1. INDUSTRIAL POLICY ACTION PLAN 2011/12 ANNUAL REPORT
of the Economic Sectors and Employment Cluster (ESEC)
TRADE AND INDUSTRY PORTFOLIO COMMITTEE
25 October 2012 1
DISCUSSION DOCUMENT: CONFIDENTIAL

2. Overview Key IPAP Achievements and Strategic Platforms
Critical challenges to implementation
Intra-government priority issues
Key opportunities
Appendix: Overview of the manufacturing sector
Provides highlight information rather than extensive detail 2
DISCUSSION DOCUMENT: CONFIDENTIAL

3. Key Achievements: Strategic Platforms
Public Procurement
Amended PPPFA Regulations effective from 7 December DTI empowered to designate sectors / industries from which government departments and state owned enterprises (SOEs) must procure locally.
First round of sector designations:
Rail Rolling Stock: locomotives, wagons and carriages; Power Pylons; Buses; Clothing, Textiles, Leather and Footwear; Canned Vegetables; Set Top Boxes.
Second round designation included 70 pharmaceutical products (Oral Dosage Tender)
Instruction notes for all sent out by NT. RFP issued by DoC for Set Top Boxes and revised to include the local content requirements of 30%.
Work on third ‘wave’ of designations to include school and office furniture, SWH’s and cables. Work on other capital equipment is underway. 3
DISCUSSION DOCUMENT: CONFIDENTIAL

4. Key Achievements: Strategic Platforms
Public Procurement
Designations include recommendation to National Treasury (NT) and procuring entities on mechanisms to ensure:
Value-for-money to the fiscus e.g.
Exclusion of certain intermediate inputs
International price benchmarks
Two stage tenders with price negotiations
Supplier competitiveness upgrading support
Renewable Energy Independent Power Producer Procurement (REIPPP) Programme: minimum and increasing levels of local content secured as a fundamental criterion. Current local content thresholds vary between 25% and 35% with targets set to rise to 65%
Non-designated sectors
EDD-led process with Provinces and Metros to support local procurement in terms of section 9.3 of the amended regulations of the PPPFA. 4
DISCUSSION DOCUMENT: CONFIDENTIAL

5. Key Achievements: Strategic Platforms
Procurement Accord
Procurement Accord process led by Economic Development Department (EDD) – convert high level commitments by business and labour to concrete actions.
Ongoing engagement with industry associations and business organisations.
National Industrial Participation Programme(NIPP)
Policy Review complete. Project Review in progress
Revised proposals to deepen and extend NIPP contained in Submission and Cabinet Memorandum.
Provides for alignment of NIPP with Fleets/Designations; Competitive Supplier Development Programme (CSDP) and strengthens NIPP with Direct and Indirect NIP provisions.
“New NIPP” regulations will be formulated and tabled to achieve alignment and maximum impact. It will shift to direct offsets in key IPAP sectors. 5
DISCUSSION DOCUMENT: CONFIDENTIAL

6. Key Achievements: Strategic Platforms
Industrial Financing
Ongoing reorientation of Industrial Development Corporation (IDC) to finance IPAP and NGP sectors
R102bn over the next five years for investment in NGP and IPAP sectors, dependant on economic conditions. To date R13.5bn has been committed with 268 companies benefiting from the fund
To date the value of funding approved increased to 55 percent, with a 33 percent increase in the number of funding approvals
Out of R25bn earmarked towards the Green Economy, R5.5bn has been committed
With respect to R7.7 bn for agricultural and forestry value chains, R1.1bn has been committed
102 companies are beneficiaries of R6.1bn support for companies in distress 6
DISCUSSION DOCUMENT: CONFIDENTIAL

7. Key Achievements: Strategic Platforms
Industrial Financing
IDC calculation of jobs created/saved through funding approvals from 2009/ /12 is
IDC will also lower the cost of funding for businesses, by sourcing an additional R2bn from the UIF for funding more labour intensive businesses
12(i) Tax Incentive of R5.6bn has supported large manufacturing investments worth R22.5bn
Research and Development (R&D) tax incentive (DST) supported R1bn in tax deductions and encouraged R&D activity worth R9.6bn between 2006 and 2011
R207 m paid out of the R1bn rebate paid to Autos on wheels for exports and containers as at 25 June 2012. 7
DISCUSSION DOCUMENT: CONFIDENTIAL

