Briefing to the Parliamentary Portfolio Committee: Trade and Industry Department of Trade and...

Briefing to the Parliamentary Portfolio Committee: Trade and Industry

Department of Trade and Industry: Industrial Development Division and Incentive Development and Administration Division.

July 2014

Overview of Presentation• Key context; underlying principles and drivers of Industrial

Policy Action Plan (IPAP)• Key transversal interventions and supporting agencies• Summary sectors and sectoral interventions• Immediate opportunities; constraints and threats• Overview Industrial Development Division (IDD)• Overview support measures • Incentive and Administration Division (IDAD) and key

incentives.

20 April 2023 2Briefing to Parliamentary Portfolio Committee

Underlying principles and outcomes

IPAP is aligned with the vision of the NDP and the key growth drivers of the NGP. It seeks to: Restructure the economy and reverse the threat of deindustrialisation;

Place it on a more value-adding, labour-intensive and environmentally sustainable growth path - especially in globally competitive non-traditional tradable goods and services;

Produce a decisive shift of focus towards historically disadvantaged people and regions of SA;

Contribute towards comprehensive industrial development in Africa, primarily focussed on infrastructure, industrial productive capacity and regional integration.

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Context and underlying principles: 1

Briefing to Parliamentary Portfolio CommitteeJuly 2014

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IPAP is fundamentally committed to: Sound research; Intensive stakeholder engagement; Intra-governmental coordination and integration; Identification of key areas of market failure; Industrial ‘self-discovery’ and learning-by-doing.

IPAP is product of the Economic Sectors and Employment Cluster. IPAP asserts state leadership in strategic areas of the economy by ‘steering but not rowing.’

It is also committed to internal process improvement and capacity building, both within the dti and in support of its partner institutions.


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Context and underlying principles: 3 Key Action Plans:

Over the past 6 years, IPAP has developed a wide range of transversal and sector-specific Programmes and Key Action Plans (KAPs) which are renewed, reviewed and deepened in successive iterations.

IPAP KAPs are designed around time-bound milestones and the allocation of lead and supporting responsibilities to specified departments and institutions.

Methodology: The IPAP has proven to be an important tool for:

Planning and management; Monitoring and evaluation; Oversight; Intra-governmental coordination and integration.

Oversight effected through Ministers Monthly meetings and NEDLAC. Very important role for Parliamentary Portfolio Committee.

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Provision of targeted, conditional support to industry:

IPAP increasingly requires strong quid pro quos from recipients of its targeted investment and incentive schemes. (Reciprocal responsibility and accountability).

Recipients are particularly required to make clear improvements in the key areas of:

Plant and process upgrading;

Competitiveness and export orientation;

Employment retention and new job creation.


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Consolidating the foundation: The new platforms created by IPAP have built a foundation upon which industrial policy can be

deepened and extended. These include:

Procurement; Infrastructure and localisation; Industrial financing and incentives; Stronger and more focussed export support and promotion.

All the above need to be combined with greater efforts to overcome cross-cutting constraints and intensify intra-governmental integration and co-ordination.

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Industrial policy works: Demonstrable progress and results illustrate that industrial policy can and has worked when it is firmly

based on these principles and adequately resourced.

Clear examples of IPAP-assisted success can be seen in the automotive sector, clothing and textiles, business process services and the film industry.

It is important to emphasise that the progress achieved to date has been in the face of extremely unfavourable global economic conditions and domestic constraints.

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Address two major problems for the SA economy: depressed

demand from SA’s traditional trading

partners and - linked with this - the

negative balance on the current account.

How? Rebalance the

drivers of growth, with strong

emphasis on domestic demand

and full participation in BRICS and African

regional integration /

industrialisation - to expand our export

markets and drive up competitiveness.

Ensure much stronger public

procurement policy and public sector

institutional capacity to support

localisation inclusive of the public sector

infrastructure programme.

Develop a dialogue to encourage much

stronger support and concrete actions for localisation in private sector procurement.

Develop a focussed export

strategy based on:- support for

proven competitive

winners;- deeper

exploitation of our massive

mineral resource endowment; - mobilisation of all the technical/

scientific capabilities at our

disposal.

Improve the coherence of

the state/ private sector

industrial financing system:

as a first step, harmonising existing and

new dti incentives with funding flows from the IDC1, DBSA2, ECIC3

etc.

Strategically support LNG4 and shale gas

exploration and exploitation -

within an environmentally

sustainable framework – to

realise potentially

‘game changing’ upstream and downstream

economic benefits.

