1. Medium Term Strategic Framework
PRESENTATION TO THE PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY, AND THE SELECT COMMITTEE ON ECONOMIC AND FOREIGN AFFAIRS
Medium Term Strategic Framework
26 March 2008

2. CONTENTS Introduction - The Strategic Context
2008 MTSF
Introduction - The Strategic Context
Overview of the dti’s Strategy
Key interventions over the MTSF period
Allocated resources
Institutional mechanisms
Conclusion and challenges

3. Introduction – The Strategic Context
As was done during the development of the critical growth path in late 2006, the Cluster remains focused on the key challenges facing the economy.

4. Longest period of economic growth
STRATEGIC CONTEXT
The South African Economy grew by 5.1% in 2007, the 3rd consecutive year that growth exceeded 5% per annum
Longest period of economic growth
500,000 jobs have been created every year for the past three years
Growth and employment creation in South Africa has been assisted, by strong commodity demand, consumer spending and a favourable global economy
the dti and government Programme of Action shifting from macroeconomic stabilisation to microeconomic transformation
The red line shows GDP growth. There has been solid growth performance in recent years, mainly due to strong domestic demand (because of increased State and consumer spending). However exports and imports remained a drag on what could have been an even better growth performance.

5. STRATEGIC CONTEXT
Focus on deepening economic transformation by addressing the following challenges:
Exports, while increasing, are not driving GDP growth
Public investment needed in network infrastructure and improved logistics to support a competitive economy
Employment growth has been positive but insufficient
Output deficit is attracting imports, and worsening the current account deficit
Current account deficit is financed by large portfolio flows
Domestic manufacturing needs substantially increased investment in upgrading and capacity
Leverage opportunities, particularly through industrial policy, to revive or create competitive local supply industries for State capex programmes

6. KEY CHALLENGES FACING THE ECONOMY-6 -4 -2 2 4 6 8 10
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Percentage
Other (e.g.
Govt, &
Inventories)
Net exports
Fixed
investment
Consumer
spending
Total GDP
Source: SARB
GDP growth driven by consumers not exports
The red line shows GDP growth. There has been solid growth performance in recent years, mainly due to strong domestic demand (because of increased State and consumer spending). However exports and imports remained a drag on what could have been an even better growth performance.

7. KEY CHALLENGES FACING THE ECONOMY
1,60
KEY CHALLENGES FACING
THE ECONOMY
The main infrastructure programmes are covered in this slide (in 2000 Rands). It excludes the latest forecasts of Eskom investment in energy projects.
In nominal terms the R60 billion represented here would be between R90 to R100 billion in current terms.
ASGISA quite correctly identified the state of our physical infrastructure as a course for concern, and one of the inhibitors to higher rates of growth. Massive investments undertaken by government and public corporations in anticipation of continued strong economic growth in future.
In the 1960s and 1970s large investments occurred in electricity, petro-chemicals, iron and steel as well as in the mining industry. The a policy of inward industrialisation was adopted to establish a strong domestic manufacturing sector.
A period of little investment followed and during this time many if the physical assets depreciated and the local capacity to manufacture these inputs was lost.
The timing of infrastructure investments is crucial. We realise now that post-1994 we needed to have and sustained an investment programme sooner. We are now under pressure to increase many investments at the same time, also when the global demand is high, and therefore South Africa risks paying a premium for imported inputs. As a result you will see in the Cluster programme a deliberate emphasis on localisation of production of inputs, as there is a possible that over the next 30 years to bring back many of the hollowed out local input industries on the back of the planned public expenditure of new infrastructure (hence the CSDP and SDPs)

