Comments on the Budget Vote Speech: Trade and Industry and Economic Development, Minister Ebrahim Patel, July 2019, National Assembly

Since 1990 the relationship between the stainless steel industry and the dti has been entrenched and is currently very strong and productive. Sassda was invited to attend the budget Vote Speech by Trade and Industry and Economic Development Minister Ebrahim Patel, as a guest of the dti and the following discussion highlights some of the main aspects of the speech by Minister Patel.

The minister announced that the Department of Trade and Industry and the Department of Economic Development will be merged into the new, Department of Trade, Industry and Competition. This process will be completed by March 2020, bringing together 17 agencies with the capacity to provide targeted funding, regulate the consumer and corporate environment towards a vibrant business ecosystem and facilitate real, inclusive growth in the economy.

The new department’s industrial strategy will be a central pillar of economic recovery, but in the current context it is all about  implementation which will be more disciplined but also increasingly responsive and collaborative. The merger of the two departments will speed up decision-making, create a more agile state and inject a sense of urgency in the work of government. The minister admitted that the forward-looking industrial strategy must be complemented by an appropriate macro-economic policy and other micro-economic interventions, including affordable energy prices, as well as skills to grow output and employment.

The minister identified 6 focus areas in the industrial strategy:

  1. Expand markets for South African products and facilitate entry to those markets. Government believes the single biggest initiative is the African Continental Free Trade Area (AfCFTA ) that will see 1.2-Billion people fall under a single market, where local products will be traded between countries, with minimal tariffs. The Agreement will fundamentally change and reshape the South African economy. Exports to other African countries support about 250 000 South African jobs and Sub-Saharan Africa/Africa? is the fastest-growing market for locally manufactured exports. The minister mentioned that the department is busy finalising a tariff schedule, listing products to be covered by the AfCFTA; and the rules of origin, which sets out what qualifies as a locally-manufactured article. The outstanding rules of origin include clothing and textiles, autos and sugar. The department will endeavour to develop the following agreements:
  • expanded trade in services;
  • investment protection for African companies operating in each other’s markets;
  • strengthened competition policy on the continent and
  • trade-related intellectual property rules.

The domestic market is important and ITAC is currently investigating trade applications into several products including poultry, combined refrigerator-freezers, plastic resins and metal screws. The trade policy will be redesigned so that tariff relief  offered to domestic companies is accompanied by clear, enforceable commitments to invest more, expand output, create jobs and transform. In short, trade relief must be part of a package of reciprocal commitments to upgrade and improve industrial performance.

  1. The second focus area is the provision of support to improve industrial performance, dynamism and competitiveness of local companies. The department will develop several Master Plans to help create conducive conditions for industries to grow. This will include assisting companies to improve their industrial capacities and sophistication, focusing more on export orientation, and reclaiming domestic market space that has been lost to imports.

A key constraint to growth is electricity pricing. The department is working to lower the cost structure of Eskom for more affordable electricity tariffs, particularly for priority sectors which need to be boosted to create jobs. The Master Plans will be action-oriented, implemented through working with business and labour and implemented in stages. In the steel industry, the department will launch a support programme for new plant and equipment in metal fabrication. It is meeting with investors on the development of foundries and steel mini-mills, including measures to enable beneficiation of scrap metal. The R1.5-Billion Steel Industry Competitiveness Fund will be made more attractive and easier to use.

  1. The third focus is to improve the levels of investment in the economy. The Department will support the Investment Conference scheduled for 5-7 November this year. It will send a number of export missions to other countries, including the Shanghai Expo in November this year; and the Dubai Expo in October next year. Invest SA will be supported and upgraded to be a stronger one-stop shop to unblock obstacles to investment projects getting off the ground. The IDC will be refocused to provide a greater level of investment promotion services, including support to break into new markets particularly for the AfCFTA.
  1. The 4th focus is to promote economic inclusion. This entails opening up and changing the South African market structure, through industrial funding to new groups and competition policy. The following changes to the Competition Act will come into effect, when a Presidential Proclamation is gazetted:
  • Consumers and customers will have better protection against excessive prices by dominant firms in a market, with the law setting out clear criteria that the courts can apply to determine if a price is excessive
  • regulators will have powers to investigate and address high levels of market concentration where these keep SMEs and black-owned enterprises out of the market
  • worker ownership of shares of companies will be promoted through a criteria on expanded ownership during mergers
  • Small and medium businesses will be given a special status in merger criteria, market inquiries and exemptions
  • Larger businesses will have a more flexible exemptions regime in place to enable them to collaborate with each other to help expand South African production, grow our export markets and develop new technologies or expand jobs
  • competition authorities will have additional resources that will facilitate more efficient operations.
  1. The 5th focus is promoting more equitable spatial and industrial development. A pillar of the industrial policy is to develop new investment clusters through special economic zones, revitalisation of industrial sites and business and digital hubs.
  1. The 6th focus area is to improve the capability of the state. This means being more responsive to the needs of industry, faster decision making and carrying out functions, improved coordination between departments and agencies and creating a ‘business-encouraging’ environment in which more investment and more job creation can take place.

The minister concluded by stating that two cross-cutting themes will form the backdrop for six initiatives:

The first is greater partnership with the private sector and with labour. This will be underpinned by joint-commitments and reciprocity based on a state that doesn’t dictates or simply give, but one that sparingly uses national resources to help unlock the energy and enterprise of our people.

The second is to promote inclusion and transformation opportunities for black and white youth,  women and black industrialists. Inclusion also means making the government more accessible to communities, young entrepreneurs and new entrants. The Departments and agencies will be asked to engage in community outreach programmes and roadshows to publicise its programmes  to make it easier for people to use them.

Sassda supports this broad strategy and will endeavour to assist the department in all ways possible. Participation and sharing information with the department and making sure members can benefit from this, will be critical for our industry to reach sustainable levels of job creation and investment.

Trade relief must be part of a package of reciprocal commitments to upgrade and improve

The R1.5-Billion Steel Industry Competitiveness Fund will be made more attractive and easier to use.