The current administration has prioritised decent employment through inclusive growth. This entails faster sustainable growth, which in turn requires a coherent growth strategy within the New Growth Path (NGP) and Industrial Policy Action Plan (IPAP) ambit. In 2009, the government committed to specific outputs including the following which are championed by the Department of Trade and Industry (the dti):
- scaling up the implementation of the industrial policy action plan (IPAP)
- aligning procurement to our industrial policy objectives
- reviewing our support to the development of vibrant small enterprises
- re-orienting trade towards the growing markets of the east and the south.
Progress has been made towards meeting these commitments and implementing key interventions to ensure that the department meets its mandate and significantly contributes to job creation.
Since the adoption by government of the National Industrial Policy Framework in 2007, successive iterations of the IPAP have delivered significant, measurable, cumulative results on a year-on-year basis; and, in doing so, increasingly realising important elements of the vision for South Africa outlined in the New Growth Path.
Experience in implementing IPAP demonstrates that industrial policy can and does succeed in South Africa if it is well designed, is supported across departments in government; is adequately resourced and informed by robust and constructive stakeholder dialogue. This has been demonstrated in a number of sectors and transversal interventions.
The implementation of successive iterations of IPAP has resulted in the creation of significant new policy platforms as well as measurable impact in key sectors, especially in the Automotive; Clothing Textiles, Leather and Footwear and Business Process Servicing sectors where important lessons can be cascaded into other sectors.
Significant sector specific progress and the creation of industrial policy platforms therefore create the basis for deepening and extending industrial policy support. This has been achieved in the face of a massive external economic shock in the form of the global recession and multiple domestic shocks in the form of sharply escalating administrated prices especially port and electricity charges.
Progress highlights for transversal policies; sector specific interventions; and critical constraints are set out below:
Preferential Procurement
Changes to the Preferential Procurement Policy Framework Act (PPPFA) regulations that enable the dti to designate industries for domestic production came into effect in December 2011. Sectors designated in the first round in December 2011 include: buses; rolling stock; power pylons; canned vegetables; clothing, textiles, leather and footwear; and set-top boxes (local content requirement of 30%). Second round designation included 70 pharmaceutical products in the Oral Dosage Tender.
Work on a third wave of designations is under way, and will include school and office furniture, solar water heaters, cabling and capital equipment. More designations will follow during the 2013/14 financial year and thereafter.
In the renewables sector, under the Renewable Energy Independent Power Producer Procurement Programme (REIPP), local content thresholds varying between 25% and 35%, and set to rise to 65% in the next bidding period were specified.
The Competitive Supplier Development Programme (CSDP) has been used to embed and deepen supplier development in the State Owned Companies (SOC), especially Transnet and Eskom with 65% local content requirements contained in the Transnet and Passenger Rail Agency of South African (PRASA) fleet procurement. These programmes are set to create 65 000 additional jobs over the projected period.
Cabinet has signed off on policy proposals for a ‘new’ National Industrial Participation Programme (NIPP) which will align it with other procurement instruments and provide for greater impact and support for key IPAP Sectors through ‘direct’ NIPP provisions.
The Procurement Accord secures commitments for local procurement from government, business and labour and progress by the private sector has been minimal and greater impetus to convert high level commitments into concrete actions is required.
Similarly local procurement possibilities in non-designated sectors provided for in the Preferential Public Procurement Framework Act (PPPFA), including at Provincial and Metro levels have not been taken up and significant leakages from the economy persist.
Notwithstanding significant progress with respect to public procurement through the designation and CSDP instruments, considerable constraints still exist. Vigilance is required against negative consequences such as excessive premia for localisation; the need to prevent on-going import fronting through amendments to the BEE Codes and the promotion of local content though these codes; and the need to strengthen government oversight of large and strategic procurements to better monitor costs, localisation, technical specifications and technology spill-overs. Finally a much stronger process to secure private sector commitments to local procurement in key sectors such as mining, construction, health, retail and so forth.
Industrial Financing:
Progress has been achieved with respect to the reorientation of the Industrial Development Corporation (IDC) to finance IPAP and NGP initiatives. R102 billion has been identified by the IDC over the next five years for investment in NGP and IPAP sectors, with specific allocations earmarked for labour-intensive investments; the ‘green economy’ and energy efficiency; the agricultural value chain; and companies in distress as a consequence of the crisis. To date R13.5 billion ( billion) has been committed, with 268 companies having already benefited from the fund.
Out of R25 billion earmarked for the green economy, R5.5 billion has been committed. With respect to the R7.7 billion for agricultural and forestry value chains, R1.1 billion has been committed. A total of 102 companies have benefited from the R6.1 billion support fund earmarked for companies in distress.
The IDC will also lower the cost of funding for businesses by sourcing an additional R2 billion from the UIF in order to support more labour intensive enterprises. The 12(i) Tax Incentive of R5.6 billion has secured large manufacturing investments to the value of R22.5 billion.