8. KEY CHALLENGES FACING THE ECONOMY-4 -3 -2 -1 1 2 3 4 5 6 7
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007*
% Change (y-o-y)
GDP growth
Total employment
Manufacturing employment
Source: SARB, Stats SA, Quantec
Average annual growth :
GDP : 4.3%
Tot. employment : 1.8%
Manuf. employment : -0.4%
Note: * GDP for first three quarters;
Jobs for year to March '07
Positive but insufficient employment growth
The blue bars show GDP growth, and the red employment growth. Generally employment growth has been positive but about half that of GDP growth. In the last years where GDP growth has accelerated we have also seen employment growth accelerate (this is to be expected as employment elasticities would increase during years of high growth).
In the past four years years, the largest proportion of new jobs was created in trade-related activities. Next was construction, followed by financial and business services and then manufacturing. The aforementioned sectors also reported the highest rates of GDP growth, thereby confirming the link between higher levels of economic growth and labour absorption that has been lacking in the SA economy for many years.
Of course as the growth rate comes under pressure we are seeing the employment elasiticies decline and the higher interest environment that is reducing consumer spending will also see number of new jobs in trade-related activities decline. Hence the focus on the creation of work opportunities remains a priority for government particularly if we are to meet the 2014 targets.

9. KEY CHALLENGES FACING THE ECONOMY
Manufacturing ‘output deficit’ 70 80 90
100
110
120
130
140
150
160
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Index: 2000 = 100
Manufacturing production
Retail sales (Demand)
Source: SARB, Stats SA
Supply
Demand
The sharp increase in domestic demand, including consumer spending and fixed investment, resulted in a widening output deficit. In short, the country is consuming increasingly more than it is able to produce, hence a rapid rise in import demand for both consumer and capital goods has emerged.

10. KEY CHALLENGES FACING THE ECONOMY
Rising imports, current account deficit grows 4 40 2 20
BoP: R billion -2
-20 -4
-40 -6
-60
% of GDP -8
-80
-10
-100
The difference between our high imports and lower exports results in the trade deficit. This balance of payments is expected to remain under pressure, with a substantial widening in the trade deficit, due largely to continued strong demand for imports.
As the graph shows, we expect some levelling off in imports (mainly machinery and equipment, etc.) by 2011, though the trade deficit will remain high.
-12
-120
-14
Current account balance: R Billion
-140
-16
Current account balance: % of GDP
-160
-18
-180
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: SARB, IDC

11. KEY CHALLENGES FACING THE ECONOMY
9.9
33.9
-47.4
42.9
29.9
130.6
-17.1
8.8
19.5
61.7
24.1
39.5
-50 50
100
150
200
2002/4
2005
2006
R billion
"Unrecorded
transactions"
Other
investments
Net portfolio
flows
Net FDI flows
Source: SARB
Current account deficit largely financed by portfolio flows
We have been paying for the imports through the capital inflows into the country. However the composition of the capital inflows is a cause for concern.
Capital inflows amounted to R142 bn in 2006 (equivalent to 8.2% of GDP), compared to R96.7 bn in For capital inflows amounted to R97.4 bn.
Unfortunately, capital movements are being dominated by portfolio inflows. Thus, SA could be exposed to potential liquidity movements and risks globally, which can cause currency volatility from time to time. Hence the Cluster is promoting the sound approach of supporting stronger domestic production to close the ‘output deficit’ and hence reduce our dependence on imported inputs (and in so doing, to reduce the trade deficit). Clearly we must avoid policies that increase our dependence on a trade deficit and hence leave us vulnerable to a volatile capital account.
The vulnerability of the capital account, particularly in a global environment where foreign capital is becoming more risk-averse, requires government to also promote strong economic growth prospects and sound financial market policies should to reduce the levels of volatility. The International Growth panel also made a number of suggestions in this regard.

12. KEY CHALLENGES FACING THE ECONOMY
Local industries at full capacity
(Quarter 3 of 2007)
Total manufacturing
Furniture & other manufacturing
Motor vehicles & parts
Radio & TV's
Most sectors at or above full
capacity utilisation, and
must increase investment
Electrical machinery
Metals & Fabricated metal products
Non-metallic mineral products
We must begin to strengthen our economy by focusing on productive investment.
Strong growth in the domestic economy resulted in many sectors operating near full capacity. Generally 85% capacity utilisation is considered operation at full capacity, and at this point firms must invest in added capacity.
The private sector is increasing investment though at lower levels than we think are necessary. Our approach is to ensure that the private firms realise the longer-term growth opportunities and position themselves to competitively supply these needs. An obvious need is the upgrading of local firms for the competitive supply of inputs for the infrastructure programmes. Hence our strategy is based on a sector-by-sector analysis and engagement with firms as part of a well resourced and targeted industrial policy.
Petroleum & chemical products
Wood, paper & printing
Textiles, clothing, leather & footwear
Food and beverages 76 78 80 82 84 86 88 90 92 94 96
Percentage
Source: Stats SA

