Trade and Industry Portfolio Committee public hearing process
The Industrial Policy Action Plan2 (IPAP2) was developed through extensive work by the economic cluster of ministers, including widespread consultation with business and labour stakeholders. The IPAP was approved by Cabinet, tabled with the National Assembly and been the subject of public hearings by the Portfolio Committee on Trade and Industry.
It has received widespread media coverage much of which has arisen from the oral and written submissions made to the portfolio committee. The department has also recently briefed National Economic Development and Labour Council (NEDLAC) and a range of other public and private sector bodies on the content of IPAP.
This portfolio committee recently held numerous public hearing sessions on the IPAP at which 38 government departments, public entities, trade unions, business organisations, industry bodies, companies and academics have provided written and oral submissions.
Collectively these constitute, in the range and content of the submissions, a considerable and representative body of opinion. It was encouraging to note that the chairs and members of other portfolio committee’s have attended parts of this process, reflecting that the IPAP is a document of government in general and the economic and sector cluster of departments in particular.
In addition to the formal public hearings, the Department of Trade and Industry (DTI) has received a number of comments and observations addressed directly to the ministry and department.
I wish to express my thanks to all those individuals and organisations who have taken time out of their busy schedules to make comments or submissions to the portfolio committee. I wish to assure all that have made submissions that these will be taken very seriously by the cluster of ministers, my ministry and the department.
A special thanks also to Joan Fubbs the Chair of the Committee and all the members who have participated in the public hearings and contributed to the proceedings.
This Portfolio Committee itself will table a report which will inform and influence the unfolding implementation process and I look forward to the benefit of the committee’s deliberations.
I stated at the outset that the IPAP was a ‘living document’ which will be strengthened in an iterative manner over the three year MTEF period. At the same time as taking on board all those constructive comments and suggestions which are relevant and feasible, the urgent process of implementing the IPAP is well underway. The lessons thrown up by concrete implementation and practice will be the best guide to modifying and strengthening the IPAP over the three year period, a process we have defined as ‘learning by doing.’ In the course of implementation IPAP will be the subject of ongoing and dynamic consultation and engagement as we build the cooperation and partnerships necessary to implement it and ensure that it is continuously improved at the coal face of concrete work. I am confident that the portfolio committee will continue to be an active partner in this important process.
It is clear that the overwhelming majority of submissions have been supportive of the IPAP. This includes broad agreement on the nature and causes of the problems which confront our quest for sustainable economic development and the creation of decent jobs. A range of submissions have pointed to the grave threat posed to the economy and social cohesion by deindustrialisation as well as the difficulty and purposive efforts required to reverse this decline.
There is also sufficient consensus on the need to actively utilise the policy instruments outlined in the IPAP and to further develop a ‘toolbox’ of instruments which can be used flexibly and creatively in the future. We reiterate that we remain open to all positive suggestions and proposals as we roll-out the IPAP.
The proposals contained in the submissions were numerous. It is obviously not possible to provide detailed comment on each point raised. Some fall outside of the ambit of industrial and economic policy. Still others, in our opinion, have expressed views which may sometimes reflect the narrow interests of a particular organisation, company or interest group. Whilst listening to all perspectives, the task of the department is to adopt a wider view and balance a range of interests with the broader public interest and the long term development of the economy.
I will therefore confine myself to some key issues contained in the submissions. The Deputy Director-General of the Industrial Development Division will provide some further comments of detail.
Integration and capacity
Some submissions expressed the view that implementation of the IPAP requires such extensive integration of responsibilities across departments, agencies and State Owned Enterprises (SOEs) that implementation lies beyond the capacity of government.
There is no magic wand for the integration that is required and we are under no illusions about how complex the task is. A number of elements of the IPAP unquestionably rely on actions by departments other than the DTI. As I stated in my budget speech this is precisely why the IPAP is a plan generated by the economic cluster of ministers, not the DTI in isolation. Hence it sets out very clearly which department, agency and SOE is responsible for carrying forward each key action plan.