8. Key Achievements: Strategic Platforms
Industrial Financing- MCEP
Budget allocation of R5,8bn over current three year MTEF announced in 2012/13 Budget – launched in May 2012
Support response deployed towards upgrading competitiveness of labour intensive and value-adding manufacturing sectors to maximise employment and value-added potential in key sectors.
MCEP is inclusive of grant finance and interest make up and working capital with clear rules-bound access criteria aimed at firms in key sectors to upgrade production facilities, acquire new technologies. Provides for cluster competitiveness, standards and conformity assessment and feasibility studies.
To date 144 applications have been received with the total value of grants applied for at R1.9 billion and the total number of employees by the firms is
National Marketing and media campaign to advertise MCEP has been launched.
TEO currently working with UNIDO to design an M&E framework for Industrial Competitiveness. This will serve as a Performance Monitoring tool to develop and manage performance indicators. 8
DISCUSSION DOCUMENT: CONFIDENTIAL

9. Key Achievements: Strategic Platforms
Developmental Trade Policies
Tariff setting informed by strategic sectoral priorities with ongoing processing by International Trade Administration Commission (ITAC) of tariff increases, rebates and reductions
South African Bureau of Standards (SABS) and South African National Accreditation System (SANAS) facilitated new industries through the creation of enabling standards, especially for green and renewable energy industries
Concerted and integrated efforts to tackle customs fraud, illegal imports and importation of substandard goods
Ongoing technical upgrading, greater capacity at ports of entry with real-time electronic system, inclusive of risk engine and reference price system
Establishment of SARS/DTI/Industry forum 9
DISCUSSION DOCUMENT: CONFIDENTIAL

10. Key Achievements: Strategic Platforms
Competition Policies
Fuel: The collusion information exchange investigation finalised in the year ended March 2012, pending referral
Steel: Excessive pricing - investigation still underway
Construction bid-rigging: The Commission received 25 settlement applications since the launch of the process, 88 marker applications, 1 leniency application. The Commission is currently validating the information received
Cement: Settlements by Afrisam and Lafarge with regards to collusion in cement completed and confirmed by the Tribunal in the year ended March 2012
Food: The Commission has concluded a settlement with Oceana settling a number of price fixing and market allocation contraventions 10
DISCUSSION DOCUMENT: CONFIDENTIAL

11. Key Achievements: Sectors
Automotives
Transition from MIDP to APDP largely completed with the new regulations gazetted end June. Massive vote of confidence has been expressed by the industry:
Approximately R15bn in investment commitments from assemblers and component suppliers
Recent commitment of $100 million for truck and car assembly plant by China’s First Auto Works
Tata commitment to assemble trucks at the Rosslyn plant
Toyota SA Ses’fikile taxi assembly line officially opened in June at Toyota South Africa Motors’ manufacturing facility at Prospecton, Durban
IDC approved funding for component manufactures for the localisation of components for the motor vehicle industry
Large increases in vehicle production volumes and localisation in sector
Roll-out of AIS has been on-going in support of approximately jobs, inclusive of 7,858 Project jobs, will be supported /sustained over a 3 year period 11
DISCUSSION DOCUMENT: CONFIDENTIAL

12. Key Achievements: Sectors
Clothing, Textiles, Leather and Footwear
Clothing Textiles Competitiveness Programme (CTCP) has stabilised production and employment in the sector
Approximately R148million worth of approvals in support of 123 companies. Represents support for 49,888 out of a total of jobs in the sector
Additional R501m has been approved by IDC and is expected to create and save jobs
Three major retailers are participating in CTCP – Foschini, Truworths and Edcon
Foschini has committed to procuring 70 per cent of their merchandise domestically
Footwear sector projects increase in annual production from 52 million shoes to 100 million over the next three years
Approximately are employed in the footwear and leather value chain. 12
DISCUSSION DOCUMENT: CONFIDENTIAL