13. ECONOMIC CLUSTER/ the dti
IMPLICATIONS FOR THE
ECONOMIC CLUSTER/ the dti
The economy’s performance and challenges call for intensified implementation of interventions identified in ASGI-SA and National Industrial Policy Framework and Action Plans focusing on:
Diversification beyond traditional reliance on minerals and mineral-processing, with emphasis on job creating sectors
Competitive domestic supply infrastructure
Infrastructure investment
Development of competitive local suppliers, including SOE Supplier Development Programmes, sector strategies & industrial financing
Competition law
Ensuring availability of skills and HRD
Broadening on Economic Participation
In undertaking these interventions, the dti will continue to work with other govt departments as coodinator of the Economic Cluster, focusing on Apex Priorities that fall within our mandate, and in line with the “Business Unusual” motto
The red line shows GDP growth. There has been solid growth performance in recent years, mainly due to strong domestic demand (because of increased State and consumer spending). However exports and imports remained a drag on what could have been an even better growth performance.

14. Overview of the dti’s strategy
As was done during the development of the critical growth path in late 2006, the Cluster remains focused on the key challenges facing the economy.

15. STRATEGIC OBJECTIVES
2008 MTSF
Promoting the coordinated implementation of the accelerated and shared growth initiative;
Promoting direct investment and growth in the industrial and services economy, with particular focus on employment creation;
Raising the level of exports and promoting equitable global trade;
Promoting broader participation, equity and redress in the economy; and
Contributing to Africa's development and regional integration within the NEPAD framework

16. Key interventions over the MTSF period
As was done during the development of the critical growth path in late 2006, the Cluster remains focused on the key challenges facing the economy.

17. The work of the dti is organised in terms of the following themes:-
KEY INTERVENTIONS
2008 MTSF
The work of the dti is organised in terms of the following themes:-
Industrial development;
Trade, Investment and Exports;
Broadening participation;
Regulation, and
Administration and co-ordination

18. KEY INTERVENTIONS Industrial Development
2008 MTSF
Industrial Development
Fast track the effective implementation of the National Industrial Policy
Framework (NIPF) and Action Plans (IPAP) through the following
strategic interventions:
Sector Interventions
Fast-track implementation of four lead sectors:
Capital/transport equipment and downstream metals
Automotives and components
Chemicals, plastic fabrication and pharmaceuticals
Forestry, pulp and paper, and furniture
Stabilise Clothing and Textiles to preserve capabilities and employment.
Maintain momentum on ASGI-SA sector priorities: Tourism, BPO, and Biofuels.
Ongoing development and finalisation of additional sector strategies (eg. agriculture/agro-processing, mining and benefication, creative industries,
etc)

19. KEY INTERVENTIONS Industrial Development Industrial Financing:
2008 MTSF
Industrial Development
Industrial Financing:
Introduce new incentives in support of NIPF and IPAP
Revised SMEDP
Tax incentive Package
Competitiveness Incentive
IDC to upscale and align support to IPAP priorities
Critical Infrastructure Programme (CIP)
Film & TV production
BPO&O
National Industrial Participation Programme

20. Industrial Development
KEY INTERVENTIONS
2008 MTSF
Industrial Development
Technology & Innovation
Support Programme for Industrial Innovation (SPII)
Technology & Human Resources for Industry Programme (THRIP)
Strengthen legislation around South Africa’s Standards, Metrology and Quality Assurance systems
Centres of Excellence to increase manufacturing skills
Centurion Aerospace Village

21. Industrial Development
KEY INTERVENTIONS
2008 MTSF
Industrial Development
Contribution to National Electricity Response Team
Fast-track amendments for energy efficient building and product standards
Ramp-up production of energy efficient household products (Solar Water Heating, Compact Fluorescent Light-bulbs)
Industrial Development Zones
Strengthening the IDZ regulatory framework by finalising IDZ policy and the IDZ Act