This portfolio committee has an active role to play in overseeing such co-ordination. Indeed we are already beginning to see the benefits of the committee’s oversight in the improved co-ordination we are seeing as we start to implement the IPAP. Other portfolio committee’s can also play an important role by supporting the departments which fall under their oversight responsibilities and ensure that they fulfil their obligations under IPAP2. A combination of political will and very tight management will constitute the ingredients for success.
Further co-ordination mechanisms lay within the economic cluster of ministers itself. The cluster is required to report back to Cabinet and the portfolio committee once every six months. This serves as an opportunity to report on successes and highlight blockages. Cabinet is putting in place a series of delivery forum which will serve as dedicated forum for overseeing implementation within the economic cluster. In this regard we welcome the proposal made by Congress of South African Trade Unions (COSATU) to also use NEDLAC as a forum to monitor and evaluate progress on a regular basis.
Scale and priorities
Some inputs have suggested that the IPAP has too many actions. In scaling up the IPAP we recognised that we need to move from ‘easy-to-do’ to ‘need-to-do’ actions if we are to achieve the necessary impact. Thus the IPAP reflects the nature and number of actions that need to be done. Each cross-cutting or transversal intervention and each sector strategy has been placed in a framework which outlines their economic necessity, the constraints and opportunities and the key actions required, with the timelines for each. These are indeed many.
Clearly a great deal of hard work to ‘tie down’ all the actions has to be carried out; there is no alternative route of action. The plan will be approached according to a set of priorities which can be implemented in ‘bite size chunks’. Our combined efforts must ensure that every effort is made to speed up implementation by identifying the blockages which occur and the remedies for their solution for each transversal intervention and sector strategy.
Those sector strategies which contain weaknesses or omissions must be strengthened. There is also a need to debunk the myth that other countries have carried out successful industrial strategies on the back of first building ideal public service capacities and only then daring to attempt implementation. Additional capacity can’t be built only in the lecture or training room, it must be built in the hard work of implementation.
Many inputs have referred to the transversal ‘big ticket’ items whose implementation is critical to the overall success of the IPAP. This includes efforts to secure concessional industrial finance for IPAP sectors. The process of working out the best model for industrial financing and reaching agreement with the departments responsible for this function, namely the Economic Development Department and National Treasury and the IDC is well under-way. This will include a review of the funding model of the IDC.
A second ‘big ticket’ transversal instrument is the leveraging of public procurement to develop a competitive domestic supply base. We must concede that hitherto progress on this issue, first raised in IPAP1, has been slow. However there has been significant progress recently. A joint Economic Development Department (EDD), National Treasury (NT) and DTI Task Team is in the final stages of hammering out an agreement on a new set of regulations to the PPPFA which subject to Cabinet approval will create a significant platform to advance the objectives set out in the IPAP2 with respect to public procurement.
This process will be supplemented by close cooperation with the Department of Public Enterprises to strengthen the National Industrial Participation Plan (NIPP) and the Competitive Supplier Development Programme (CSDP) as instruments of leveraging public procurement.
These amendments signal neither a willingness to accept high pricing by local companies nor anything other than zero-tolerance for corruption. Indeed the more we explore the public procurement instrument the more we are convinced that our joint efforts with procuring entities to scope out in greater detail which components and sub-components are required with a view to what can be localised the more we believe the efficiency of the procurement process will improve. This is because localisation requires far more detailed specification of what needs to be procured rendering it clearer where cost savings can be made by standardisation and limiting scope for introducing unnecessary elements requirements into the procurement process.
It is encouraging to note that in their submissions to the portfolio committee, large state owned enterprises, including Eskom and Telkom made a point of outlining their local procurement efforts. A reading of the submission by the Ethekwini Transport Fleet Procurement Programme is reason to be optimistic about the powerful potential for utilising procurement to build domestic industrial capacity.
By all accounts Ethekweni has used its transport fleet procurement in the best interests of domestic production and supply capacity, without compromising on price, quality or other policy objectives. Indeed it is a fascinating case study of how localisation of fire engines has actually resulted in lower costs to the fiscus. It could serve as a useful case study on how a carefully designed and calibrated procurement process in this instance for vehicles can be used to maximum effect to leverage local production and strengthen domestic supply chains.