13. Key Achievements: Sectors
Agro-processing
DTI launched the Emerging Organic Farmer/Retailer Programme with Pick n Pay in 50 stores nationwide
Company-specific action plans are being implemented with companies with an investment pipeline of R924m (Pioneer), R220m (GWK) and R120m (Astral)
DTI intervened in two retrenchment processes (SAPPI and FoodCorp) to save more than 2000 jobs
Two small-scale Soybean processing investments facilitated in line with DTI Soy Strategy
DTI developed 12 new canning products to revitalise fruit canning sector
DTI disbursed MIP and CIS incentives of R736m (over 3 years) and facilitated investment of R3,7bn in the food processing sector. This contributed to the retention of 14,000 jobs and created 7,000 new jobs
Two major projects in food-processing to the value of R1.1bn have been approved for the 12i Tax incentive
The furniture strategy and action plan was finalised and implementation of key interventions in skills and standards commenced 13
DISCUSSION DOCUMENT: CONFIDENTIAL

14. Key Achievements: Sectors
Metal Fabrication, Capital and Transport Equipment
DTI instrumental in the opening of a R1bn metals coating facility (Safal Steel) in KZN
Continuous engagement with PRASA on its rolling stock renewal programme
Commitment to minimum local content requirement of 65% remains an integral part of engagements
Major SOC’s renewal and build programmes fall under Designations and Competitiveness Supplier Development Programme (CSDP) and more components are targeted in this regard
SOC’s renewal programme is estimated to create 65,000 direct and indirect jobs over 20 years
Transnet renewal port handling equipment – local manufacture of crane spares and provision of after sales support and maintenance
Over 522 students enrolled for the tooling apprenticeship programme
Over 200 workers were trained under the National Foundry Technology Network. 14
DISCUSSION DOCUMENT: CONFIDENTIAL

15. Key Achievements: Sectors
Business Process Services
R4.1bn investments leveraged
Approved projects to create approximately 15,149 jobs over 3 years
3,000 young trainees trained under the Monyetla II Programme – 70% placed by 27 BPS consortia
Launch of first Amazon African customer service centre in Cape Town in August to service global English and German speaking clients
Green Industries
Energy Efficiency Building Regulations make Solar Water Heating obligatory for most new buildings
In support of government’s bid to promote local production, IDC approved funding for two local manufactures of solar water heaters
Solar and Wind energy manufacturing strategy completed
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.
Industrial Energy Efficiency Programme launched in November 2011 15
DISCUSSION DOCUMENT: CONFIDENTIAL

16. Critical challenges
Protracted global recession and slow demand of demand for SA exports particularly from SA’s traditional markets – Eurozone and US. Significant global economic uncertainty around resolution of financial and economic crises in EU and US and geopolitical risks
Slow and difficult process of re-orienting exports to high growth developing regions and countries and securing foreign direct investment into strategic sectors
Exchange rate overvaluation and volatility with high relative real interest rates
Significant subsidies, trade measures and other distortions within global trade 16
DISCUSSION DOCUMENT: CONFIDENTIAL

17. Critical challenges
‘User pay’ principle for funding electricity build programme is inducing massive economic shocks to manufacturing sector. Steeply escalating electricity prices (especially where triple digit price premiums are added by municipalities) is seriously eroding viability of companies and will ultimately erode revenue base of municipalities themselves
If additional elements of economic infrastructure programme such as rail and ports are funded on ‘user pay’ principle manufacturing will face further shocks with potentially further damaging consequences, including further closures and job losses
SA Port charges are amongst the highest in the world. Port pricing on manufactured goods is above global norms and port pricing on iron ore and coal is below the global average.
Monopolistic / oligopolistic pricing of intermediate inputs into manufacturing – steel/plastics and polymers

