DTI Delegation

PROGRESS REPORT

ON IMPLEMENTATION

OF THE 2007/8

INDUSTRIAL POLICY

ACTION PLAN

PORTFOLIO COMMITTEE ON TRADE

AND INDUSTRY – 21 May 2008

2

DTI Delegation

1. Mr Sipho Zikode: Acting Deputy Director-GeneralTel. (012) 394 1396

2. Mr Nimrod Zalk: Chief Director – Industrial PolicyTel. (012) 394 1366

3. Mr Nkosi Madula: Director – Industrial PolicyTel. (012) 394 1050

3

Overview: Industrial Policy Action Plan

1. Sectoral actions Fast-track implementation of four lead sectors which have

emerged from research and intensive interactions with stakeholders Metal fabrication, Capital and Transport equipment 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, Business Process Outsourcing, Biofuels

Other sectoral projects Sectors for which further strategy work needs to be developed

2. Cross-cutting actions New areas of emphasis:

o Industrial Financing and Upgradingo Reducing input costs through competition policy and trade

policy (selected import duties)

3. Improvements in government organisation and capacity

4

Manufacturing output growth

95.0

100.0

105.0

110.0

115.0

120.0

125.0

130.0

135.0(2

00

0=

10

0)

Quarterly Manufacturing output growth: 2000Q1 - 2008Q1 (2000=1000)

Source: Statistics South Africa

5

Manufacturing output Q1 2008

Manufacturing output growth Y-O-Y: 2008Q1 vs 2007-Q1% % %

Total 1.5 Glass and non-metallic mineral products 4.8 Other fabricated metal products -0.7

Batteries 33.2 Other tex tiles 4.6 Wood, paper, printing and publishing -1.1

Chemical products 23.6 Insulated wire & cables 4.1 Dairy products -2

Electricity distribution apparatus 20 Special purpose machinery 4 Grain mill products -2.1

Other electrical equipment 14.2 Non-metallic mineral products 3.6 Non-ferrous metal products -2.5

Electric motors, generators, transformers 13 Petroleum 3.3 Medical appliances, optical and photographic equipment, watches and clocks -2.7

Electrical machinery 12.6 Electronic valves, Radio, telev ision and communication apparatus 3.2 Furniture -2.7

Plastic 12.3 Textiles, clothing, leather and footwear 3.2 Basic ferrous and non-ferrous metal, metal products and machinery -3

Structural metal products 12.2 Other chemical products 3 Motor vehicles, parts and accessories and transport equipment -4.2

Leather & leather products, fur 11 Knitted & crocheted articles 2.3 Rubber -4.6

Electric bulbs & tubes 9.8 Food and beverages 1.7 Spinning, weav ing, yarns -4.8

Other transport equipment (e.g. boats, trains, aeroplanes) 8 Production, processing of meat, fish, fruit, vegetables, oils & fats 0.9 Trailers, bodies for motor vehicles -5.1

Glass 8 Wood & wood products 0.4 Printing, reproduction of recorded media -6.9

Petroleum, chemical products, rubber and plastic 7.6 Radio, telev ision, professional equipment 0.2 Publishing -8.5

Parts and accessories for motor vehicles 7.3 Beverages -0.4 Domestic appliances, office, accounting and computing machinery -9.6

Wearing apparel 7.1 Footwear -0.7 Basic iron & steel -12.3

Paper & paper products 7 Furniture and other manufacturing industries (including tobacco) -0.7 Sawmilling -14.4

Other food products (bakery, sugar, coffee& tea, spices etc) 4.9 General purpose machinery -0.7 Motor cars -15.7

Source: Statistics South Africa

6

Metal Fabrication, Capital and Transport Equipment

• Review of import duties of key industrial inputs into manufacturing– Duties on carbon and stainless steel removed– Review of duties on aluminium products expected to

be finalised by June 2008• Supplier Development Programmes

– Improved performance of machinery / equipment, metal fabrication and transport equipment sectors

– Transnet and Eskom have presented draft Supplier Development Programmes – requires further demand side detail and unpacking of supply side constraints

• National Tooling Initiative– Was launched in March 2008

• National Foundry Technology Network– Pilot projects will commence in July 2008

7


• Inter-governmental task team examining feasibility of possible new carbon steel investments– Recommendations to be presented to the

Minister in July 2008 for further consideration• Develop supplier development strategy in relation to

public transport policy (especially commuter rail)

8


-

2,000

4,000

6,000

8,000

10,000

12,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Rm

(2

00

0)

Metal products excluding machinery [353-355] Machinery and equipment [356-359] Other transport equipment [384-387]

Sectoral value-added, 1994-2007

Source: RSA Standardised Industry Database

9


-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Metal products excluding machinery [353-355] Machinery and equipment [356-359] Other transport equipment [384-387]

Sectoral employment, 1994-2007


10

Automotives and components

• Finalise replacement scheme to the Motor Industry Development Programme:– Draft revised architecture of the programme has

been developed and will be tabled with stakeholders in June 2008

– The architecture of the new programme will be announced in August 2008

• Re-launch a three-year supplier development programme:– The Quality Management System component of

the project has been rolled out since September 2007.