Key challenges and drivers of IPAP 2014 - 2017

Briefing to Parliamentary Portfolio Committee

4. Liquid natural gas1.Industrial Development Corporation2. Development Bank of Southern Africa3. Export Credit Insurance Corporation

July 2014

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IPAP IPAP CROSS-CUTTINGCROSS-CUTTING FOCUS AREASFOCUS AREAS


11Briefing to Parliamentary Portfolio CommitteeJuly 2014

Technical Infrastructure: Partner institutions

12July 2014 Briefing to Parliamentary Portfolio Committee

Technical Infrastructure: Partner institutions

13July 2014 Briefing to Parliamentary Portfolio Committee

The technical infrastructure entities adopted a collaborative approach for the planning of the infrastructure support value chain. This ensures that activities are synchronised and that resources are optimised, enhancing the support and shortening the timelines. This framework supports industrial development and in the current IPAP, the 4 entities have increased their coordination through syncronised action plans in the following IPAP priority sectors: green industries, agro-processing, metal fabrication, capital and rail transport equipment, advanced manufacturing, clothing, textiles and footwear and the nuclear industry.

The NRCS and the SABS assist each other to identify relevant areas or products where international standards exist and can be adopted or adapted with the aim of introducing new or updated mandatory standards/ compulsory specifications in order to protect South African citizens against harmful products, whilst also supporting the development of local industry. Strong enforcement of compulsory specifications

The NMISA can plan the development of measurement standards and techniques timeously and ensure the availability of fit-for-purpose accurate measurement at the appropriate time, while SANAS can define the accreditation parameters for the calibration and conformance testing facilities. All four entities can then identify gaps in conformity assessment and especially testing, and plan to either jointly develop such capabilities within the SABS, NRCS or NMISA and other public entities, and/or assist the development of private sector testing capabilities.


• Better, more coherent articulation of macro- and micro-economic policies. • Stronger intra-governmental coordination and better implementation. • Ongoing effort to overcome constraints such as high administered prices

and the negative unintended consequences of overlapping regulatory requirements.

• Stronger alignment of industrial policies and programmes with investment and export promotion programmes designed to drive up export performance and reduce the current account deficit.

• More ‘deep-dive’, granular research and analysis at sector, industry and individual firm levels, with stronger stakeholder dialogue, engagement and long term partnership development.

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IPAP 2014-17: KEY AREAS OF TRANSVERSAL INTERVENTION: 1



• Sustained effort to secure compliance with existing public procurement policies and strategic sourcing/supplier development measures.

• Further policy framework and institutional improvement measures flowing from the Public Procurement Review.

• Strong persuasive efforts to secure private sector support for local manufacturing – a contribution that large companies in particular are well placed to make, given their significant procurement spend.

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Procurement

July 2014 Briefing to Parliamentary Portfolio Committee


• Stronger alignment and progressive strengthening of industrial financing & incentives.• An optimal mix of public and private sector funding that can progressively strengthen

investment in the productive - especially manufacturing - sectors of the economy.• Support for industrialists committed to long term participation in manufacturing

through a combination of majority ownership and active management.• Development of targeted industrial financing instruments for black industrialists to

acquire majority control of manufacturing enterprises, either through new investments or acquisition.

• Development of related support programmes such as a dedicated MBA to develop black managers and owners in manufacturing.

• DFIs to take this objective on-board very seriously, including: specific financing by the IDC, and reorientation of the National Empowerment Fund (NEF) to support black industrialists.

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Industrial financing



• Ongoing strengthening of developmental trade policies - with the following key components:• Deployment of selective and strategic tariffs and their improved alignment with

industrial policy objectives. • Close cooperation with the International Trade Administration Commission (ITAC) -

whilst recognising its necessarily independent role.• Closer cooperation with the Customs Division of the South African Revenue Services

(SARS) to combat the ever-present (and steadily growing) problem of illegal and fraudulent imports – one of the key pillars of the illicit economy.

• Steady and incremental strengthening of the capacity and capabilities of the Standards, Quality Assurance, Accreditation and Metrology (SQAM) institutions, which provide an indispensable support framework for a modern and competitive economy. (e.g. the new Legal Metrology Act).

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Developmental trade policy



• Strengthened interventions to combat anti-competitive and collusive behaviour and in order to lower the cost of procurement to the national fiscus and of wage goods to working families.

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Competition policy

Regulation and intellectual property• An Intellectual Property Rights (IPRs) regime that seeks to create a supportive

environment for South Africa’s industrialisation objectives. The regime should provide stronger support for new domestic product innovations.