In this regard it is disappointing that private sector bodies have chosen to remain silent on the issue of the potentially positive role that their procurement could play in the process of supporting and building domestic production capacity and supply chains. At NEDLAC I have appealed to the private sector to come to the party. Many private sector players’ particularly large conglomerates and retail chains can complement a public sector procurement programme by ensuring pro-active support for local production. I wish to reiterate this challenge to the private sector today and call on Business Unity South Africa and other business organisations to join government in support of South African producers.
A number of submissions to the portfolio committee pointed to the demise of an important pillar of this campaign namely, Proudly South Africa. However there is good news on this front. Firstly, the labour relations dispute which bedevilled the work of Public Servants Association (PSA) in the recent past has been resolved.
This has created a platform to rebuild the capacity of the organisation and put in place a coherent and sustained campaign to buy South African. Proudly SA falls under NEDLAC which agreed at its last plenary meeting that the criteria for Proudly South Africa membership should be amended to include commitment to supporting local production and decent work.
With respect to competition policy it is encouraging to hear that without exception submissions are in support of the proposals made in the IPAP to ramp up the work of the Competition Commission. Careful considerations will have to be given to the additional measures proposed in the submissions, including proposals to amend the Competition Act to go beyond existing measures aimed at dealing with cartel behaviour to encompass stronger measures against monopoly behaviour.
The matter of recent steel price increases implemented by Arcelor-Mittal South Africa (AMSA) putatively due to their dispute with Kumba Resources has been referred to us by the Competition Commission. We will pursue with vigour any options to create the conditions in which other players can enter the market on favourable terms to increase capacity and competition to lower the costs of input prices into manufacturing. We look forward to the commission’s rapid investigation into AMSA’s recent decision to raise steel prices notwithstanding that as far as we can establish they are not currently paying higher prices for iron ore. We repeat our view that in the event of a finding that the Competition Act has been breached that the most vigorous remedies should be pursued. In this regard we again refer to the opinion expressed by the Tribunal’s in relation to AMSA’s prior conduct that absent effectiveness of alternative remedies “divestiture may constitute the only appropriate remedy”.
The broad message we send on the linkage between industrial and competition policy is that where firms wish to engage in more value-adding, employment creation and competitiveness raising activities we will support them. However, where they seek to extract unproductive economic rents through anti-competitive conduct we will bring the full force of competition legislation to bear.
With respect to issues of standards otherwise known as Standards Quality Assurance and Metrology (SQAM) some submissions have suggested that our standards institutions could play a much strong role in growing the manufacturing sector in particular accessing export markets and dealing with sub-standard products entering the domestic market. In a recent meeting with the standards bodies agreement was reached to do everything possible to upscale capacity, substantially upgrade compliance measures and interventions in these institutions; benchmark our standards and cooperate with other countries doing this work to high quality;. Anecdotal information points to high levels of non-compliance with standards, particularly where enforcement is a municipal role.
Issues of the alignment and calibration of macro- and micro- economic policies have been the focus of much public debate in the recent period, including issues related to a stable and competitive exchange rate regime and a competitive real interest rate regime. I wish to confine my comments to making the point that there is a sustained and serious engagement on this issue at the highest level.
A number of submissions understandably referred to the scourge of unemployment in our country and the need to adopt policies and measures to tackle it. One of the central objectives of the IPAP is the creation of decent jobs. It does so in three ways, first, through direct employment creation of around 826,000 jobs over 10 years, second, through an additional indirect job creation impetus of around 1,674,000. Third, by stimulating a more dynamic production-driven effort it will contribute to a much more sustainable platform for the long term creation of various service jobs in sectors such as wholesale and retail that are not predicated on unsustainable credit extension. Having said this IPAP is not the only contribution of policy to tackling our unemployment crisis. The IPAP as we have said before is one of the pillars, brought together by Minister Patel in a wider growth path of economic and social policies to tackle the problems of unemployment and poverty.