22. Trade, Investment and Export
KEY INTERVENTIONS
2008 MTSF
Trade, Investment and Export
Promote economic development through equitable multilateral trading system that will lead to higher export growth and investment flows by strengthening trade and investment links with key partners.
Interventions
Various bilateral, multilateral and regional negotiations and cooperation forums:
Continue active role in Doha Round WTO negotiations.
Support to UNCTAD at XII Conference (April 2008)
India-Africa Summit (April 2008) and Forum for China-Africa Cooperation
Advance regional integration in SADC & AU
Promote cross-border infrastructure development on the continent through SDI’s and NEPAD

23. Trade, Investment and Export
KEY INTERVENTIONS
2008 MTSF
Trade, Investment and Export
Interventions (continue)
IBSA cooperative preparations for Summit in Oct 2008 and Partnership for Growth and Development with China
Strengthen trade links with newly acceded EU Members
Review AGOA implementation in broader market access strategy
Enhance bilateral, institutional and technical cooperation with
key African countries
SACU-Mercusor PTA (May 2008); SACU-India PTA. SADC EPA negotiations to align with TDCA

24. Trade, Investment and Export
KEY INTERVENTIONS
2008 MTSF
Trade, Investment and Export
Interventions (continue)
Export and Investment
the dti’s export and investment strategies are being implemented and rolled out to the Provinces
New high growth markets are prioritised and targeted to increase exports in under-exploited markets and to change the basket of products from resources to manufactured
Increase the number of exporters by 200 per annum through targeted interventions
Investors and exporters will be also be serviced through a one stop facilitation centre, including a call centre, staffed by people with disabilities

25. Trade, Investment and Export
KEY INTERVENTIONS
2008 MTSF
Trade, Investment and Export
Interventions (continue)
Work has begun to strengthen networks with Provincial Investment Promotion agencies and implement coordinated outward trade and investment projects to key priority markets
Investment attraction activities has moved from a generic to a more targeted approach resulting in a pipeline of R206 billion worth of investment projects
the dti will also implement a reviewed and refocused Foreign Economic Representative strategy in collaboration with DFA

26. Broadening Participation
KEY INTERVENTIONS
2008 MTSF
Broadening Participation
Implementation and monitoring of the Codes of Good Practice for BBBEE.
Sector charters aligned to the Codes.
Alignment of the BEE Act and PPPFA.
Set up institutional systems for effective implementation of BBBEE (Advisory Council, Verification).

27. Broadening Participation
KEY INTERVENTIONS
2008 MTSF
Broadening Participation
Finalisation of the draft Strategic Framework on Gender and Women’s Economic Empowerment.
Strengthening of SAWEN programmes.
Implementation of ISIVANDE Women’s Fund.
Promote access to ICT and Technology for women through TWIB.
Continue to promote BBBEE and women empowerment through key incentive schemes:- BBSDP, SMEDP, BPO, TOURISM, SPII & THRIP

28. KEY INTERVENTIONS Broadening Participation
2008 MTSF
Broadening Participation
To implement the Integrated Small Enterprise Development Strategy through:
Supply of financial and non-financial services to all forms of enterprises including co-ops, Khula, Samaf, NEF and seda
Creation of demand for products and services
Promotion of appropriate regulatory environment
Enhance the implementation of the integrated Enterprise Development Strategy by incorporating work done under Co-operatives, and Regional Development Agencies.
Promote awareness of and access to the dti services and offerings through outreach activities (Izimbizo) and multi media programmes, incl. television and involving COTII agencies

29. KEY INTERVENTIONS Regulation
2008 MTSF
Regulation
Develop and review policy and legislation in the areas of consumer, intellectual property and corporate regulation, with enhanced focus on enforcement, monitoring and evaluation
Develop effective, modern and internationally aligned legislation to correct market failures, protect consumers and promote good corporate citizenship, focusing on:
Companies Bill
Consumer Protection Bill
Competition Amendment Bill
Intellectual Property Laws Amendment Bill
Review of estate agency regulatory framework in light of growing property sector
Review of trade metrology regulatory framework
Review and amend Lotteries Act
Develop Regulations following enactment of the bills

