2012/13 – 14/15 INDUSTRIAL POLICY ACTION PLAN

1. 2012/13 – 14/15 INDUSTRIAL POLICY ACTION PLAN of the Economic Sectors and Employment Cluster (ESEC) Portfolio Committee on Trade and Industry 17 April 2012 1

2. Overview • Key Achievements: Strategic Platforms • Key Achievements: Sectors • Improvements in Intra-governmental Coordination • Medium-term Structural Challenges • Medium-term Key Opportunities • IPAP 2012/13 – 14/15 Strategic Priorities • Strategic role of Trade and Industry Portfolio Committee • Appendix: Overview of the manufacturing sector 2

3. Key Achievements: Strategic Platforms Public Procurement • New Preferential Procurement Policy Framework Act (PPPFA) Regulations effective from 7 December 2011 • 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 for low income households • Second round of sector designations to include pharmaceuticals, 5th largest contributor to SA’s trade deficit 3

4. Key Achievements: Strategic Platforms Public Procurement • Designations include recommendation to National Treasury (NT) and procuring entities on mechanisms to ensure: • 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. 4

5. Key Achievements: Strategic Platforms Procurement Accord • Procurement Accord process led by Economic Development Department (EDD) • High level co-commitments to domestic procurement secured from business and labour constituency • Social partners must convert these high level commitments to concrete action – process to be led by EDD 5

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 • R10bn Job Creation Fund at Prime less 3% over five years • R25bn earmarked towards Green Economy • R500m energy efficiency fund • R7.7bn Agricultural and Forestry value chains • R6.1bn to support companies in distress • 12(i) Tax Incentive of R5.6bn has supported large manufacturing investments worth R21.7bn 6

7. Key Achievements: Strategic Platforms Industrial Financing • 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 7

8. Key Achievements: Strategic Platforms Developmental Trade and Competition 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) helps facilitate 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 • 112 raids over last year - 42 in clothing in 3 provinces with 260 tonnes of confiscations • R1 billion worth of goods confiscated over 3 years • Ongoing technical upgrading, co-ordination of intelligence and greater capacity at ports of entry 8

9. Key Achievements: Strategic Platforms Developmental Trade and Competition Policies • Strong strategic focus on tackling anti-competitive behaviour in industries providing inputs into production sectors: manufacturing, agriculture and mining • Settlements reached with Sasol, grain trading and storage companies for anti-competitive behaviour • Investigations completed in fertilizers, maize and wheat milling, bread, milk sub-sectors, steel, polymers, construction bid-rigging, forestry, cement, fuel and various food products • Cases currently being heard by the Tribunal include: polymer chemicals, reinforcing steel, poultry, mealie meal and wheat flour 9

10. Key Achievements: Sectors Automotives • Transition from MIDP to APDP largely completed with massive vote of confidence 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 • Toyota SA commitment to assemble minibus taxis locally with other investors in the pipeline • Large increases in vehicle production volumes and localisation • Conservative estimate of 33,524 jobs supported 10

11. Key Achievements: Sectors Clothing, Textiles, Leather and Footwear • Clothing Textiles Competitiveness Programme (CTCP) has stabilised production and employment in the sector • 208 companies supported representing 48,384 jobs • Three major retailers are participating in CTCP – Foschini, Truworths and Edcon • Foschini has committed to procuring 70 per cent of their merchandise domestically • The footwear sector aims to increase annual production from 52 million shoes to 100 million over the next three years • Upward employment trends in the footwear and leather sector 11

12. Key Achievements: Sectors Agro-processing • DTI provided incentives to the food-processing sector of R736m in incentives over the past three years • DTI’s Enterprise Investment Programme (EIP) disbursed R636m 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 • DTI’s Cooperatives Incentive Scheme disbursed more than R100m in support of Agro processing projects. • Two major projects in food-processing to the value of R1.1bn have been approved for the 12i Tax incentive 12

13. Key Achievements: Sectors Metal Fabrication, Capital and Transport Equipment • PRASA’s rolling stock renewal programme committed to minimum local content requirement of 65% • Major Transnet investments in rail to fall under designations • Targeted components for local production include rail car bodies, door systems, windows, seats, lighting, wheels and axles • This programme alone 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 • DTI instrumental in the opening of a R1bn metals coating facility (Safal Steel) in KZN 13

14. Key Achievements: Sectors Business Process Services • R4.1bn investments leveraged • Approved projects to create approximately 15,149 jobs over 3 years. • 3,400 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 14

