M Mpahlwa Monitoring and Evaluation media briefing August 2007

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