30. KEY INTERVENTIONS Regulation
Ensure effective and efficient implementation of legislation that aligns outcome of enforcement with poIicy and legislative objectives
Establishing the Companies and Intellectual Property Commission and the National Consumer Commission
Strengthening the powers of the existing enforcement agencies (such as the Competition Commission)
Ensuring that the enforcement agencies are well resourced and capacitated to carry out implementation
Overseeing the work of agencies for purposes of consistency, alignment and synergy
Building internal expertise and skills in the area of liquor enforcement as a dti directorate

31. KEY INTERVENTIONS
Regulation
Monitoring compliance levels and the impact of regulation on the economy
Continuous monitoring with specific focus on alignment of implementation with policy and legislative objectives
Periodic impact assessment to identify and address unintended consequences
Enhance the interaction between the dti and the agencies through COTII and other fora
Draw lessons from key success areas such as the implementation of the National Credit Act

32. Administration and co-ordination
KEY INTERVENTIONS
2008 MTSF
Administration and co-ordination
Strategic Focus (1): Attract, develop and retain professional and skilled officials through the following initiatives:
Special project to fast-track recruitment and selection.
Human Resource Plan to determine the skills gap between the demand and supply
Retention Strategy
Revised Human Resource Development Strategy to drive staff development and training as opposed to a demand driven approach
Revised Performance Management System

33. KEY INTERVENTIONS Administration and co-ordination
2008 MTSF
Administration and co-ordination
Strategic Focus (2): Implement transformation through Employment Equity and Broad Based Black Economic Empowerment:
Interventions:
Implementation of the 2008 Employment Equity Plan
Step up efforts to appoint women in senior management positions in line with the 50% target
Appointment of a Disability Focal Person
Promotion of BBBEE through our procurement spending

34. KEY INTERVENTIONS Administration and co-ordination
2008 MTSF
Administration and co-ordination
Interventions (continue)
Strengthening alignment:
Effective management of the Economic Cluster of departments and its Industrial Strategy and Equity and Development Focus Groups.
Implementation of the dti internal cluster system
Greater alignment, co-operation & co-ordination with the dti agencies (COTII), including leveraging capacity in agencies (e.g. IDC).
Greater alignment and coordination with external stakeholders, including NEDLAC TIC, Industry Forum, etc.

35. Strengthening alignment: Economic Cluster’s priorities (2007-2009)
KEY INTERVENTIONS
Strengthening alignment: Economic Cluster’s priorities ( )
Increase economic efficiencies
Strengthen economic regulator capacity in key industries
Amend competition policy to support effective regulation
Increase access, uptake & usage of ICT infrastructure
Phased roll-out of overhauled public transport network
Monitor implementation & impact of infrastructure roll-out
Coordinated NHRD, with focus on ASGI-SA priorities
Promote dynamic growth sectors
Implement industrial policy framework, focusing on key sectors and
leveraging public spending
Supportive macro-economic management (esp. competitive and stable
real effective exchange rate)
Integrate services to small- and micro-enterprises
Integrated small enterprise service delivery (incl. comprehensive
procurement strategy, marketing cooperatives, business development
support and access to finance)
Reduced SMME regulatory burdens (incl. by-laws)

36. Allocated resources
As was done during the development of the critical growth path in late 2006, the Cluster remains focused on the key challenges facing the economy.

37. MTEF BUDGET 2008/09 2009/10 2010/11 R’000 P1: Admin. 398 094 424 587
P2: ITED
P3:EIDD
P4: CCRD
P5: TEO
P6: TISA
P7: Market.
73 831
78 799
90 334
TOTAL

38. MTEF BUDGET (PER CLUSTER)
2008/09
2009/10
2010/11
R’000
INDUSTRIAL DEVELOPMENT
TRADE, INV.&EXPORTS
BROAD. PARTICIPATION
REGULATION
CO-ORD. & ADMINISTRATION
TOTAL

39. ANALYSIS OF CURRENT MTEF
2008 MTSF
On average, the allocation of the budget over the MTEF period is as follows:
21% to agencies
42% to incentive payments
7% to compensation
18% to capital payments
12% to goods and services
(of which 7% is pre-committed)

40. SIX YEAR COMPARISON OF BUDGET VS EXPENDITURE
As was done during the development of the critical growth path in late 2006, the Cluster remains focused on the key challenges facing the economy.
NB: 2007/08 Projected to 31 March ‘08

41. Institutional mechanisms
As was done during the development of the critical growth path in late 2006, the Cluster remains focused on the key challenges facing the economy.