15. Key Achievements: Sectors Green Industries • Energy Efficiency Building Regulations make Solar Water Heating obligatory for most new buildings • Solar and Wind energy manufacturing strategy completed • First round of Renewable Energy generation bids awarded during COP17, with minimum levels of local content requirements • Industrial Energy Efficiency Programme launched in November 2011 • New regulations on mandatory blending of biofuels published for comment in government gazette 15

16. Key Achievements: Strengthening intra-governmental coordination • Accelerated progress with respect to industries requiring complex multi-departmental co-ordination, driven by Minister’s IPAP forum and through the Economic Cluster, such as • Renewable energy • Biofuels • Water licences for forestry and agriculture • Moderation of recent electricity price increases from 25% to 16% • R1bn port tariff rebates for Manufacturers • Formation of the Presidential Infrastructure Coordinating Commission (PICC) 16

17. Medium-term Outlook:Structural Challenges • Significant global economic uncertainty around resolution of economic crises in EU and US and geopolitical risks • Protracted recession and decreased demand for exports, particularly in SA’s traditional markets in the US and Euro Zone • Slow and difficult process of re-orienting exports to higher growth developing regions and countries • Currency volatility and overvaluation, which promotes capital intensity and a skills bias • Monopolistic / oligopolistic pricing of intermediate inputs • Large increases in electricity, rail and other tariffs • Inadequate provision of suitable long-term financing instruments for industry • Inadequate progress with skills development programmes for priority sectors • Slowdown and backlogs in infrastructure expenditure • Significant subsidies, trade measures and other distortions within global trade 17

18. Medium-term Outlook:Key Opportunities • Increased manufacturing opportunities linked to public sector infrastructure capital investments in sectors such as metal fabrication, capital equipment, rail and renewable energy • Opportunities to regain domestic market share in areas such as clothing, textiles, leather and footwear and agro-processing • Opportunities to grow manufacturing exports on the rest of the African continent linked to mining, infrastructure, construction and a rapidly growing middle class • Export opportunities to fast-growing developing countries such as high growth net food importing countries 18

19. IPAP 2012/13-14/15 Strategic Priorities • A number of Strategic Platforms have been put in place including: procurement, industrial financing, and strategic trade policy • Significant achievements in a range of sectors including: Automotives; Clothing, Textiles, Leather and Footwear; Agro-processing; Metal Fabrication, Capital and Transport Equipment; Business Process Services and Green Industries • Creation of Strategic Platforms together with lessons learned from recent Sector successes position IPAP for significant scaling up • Core focus of 2012 IPAP is on confidence-building of sectors and firms to: • Upgrade rapidly to weather the current stormy economic environment; and • Position themselves for future growth opportunities 19

20. IPAP 2012/13-14/15 Strategic Priorities Procurement • Work is being completed for next ‘wave’ of designations in range of sectors • Deepen supplier development policy, systems and programmes in SOE’s • EDD work with provinces and municipalities to strengthen local procurement in non-designated sectors • EDD to co-ordinate process of converting high level co-commitments by business and labour set out in the Procurement Accord to concrete actions 20

21. IPAP 2012/13-14/15 Strategic Priorities Industrial Financing Manufacturing Competitiveness Enhancement Programme (MCEP) • Budget allocation of R5,8bn over current three year MTEF announced in 2012/13 Budget • Manufacturing support response to companies impacted by currency, global recession and escalation of administered prices • Deployed towards upgrading competitiveness of labour intensive and value-adding manufacturing sectors • Grant finance with clear rules-bound access criteria aimed at firms in key sectors to upgrade production facilities, process, products and skills • Maximise employment and value-added potential in key sectors • Launch and roll-out of MCEP to commence in Q1 of 2012/13 • Exclusions: sectors with dedicated support programes (autos, clothing, business process services); capital intensive sectors; high market concentration and anti-competitive behaviour 21

22. IPAP 2012/13-14/15 Strategic Priorities Special Economic Zones (SEZ’s) • Budget allocation of R2,3bn over MTEF for SEZ’s • Promote creation of a regionally diversified industrial economy • Establish broader range of industrial parks and infrastructure for effective clustering and hubs • A dedicated and integrated legislative framework to enable effective regulation and management Regional integration • Shift of emphasis from market access to production capabilities and infrastructure • Areas of co-operation will include: • Industrial financing • Co-operation and strengthening of technical infrastructure - standards, quality assurance, and accreditation • Cross-border infrastructure and sector development 22