On budget financing for IPAP programmes did not increase relative to GDP, in real terms until the 2012/13 budget with the launch of the Manufacturing Competitiveness Enhancement Programme (MCEP) in May 2012, with a budget allocation of R5, 8 billion over the current three-year MTEF.
MCEP is designed as a support response deployed towards upgrading the competitiveness of labour intensive and value-adding manufacturing sectors to maximise employment and value-added potential in key sectors. The MCEP offers grant finance, interest make-up and working capital - with clear rules-bound access criteria – specifically earmarked for the upgrading of production facilities and the acquisition of new technologies.
Industrial financing for export markets is an area where there is room for much stronger instruments. A greater alignment of the activities and strengthening of the instruments of the Export Credit Insurance Corporation (ECIC), the development Bank of SA (DBSA) and the IDC to support exports, including to sub-Saharan Africa and to lock in local and African componentry. This applies especially to mining and construction equipment; transport and capital equipment.
The Automotive Sector
The Automotive Production and Development Programme (APDP) architecture is complete and ready to commence implementation in January 2013. The People-carrier Automotive Investment Scheme (P-AIS) has also been approved. The P-AIS programme provides investment support to people carrier manufacturers/assemblers and automotive component manufacturers. The Automotive Investment Scheme (AIS) with a budget of R2, 69 billion over the MTEF period has been instrumental in securing approximately R15 billion investment commitments from assemblers and component suppliers such as FAW, Tata and Toyota, demonstrating confidence in South Africa’s policy framework and capabilities. As a result of the scheme 56 197 jobs, inclusive of 7 685 project jobs will be supported and sustained over a 3 year period accompanied by significant increases in volumes and levels of localisation in the sector.
Particularly worth noting are the following:
- Component exports amounted to R40 billion with a projected 13% increase next year
- Exports of vehicles of an expected 280 000 units is projected to increase to 361 000 units net year
- The recent commitment of $100 million for truck and car assembly plant by China’s First Auto Works
- The approval by the IDC of funding provision to component manufacturers for the localisation of componentry in the motor vehicle industry supply chain.
Clothing, Textiles, Leather & Footwear
The Duty Credit Certificate (DCC) Programme was replaced with an industry upgrading incentive in 2009, namely, the Clothing Textile Competitiveness Programme (CTCP). The CTCP has resulted in significant competitiveness improvements even though its implementation coincided with the global economic crisis. This intervention has resulted in stabilisation and even modest growth in some sub-sectors; the arrest of employment losses by 2010; and a modest increase in employment registered in 2011. The sector is the cheapest job creator in the economy.
To date R285 million was approved under the Competitiveness Improvement Programme and R1.2 billion approved with respect to the Production Incentive. This is in support of at least 49 888 direct and indirect jobs. Also, R37 million worth of clothing merchandise suspected of being counterfeit or non-tax-compliant has been seized following raids on 56 premises by the SA Revenue Service.
Key progress highlights in the sector include the following:
• To date R285 million was approved under the Competitiveness Improvement Programme and R1.2 billion approved with respect to the Production Incentive supporting at least 49 888 direct and indirect jobs.
• An additional R501m has been approved by IDC and is expected to create and save 2 400 jobs.
• Also, R37 million worth of clothing merchandise suspected of being counterfeit or non-tax-compliant has been seized following raids on 56 premises by the SA Revenue Service.
• Two major retailers are participating in CTCP – Foschini and Edcon.
• Foschini has committed to procuring 70% of its merchandise domestically.
• Footwear sector projects have seen an increase in annual production from 52 million shoes to an expected 100 million over the next three years.
• Approximately 32 000 people are employed in the footwear and leather value chain.
Agro-processing:
Over the years the dti has supported the Food-processing sector through investment initiatives and cooperative scheme. The Enterprise Investment Programme (EIP) has disbursed about R636 m thereby facilitating about R3.7 billion worth of investments in the Food-processing sector which contributed to the retention of 14 000 and the creation of 7 000 new jobs.
The Cooperative Incentive Scheme has disbursed more than R100m in support of Agro-processing projects.
Two major projects in food-processing to the value of R1.1 billion have been approved for the 12i Tax incentive.
Environmental Impact Assessments in the forestry sector have been funded covering 2 315 ha in the Eastern Cape and KwaZulu-Natal.
The first Micro maize mill and the Organic Farmer/Retailer Programme (OFRP) were launched recently. The OFRP is a joint venture between the dti on one hand and Pick n Pay, Shoprite and Spar on the other. Pick n Pay is the first retailer to agree to provide dedicated Organic produce shelf-space in 50 stores countrywide in an attempt to facilitate the development of the Organic produce sector and emerging farmers.
The fruit-canning sector has been supported through the development of new canning products.
The finalisation of the Soy and furniture strategies and action plans was completed with pilot investments in the Soybean processing completed.