18. Critical challenges
Inadequate provision of suitable long-term financing instruments for industry
Absence of financing mechanism to fund majority black owned manufacturing companies with strict conditionalities on owner/management participation, risk sharing and raising competitiveness
Slow progress with skills development programmes for priority sectors. Need to duplicate Monyetla and National Tooling Initiative (NTI) successes to other sectors
Need to ensure close alignment with PICC driven infrastructure programme and dti programmes on localisation in support of local manufacturing

19. Intra-governmental issues of concern
Electricity: Intra-governmental process underway to assess vulnerability of manufacturing sectors and make explicit proposals on possible demand management, tariff and rebate options.(Lead Departments DOE; DPE and DTI)
Biofuels: Long outstanding and limited progress with respect to promulgation of Biofuels Mandatory Uplift Regulations in particular the financial incentive mechanism process in place to finalise. (Lead Departments: DOE, DTI and NT supported by EDD and DAFF)
Iron and Steel: Securing a developmental price for Iron Ore and Steel. (Lead Department: DMR, supported by DTI,EDD,DPE) 19
DISCUSSION DOCUMENT: CONFIDENTIAL

20. Intra-governmental issues of concern
Beneficiation: Minerals Beneficiation Strategy adopted by Cabinet and implementation framework under development. Task teams and frameworks for iron and steel and energy value chains approved by Cabinet and work underway with addressing implementation in PGMs, jewellery and titanium value chains. (Lead Department: DMR supported by DTI, EDD and DST)
Aquaculture: Progress registered with development of Marine Aquaculture Zones strategy but requires expediting of EIA’s.(Lead Department: DAFF, supported by DTI, EDD and DWEA)
Upstream Oil and Gas: Port constraints to unlock significant investment potential in the sector. ( Lead department : DPE supported by DTI, DOT and TNPA) 20
DISCUSSION DOCUMENT: CONFIDENTIAL

21. Key Opportunities
Increase manufacturing opportunities linked to large public sector infrastructure programme in sectors – Metals, Capital & Transport Equipment, Rail & Renewable energy. Deepen and embed supplier development policies and programmes in SOC and improve impact assessment and policy improvement for aligned procurement policy instruments.
Opportunities to grow manufacturing exports to net food importing countries in Sub – Sahara Africa linked to mining, infrastructure & construction and growing single export markets linked to consumer goods.
Strong enforcement and alignment with customs on fraud & illegal imports and non – compliant products.

22. Key Opportunities
Launch of Government/Business and Labour “Buy SA” campaign. Strengthening of private sector commitments to buy local will be significant.
Finalisation of Biofuels regulatory regime and incentives to unlock significant growth in feedstock, production and downstream activity. Modeling suggests jobs to be created.
Better utilisation of SA’s enormous competitive advantage in minerals endowment to build up & downstream sectors.

23. Challenges: Electricity Tariff Increases compared to CPI (annualised)

24. Growth rates of administered prices between 2000 and 2010

25. Average industrial tariff

26. Appendix: Overview of the manufacturing sector
PMI: Jan August 2012
Source: Econometrix
DISCUSSION DOCUMENT: CONFIDENTIAL

27. Appendix: Overview of the manufacturing sector
Manufacturing Monthly Production and Y-o-Y growth, Jan July 2012
Source Stats SA
DISCUSSION DOCUMENT: CONFIDENTIAL

28. Appendix: Overview of the manufacturing sector
Manufacturing Utilisation Q Q2 2012
Source: Stats SA
DISCUSSION DOCUMENT: CONFIDENTIAL

29. Appendix: Overview of the manufacturing sector
Trade Balance by sector Q Q2 2012
Source: Reserve Bank
DISCUSSION DOCUMENT: CONFIDENTIAL

30. Appendix: Overview of the manufacturing sector
Balance on current account, financial account (Rm) and REER by sector Q Q2 2012
Source: Reserve Bank
DISCUSSION DOCUMENT: CONFIDENTIAL

31. Appendix: Overview of the manufacturing sector
Manufacturing Employment Q Q2 2012
Source: Stats SA
DISCUSSION DOCUMENT: CONFIDENTIAL