 higher grade textbooks have been delivered to schools.

Training of master trainers for incentivised teacher training begins on 26
September 2006.

Conclusion

The Economic Cluster is engaging in rigorous preparation that will sharpen
its focus going into the Cabinet Lekgotla of January 2007. This process will
enable better co-ordination and alignment within the Cluster's future Programme
of Action. The Programme of Action will articulate the Cluster's role in the
achievement of government's development target -- the halving of poverty and
unemployment by 2014.

Issued by: Department of Trade and Industry
4 October 2006