Business Process Services (BPS)
The Business process services sector leveraged investments of R4.6 billion. Approved projects are expected to create approximately 15,149 jobs over three years. About 70% of the 3,400 young trainees trained under the Monyetla II Programme have been placed by 27 BPS consortia. The first Amazon African customer service centre in Cape Town was launched in August 2011 to service global English and German speaking clients. At the 2012 National Outsourcing Awards in United Kingdom, South Africa was named best offshore location.
Green industries
The key focus here is on the manufacturing of componentry inputs into South Africa’s 17, 8 Gigawatts renewable energy generation programme. This major initiative will be supplemented by solar water heating and other industrial opportunities arising from the urgent requirement for higher energy efficiency across the economy as a whole. Highlights in this sector include:
- Completion of the Solar and Wind Energy Manufacturing Strategy.
- Industrial Energy Efficiency Programme launched in November 2011, solar water heating obligatory for most new buildings under the Energy Efficiency Building Regulations.
- Two rounds of Renewable Energy generation bids awarded, with minimum levels of local content ranging from 25% to 45% and maximum targets set to increase to 65% with stronger local component requirements in solar, wind and solar CSP.
- IDC approval of funding for two local manufactures of solar water heaters.
Metal Fabrication, Capital and Transport Equipment (MFCTE)
There are three core components to the dti’s approach to this sector, namely, leveraging the large-scale public procurements in rail and electricity; providing associated upgrading support; and taking advantage of mining capital equipment investment domestically and on the rest of the continent. Progress highlights include the following:
- the opening of a R1 billion metals coating facility (Safal Steel) in KZN;
- Continuous engagement with PRASA on its rolling stock renewal programme and mandating the location of the major SOCs’ renewal and build programmes within the Competitive Supplier Development Programme (CSDP) and the designations regime – with more components targeted in this regard. The SOC’s renewal programme is estimated to create 65,000 direct and indirect jobs over 20 years
- The National Tooling Initiative pilot tooling apprenticeship programme which hitherto trained 522 students with a grant of R200 million from the National Skills Fund. Similarly to the Monyetla Programme this constitutes a very important example of demand side training
Trade and Competition Policy
Trade and competition policies are now strategically aligned with industrial policy objectives. Tariff setting is more sophisticated, informed by strategic sectoral priorities. Tariff increases, rebates and reductions are now routinely and transparently processed by the International Trade Administration Commission (ITAC).
At the same time, the South African Bureau of Standards (SABS) and the South African National Accreditation System (SANAS) have been actively facilitating the emergence of new industries through the creation of enabling standards, especially for green and renewable energy industries.
Concerted and integrated efforts are underway to tackle customs fraud, illegal imports and the importation of substandard goods, supported by on-going technical upgrading and capacity enhancement at ports of entry - with real-time electronic systems including risk engines and reference price systems.
A range of competition investigations have been conducted in relation to anti-competitive behaviour in sectors providing inputs into production sectors of the economy, particularly manufacturing and agriculture.
Monopoly pricing of key inputs into the manufacturing sector, especially steel and plastics and polymers remains an over-riding constraint. An inter-department Task Team on Steel has concluded its work and proposals in this regard which have been approved by Cabinet. The proposal aims to secure a developmental iron ore price, passed through as a developmental steel price through amendments to the Mineral and Petroleum Resources Development Act (MPRDA); a serious curtailment of the export of scrap metals; and the facilitation of new investment into the steel sector.
The high cost of steel as the most significant input into the manufacturing sector as well as for the planned massive up scaling of the infrastructure programme continues to be a significant barrier and has the potential to escalate into a security of supply issue.
Trade policy
The down turn in the global economy in 2008 resulted in a contraction of South Africa’s trade with most economies around the world. Trade recovered in 2010 alongside an acceleration of shifts in the ranking of our trade partners. China, India and other countries of the South as well as Africa are growing in importance, as the developed countries continue to record low levels of growth. Thus, while South Africa’s economic links with traditional developed countries remain important our prospects for growth and development will increasingly depend on diversifying and strengthening economic links with dynamic economies of the South and with Africa.
Africa, particularly Southern Africa, is becoming the largest market for exports of industrial products. This trend is likely to continue as Africa is already the second fastest growing region in the world economy after Asia. Africa’s growth and development prospects will however remain unfulfilled unless we address the challenges of inadequate infrastructure, the limitations imposed by small and fragmented markets, and inadequate diversification of industrial output, all of which are responsible for the low levels of intra-African trade.
In this light, we have pursued an ambitious development integration agenda in SACU and Southern African Development Community (SADC) with some degree of success. By development integration we mean an approach that combines market integration, promoting intra-African trade, with cross-border infrastructural development (such as the SDIs) and sectoral policy coordination, especially to support regional industrialisation. While consolidating the regional integration agenda in both SACU and SADC, we have now prioritised interventions that will support building cross border value chains.