23. IPAP 2012/13-14/15 Strategic Priorities Developmental Trade Policy • Ongoing developmental tariff reform informed by sector strategies • Develop standards and strengthen enforcement of existing and new mandatory standards • Strengthen SQAM institutions to support industrial development • Technical infrastructure and conformity assessment support for exports • Up-scaled clampdown on customs fraud Competition Policy • Strengthening implementation of competition policy with focus on strategic inputs into the manufacturing sector • Improve competitive outcomes through stronger conditionalities and monitoring of compliance 23

24. IPAP 2012/13-14/15 Strategic Priorities Skills for Industrial Development • Ongoing work on a dedicated IPAP National Artisan Development Programme for priority sectors • Pilot dedicated industry Skills hubs in ‘emerging’ or new growth sectors • Establishment of a new architecture and funding model for Centres of Excellence Innovation and technology • Ramped up support for development of new process and product technologies • Software Development Process Improvement Programme to advance competitiveness through innovation 24

25. IPAP 2012/13-14/15 Strategic Priorities Green Industries • Designation and levels of local content for solar and wind renewable generation componentry and solar water heaters • Utilisation of MCEP to accommodate existing and new entrants, including FDI, in component manufacture • Unlock industrial opportunities with respect to energy efficient buildings Agro Processing • Expedite regulatory and support mechanisms to create a large scale Biofuels industry. Prepare emerging and commercial farmers to produce biofuels feedstock crops • Identification and promotion of export market opportunities to major net food-importing countries • Scale-up investment, product development and standards support 25

26. IPAP 2012/13-14/15 Strategic Priorities Metal Fabrication, Transport and Capital Equipment • Utilise MCEP to upgrade industry capabilities • Leverage massive public infrastructure drive especially in rail and electricity • Further designation and sector specific co-commitments • Exploitation of opportunities in mining capital equipment investment in SA and rest of continent • Supplier development by SOE’s 26

27. IPAP 2012/13-14/15 Strategic Priorities Ongoing Sector Development • Automotives, Components, Medium and Heavy Commercial Vehicles: raise economies of scale and localisation of components • Downstream Mineral Beneficiation: based on establishing minimum beneficiation levels • Boatbuilding and Upstream Oil and Gas Services and Equipment • Plastics, Pharmaceuticals and Chemicals: focused on plastics and value-adding pharmaceuticals • Forestry, Paper & Pulp, Furniture: promote further processing • Cultural Industries • Business Process Services: broaden and deepen SA’s product offerings • Nuclear: leveraging local production and technology transfer • Advanced Materials: feeding into new growth industries such as aerospace, solar and nuclear • Aerospace: strengthening integration into supply chains 27

28. Reporting • IPAP is one of the most detailed, transparent and reported programmes of government • Annual IPAP document sets out KAPs and milestones in great detail • Bi-annual updates to Cabinet and minimum of bi-annual updates to PC and SC • Detailed annual report within six months of end of financial year • Impact analysis is complex • Investment lead times • Impact of.e.g standards, competition decisions, regulatory changes • Detailed annual report within six months of end of financial year • Strengthened impact analysis methodology being developed and will be incorporated in 2012 annual report 28

29. Strategic role of the Portfolio Committee • Act as a catalyst for the rapid implementation and greater economic impact of IPAP 2012/13- 2014/15 • Assist the dtithrough policy advocacy and with achieving higher levels of : • Policy coherence: particularly between macro-economic / economy-wide policies and industry level policies • Strengthen complex intra-governmental co-ordination using Parliamentary platforms • Key issues • Electricity, rail and port charges and efficiencies: moderation of price increases and absolute levels relative to key international competitors 29

30. Thank You 30

31. Appendix :Overview of the manufacturing sector PMI Jan 2008 – March 2012 31

32. Overview of the manufacturing sector Manufacturing Monthly Production and Y-o-Y growth, Jan 2005 – Feb 2012 32

33. Overview of the manufacturing sector Manufacturing Utilisation Q1 2005 – Q4 2011 33

34. Overview of the manufacturing sector Real Gross Fixed Capital Formation Q1 2005 – Q4 2011 34

35. Overview of the manufacturing sector Trade Balance by sector Q1, 1990 – Q4 2011 35

36. Overview of the manufacturing sector Balance on current account, financial account (Rm) and REER by sector Q1, 1990 – Q4 2011 36

37. Overview of the manufacturing sector Short term interest rate March 2012 37

38. Overview of the manufacturing sector Long term interest rate March 2012 38

39. Overview of the manufacturing sector Manufacturing Employment Q1 – Q4 2011 39