• New policies and programmes to ramp up competitive capabilities in the production and services sectors of the economy, taking advantage of every opportunity to leverage the quantum advances on offer in the sphere of digital, additive and other globally emergent advanced technologies.

Innovation and technology


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IPAPIPAP SECTORALSECTORAL FOCUS AREASFOCUS AREAS

CLUSTER ICLUSTER I


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IPAP IPAP SECTORALSECTORAL FOCUS AREASFOCUS AREAS

CLUSTER IICLUSTER II


SUMMARY: SUMMARY: IMMEDIATE OPPORTUNITIES: 1IMMEDIATE OPPORTUNITIES: 1

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Industrial policy Identify and support dynamic export-oriented companies - especially in sectors

where SA enjoys competitive advantages/opportunities. Stronger focus on performance conditionalities. More effectively targeted industrial financing in government and private sector

partnerships - particularly for key sectors such as Mining and Transport Capital Equipment.

Stronger partnerships between industry and government.

Infrastructure development Make good use of state infrastructure investment programmes as a powerful

stimulus to industrialisation leveraged off the localisation of a wide range of manufactured inputs into the infrastructure build.

Particular focus on construction, metals, capital and rail transport equipment and renewable energy.



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Regional integration and new export markets Sustained and concerted regional growth is arguably the biggest stimulus to long-term growth

in South Africa. In the short to medium term, regional integration offers continuous opportunities for SA to grow its exports base.

Dynamic SA manufacturing companies have already seized the opportunity to increase exports, intensify marketing initiatives and establish after-sales servicing capacity.

A number of ongoing and scaled-up interventions are in the pipeline. These include: planning cross-border infrastructure; effective articulation of up- and downstream linkages in resource exploitation; and the realisation of massive construction opportunities.

BRICS South Africa’s participation in the BRICS provides important opportunities to build its

domestic manufacturing base, enhance value-added exports, promote technology sharing, support small business development and expand trade and investment opportunities.

Development of complementarities and integrated value chains should be underpinned by an overall approach that puts industrialisation at the core of the engagement.



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Beneficiation: initial short term steps Secure concessional access to mineral feed-stocks as a source of competitive advantage in the

development of value-adding beneficiation that supports the domestic manufacturing sector. IPAP 2014-17 contains the first of a set of Key Action Plans, providing a platform for what

must over the next few years become a comprehensive set of interlocking policies, programmes and further Action Plans to secure this competitive advantage.

Natural and shale gas: medium to long term prospects The discovery of extensive natural gas fields in Eastern and Southern Africa and of very large

Indicative deposits of shale gas in South Africa brings with it the possibility of a major shift in SA’s existing energy mix.

This has the potential to: Rapidly expand upstream energy capture, enhance midstream logistics and servicing

capabilities and create a wide array of downstream beneficiation opportunities across key manufacturing sectors.

In the medium to long term, very substantially lower the cost of energy for the production sectors and household consumers.


ConstraintsProtracted recession and decreased demand for SA exports in our traditional export markets in the US and Euro Zone. Difficulties associated with changing our export paradigm.

Weakened domestic demand as the credit-fueled boom of 2005-2007 continues to prove unsustainableFinancial market failure and lack of investment in the productive sector: requiring a much more strategically focussed set of investment instruments and incentives across all DFIs and departments.Monopolistic pricing of privately owned key intermediate inputs into the manufacturing sector – especially steel and plastics.Continuing currency volatility.


Threats•Electricity supply; sharply escalating and ‘bunched up’ administered prices – especially triple digit municipal electricity price increases combined with municipal electricity supply shutdowns.

•Security of municipal water supply and shutdowns.•Weaknesses in intra-governmental coordination.•Onerous environmental regulations not callibrated to meet specific needs of production sectors and phasing in requirements.

•Continuing high port charges and freight and logistics inefficiencies for export of value-added goods.

•Continuing skills deficits and mismatches across the economy – an especially critical problem for the new growth sectors.

•Continuing labour relations volatility.