One or two submissions, possibly driven by considerations aimed more at defending their own particular roles in the economy, have tackled the IPAP on the grounds that it does not have an adequate budgetary allocation to the DTI. In this regard, it is important to note Minister Gordhan’s statement in his budget vote last week that “financing in support of the National Industrial Policy Action Plan will be prioritised in the period ahead”. R3, 2 billion of on-budget incentives as well as some tax-based measures have already been provided for over the current MTEF period. The Industrial Development Corporation (IDC) has done much recent work to re-prioritise its balance sheet with a central focus of financing IPAP sectors. A process is underway to quantify and secure funding to allow for greater concessionality of IDC funding. Further, a number of key action plans fall under departments other than the DTI and hence under separate budgets. For some KAPs financing is not the main issue and it is fast tracking certain regulatory measures which are the key deliverables.
The green economy:
A significant number of inputs focussed on the issue of green and energy saving strategies in existing industry as well as the need for new generation green industries to upscale industrial capacity and create jobs. With regard to the former these may have been made mindful of the danger that shifting the burden of recent electricity tariff increases away from low income consumers, may have the unintended consequence of placing an added and heavy burden on industry, which in turn will influence job creation, income and growth.
One of the strongest messages that have come out of the public hearings is that of the importance of urgently developing a framework and strategy for industrial energy saving in addition to the need to further upscale the IPAP with respect to green industries. It is widely acknowledged that a number of different departments and agencies are doing important work on this matter and that there is a need to ensure that there is a coherent national framework for strategy and policy development and programme implementation.
Engagement and consultation:
A number of organisations suggested that there had been insufficient consultation and engagement with respect to sector strategies. If this is true of some sectors the general approach and practice is to maximise engagement with stakeholders within each sector. IPAP2 is posted on the DTI website and will soon be published in hard copy with a list of contact details for sector heads. Consultation is often a difficult process in which vested interests have to be separated from the broader interests of the sector and the economy as a whole. Having said this, our commitment to ongoing consultation, including with respect to sector strategies holds good.
‘Skills deficit and mismatch’ issues
A number of submissions spoke to the issue. Sector Education and Training Authorities (SETAs) now fall under the Minister and Department of Higher Education and Training (DHE&T). We reject the view that says that no training is taking place in the economy and that SETA’s uniformly are not functioning. We will work closely with DHE&T, the SETA’s, the higher education establishments including the Further Education and Training (FET) colleges and the considerable financial resources that reside in the National Skills Fund to achieve greater alignment and make the system work better. To this end we have ensured that, included in the performance agreements of all DTI sector heads, is a requirement that they actively make inputs into the annual skills plans of the relevant SETAs. In a number of sectors we are seeing improved skills outcomes where this type of interaction has already been happening.
Time does not allow me to deal every input and suggestions raised during the public hearings, a number of which fall outside the direct responsibility of the DTI and the ambit of the IPAP itself. We will endeavour to ensure that all relevant and possible submissions are taken on board both in implementation and in the annual revision of the IPAP itself.
I also undertake to ensure that we will keep the portfolio committee apprised of the monitoring and evaluation and policy development process as it unfolds.
In conclusion it might be worth quoting from an article punting Harvard economist, Dani Rodrik’s new book entitled: ‘The Return of Industrial Policy.’
‘Successful economies, including the United States (US), have always relied on government policies that promote growth’, the article reads. ‘British Prime Minister Gordon Brown promotes it as a vehicle for creating high-skill jobs. French President Nicolas Sarkozy talks about using it to keep industrial jobs in France. The World Bank’s chief economist, Justin Lin, openly supports it to speed up structural change in developing nations. McKinsey is advising governments on how to do it right. Industrial policy is back. ‘But when it comes to industrial policy, it is the United States that takes the cake. This is ironic, because the term “industrial policy” is anathema in American political discourse. It is used almost exclusively to browbeat political opponents with accusations of Stalinist economic designs.’
Perhaps we should contend that history suggests that industrial policy never went away-certainly for countries which have had successful growth strategies, including in recent history. But the important thing for us is to get our policy and implementation right. We can only do this by working together to get the job done.
Issued by: Department of Trade and Industry
18 May 2010
Issued by: Department of Trade and Industry
18 May 2010