42. INSTITUTIONAL MECHANISMS
dti structured into seven (7) programmes and 19 public entities (herein referred to as Council of Trade and Industry Institutions, COTII)
Each programme and entity has its own medium-term plan which contributes to the achievement of the dti’s strategy

43. STRATEGY MAP
2008 MTSF
Over

44. MONITORING, EVALUATION AND REPORTING
Monitoring, Evaluation and Reporting to take place by a combination of internal structures, as well as Cabinet and Parliament.
Executive Board (EXBO) will oversee planning, monitoring and reporting processes, to ensure quality and accountability.
Planning and prioritisation at the dti are informed by bi-annual Cabinet Makgotla.
Agreements made in other forums, such as NEDLAC, inform the implementation agenda.
Divisions jointly and separately responsible for timely delivery of products or outputs.
Emphasis on joint implementation, inclusive of COTII and Economic cluster.

45. CONCLUSION & CHALLENGES
2008 MTSF
the dti, in general, achieved its targets for the previous reporting period (as reported in the 2006/07 annual report)
Challenges are to enhance the impact of the dti through:-
Ensuring effective programme & project performance;
Stronger strategic & operational management;
Greater integration of work, including that of agencies;
Adequate financial resources for extensive dti programmes;
HR challenge of recruitment, retention and development; and
Improved cluster co-ordination

46. 2008 MTSF
QUESTIONS ?

47. ANNEXURE: ADDITIONAL INFORMATION ON INSTITUTIONAL MECHANISMS
As was done during the development of the critical growth path in late 2006, the Cluster remains focused on the key challenges facing the economy.

48. INSTITUTIONAL ARRANGEMENTS
Programme 1: Administration
Provide strategic leadership to the department and its agencies, and facilitate successful implementation of the departments mandate through sustainable and integrated resources and customer centric services
Programme 2: ITED
Provide leadership in trade policy formulation to promote economic development by building an equitable multilateral system; and
Strengthening trade and investment links with key economies by fostering African development through regional and continental integration, and development co-operation in line with NEPAD

49. INSTITUTIONAL ARRANGEMENTS
Programme 3: EIDD
Provide leadership in developing industry and enterprise policies that create an enabling environment for competitiveness, equity, growth and job creation
Programme 4: CCRD
Develop and implement coherent, predictable and transparent regulatory solutions that facilitate easy access to redress, and efficient regulations for economic citizens
Programme 5: TEO
Stimulate and facilitate the development of enterprises through the provision of incentive measures that support investment, job creation and regional economic development, such as through the Industrial Development Zones

50. INSTITUTIONAL ARRANGEMENTS
Programme 6: TISA
Increase South Africa’s capacity to export by developing and implement strategies for targeted markets;
Increase the level of direct investment flow;
Effectively manage the department’s network of foreign offices.
Programme 7: Marketing
Promote greater awareness of the department’s role and its products and services; and facilitate access to, and uptake of these products and services

51. INSTITUTIONAL ARRANGEMENTS
Entities - Development finance institutions:
Industrial Development Corporation (IDC)
Khula Enterprise Finance
National Empowerment Fund (NEF)
Export Credit Insurance Corporation (ECIC)
South African Micro Apex Fund (SAMAF)
Entities – Specialised services agencies:
Small Enterprise Development Agency (seda)
South African Bureau of Standards (SABS)
South African National Accreditation System (SANAS)
National Metrology Institute of South Africa (NMISA)
South African Quality Institute (SAQI)

52. INSTITUTIONAL ARRANGEMENTS
Entities - Regulatory agencies:
Competition Commission
Competition Tribunal
National Gambling Board (NGB)
National Lotteries Board (NLB)
National Credit Regulator (NCR)
National Consumer Tribunal (NCT)
Companies and Intellectual Property Registration Office (CIPRO)
Estate Agency Affairs Board (EAAB)
International Trade Administration Commission of South Africa (ITAC)