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dti: Industrial Development Division (IDD)dti: Industrial Development Division (IDD)

DEPUTYDIRECTOR-GENERAL

Office of the ChiefOperating Officer

Office of the DDG and COO(DMU)

INDUSTRIALCOMPETITIVENESS

CUSTOMISED SECTORPROGRAMMES

Chief Directorate: Technical Infrastructure

Chief Directorate: African RegionalIndustrial Development

Chief Directorate: NationalIndustrial Participation

Chief Directorate: Industrial Policy

Chief Directorate: Industrial Procurement

Briefing to Parliamentary Portfolio Committee

Directorate: Creative Industries

Directorate: Business Process Services

Chief Directorate: Primary Minerals Processing &Construction

Chief Directorate: Green Industries & Energy Efficiency

Chief Directorate: Aerospace, Advanced Manufacturing,Electro-Technical & ICT

Chief Directorate: Plastics, Pharmaceuticals,Chemicals & Cosmetics

Chief Directorate: Metal Fabrication, Capital & RailTransport Equipment

Chief Directorate: Clothing, Textiles, Leather & Footwear

Chief Directorate: Automotives, Components, Medium &Heavy Commercial Vehicles

Chief Directorate:Agro-processing, Forestry, Paper, Pulp & Furniture

INCENTIVE DEVELOPMENT & ADMINISTRATIONthe dti’s Objectives: Facilitate transformation in the economy, to promote industrial development, investment, competitiveness and employment creation

IDAD mission: To stimulate & facilitate the development of sustainable, competitive enterprises through the efficient provision of effective & accessible incentive measures that support national priorities

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Manufacturing Incentives

PROGRAMME PURPOSE TARGET OFFERING

Aquaculture Development Enhancement Programme (ADEP)

To stimulate investment in the aquaculture sector with the intention to increase production, create jobs, encourage geographical spread and broaden participation

SA registered entities engaged in primary, secondaryand ancillary aquaculture activities in both marine and freshwater

•A reimbursable cost-sharing grant of up to a maximum ofR40 million qualifying costs in:• Machinery and equipment; Bulk infrastructure; Owned land and/or buildings; Leasehold improvements; and Competitiveness improvement activities

Automotive Investment Scheme (AIS )

Investment in light motor vehicles, and components manufacturing.

Motor vehicle manufacturers producing 50,000 units per plant within 3 years•Component manufacturers.

25-35% grant for qualifying investment in machinery & equipment and buildings.

12I (Investment and training allowance)

To promote industrial upgrading and new investment in manufacturing

Medium to large manufacturers with investment between R30m and R1.5bn

• Training allowance: max R36 000 per person

• Max 55% of qualifying investment costs in machinery & equipment

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Competitiveness IncentivesPROGRAMME PURPOSE TARGET OFFERING

Manufacturing Competitiveness Enhancement Programme (MCEP)

Improve Manufacturing Competitiveness

South African Manufacturers and Services Supporting Manufacturing

Cost sharing grant for Capital investment;Resource efficiency improvement;Enterprise-level competitiveness improvement;Feasibility studies;Cluster competitiveness improvement;Pre- and post-dispatch working capital facility

Export Marketing and Investment Assistance (EMIA )

To develop export market for SA goods and services and recruit FDI

Export ready manufacturers

Cost sharing grant for exhibition costs, marketing material & research in foreign markets

Capital Projects Feasibility Programme

Promote the export of South African capital goods and services

Capital goods sectors and consulting engineers

Cost sharing grant (max 55%) for feasibility study costs

Sector Specific Assistance Scheme (SASS) EMERGING EXPORTERS (EE)

To offer support to projects that promote the development of emerging exporters.

SMMEs, HDIs 100% of the cost of the approved projectLocal and International air travelAccommodation & Daily allowance

Transportation of samplesExhibition space

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Infrastructure Investment Incentives

PROGRAMME PURPOSE TARGET OFFERING

Critical Infrastructure Programme (CIP)

- Informal Business Shared Infrastructure

To enhance investment bysupporting critical infrastructure, thus lowering the business costs ofinvestment.

The programme supports infrastructure projects in mining, tourism, manufacturing and services on a reimbursement basis

A 70/30 cost sharing grant for projects designed to improve critical infrastructure in South Africa

Special Economic Zones & Industrial Development Zones

Purpose: To promote targeted economic and industrial activities by using support measures such as incentives, infrastructure in order to attract targeted foreign and domestic investments

Existing IDZ: Coega IDZ, East London IDZ, Richards Bay IDZ, OR Tambo IDZ, Saldanha IDZ and the newly designated Dube Trade Port IDZ

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Services Incentives PROGRAMME PURPOSE TARGET OFFERING

BPS (Business Process Services) Incentive

Encourage the creation of employment opportunities from the offshore market

Enterprises offering Business Process Services to the offshore market

A baseline incentive which offers a 3-year operational expenditure on actual jobs created

A graduated bonus incentive which is offered for greater job creation paid once in the year in which the bonus level is first achieved

Film & TV Production To grow the film industry to create jobs and to transfer skills

Local and foreign film producers 20% of Qualifying South African Production Expenditure (QSAPE)

25-35% of Qualifying South African Production Expenditure for local films

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