– Other modules will be rolled out in collaboration with United Nations Industrial Development Organisation (UNIDO) before the end of this year

• Formulate an empowerment plan for the sector:– To be completed by December 2008

11


8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Rm

(2

00

0)

Motor vehicles, parts and accessories [381-383]



12


110,000

115,000

120,000

125,000

130,000

135,000

140,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Motor vehicles, parts and accessories [381-383]



13

Chemicals, Plastics, Pharmaceuticals

• Review of the import duty on upstream chemical products:– Expected to be completed by June 2008

• Increasing polypropylene value-added products used in automotives and packaging industries:– Study finalised– Commence promotion of investment opportunities in

June 2008• Fluoro-chemicals Expansion Initiative

– Investment commitment secured– Outstanding issue of securing sufficient land

• Leverage public procurement to promote domestic manufacturing of ARVs (anti-retrovirals)– The ARV tender closed in March 2008 and it will be

awarded by the end of May 2008– Challenges in securing preference for domestic

manufacturers in tender process

14


2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Rm

(2

00

0)

Basic chemicals [334] Other chemicals and man-made fibers [335-336] Plastic products [338]



15


20,000

25,000

30,000

35,000

40,000

45,000

50,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Basic chemicals [334] Other chemicals and man-made fibers [335-336] Plastic products [338]



16

Wood, Paper and pulp, Furniture

• Fast-track the issuing of water licenses for producers facilitating afforestation in the Eastern Cape of:– 3,000 hectares in 2008;– 8,000 hectares in 2009;– 10,000 hectares per year thereafter in the

Eastern Cape – Detailed plans for KZN are still being finalised

• Skills transfer programme to upgrade the technological equipment for small saw millers– Service provider for pilot project in Chris Hani

District municipality approved• Expansion of furniture industry

– Draft furniture strategy completed– The furniture incubator in Mthatha will start

operating in November 2008

17


-

2,000

4,000

6,000

8,000

10,000

12,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Rm

(2

00

0)

Wood and wood products [321-322] Paper and paper products [323] Furniture [391]



18


30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Wood and wood products [321-322] Paper and paper products [323] Furniture [391]



19

Clothing and Textiles

• Implement measures to recapture and stabilise the domestic market– Country of origin labelling in place since July 2007 – Mechanisms for monitoring quotas on certain

Chinese imports in place since January 2007• Review of import duties on key inputs into the clothing

sector:– Review on fabrics not produced in commercial

quantities in SA to be completed by August 2008• Interim Textile and Clothing Development Programme

(ITCDP) formerly known as the Duty Credit Certificate Scheme (DCCS) extended– Until March 2009 with limited tradability

• Textiles engineering Centre of Excellence– Established at Council for Scientific and Industrial

Research (CSIR) in Port Elizabeth and running since January 2007

20

Way forward on Clothing & Textiles Sector

1. Raise productivity: finalise replacement of ITCDP (DCCS) by March 2009 in the form of a productivity-based incentive scheme

2. Upgrade capital and technology through Enterprise Growth Programme and Industrial Development Corporation (IDC) support

3. Tackle illegal imports: dedicated inter-departmental Illegal Imports Task Team to tackle smuggling and under-invoicing

4. Upscale skills in conjunction with the Clothing Textiles Footwear and Leather (CTFL) SETA

5. Systematically review input costs along the value chain

6. Develop medium-long term innovation and technology plan for the sector

21


2,000

2,500

3,000

3,500

4,000

4,500

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Rm

(2

00

0)

Textiles [311-312] Wearing apparel [313-315]



22


40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Textiles [311-312] Wearing apparel [313-315]



23


Imports, Q1 2000 – Q1 2008

-

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

1Q20

00

2Q20

00

3Q20

00

4Q20

00

1Q20

01

2Q20

01

3Q20

01

4Q20

01

1Q20

02

2Q20

02

3Q20

02

4Q20

02

1Q20

03

2Q20

03

3Q20

03

4Q20

03

1Q20

04

2Q20

04

3Q20

04

4Q20

04

1Q20

05

2Q20

05

3Q20

05

4Q20

05

1Q20

06

2Q20

06

3Q20

06

4Q20

06

1Q20

07

2Q20

07

3Q20

07

4Q20

07

08: Textiles (311-312) 09: Wearing apparel (313-315)


24

ASGISA sectors

• Business Process Outsourcing (BPO)– Roll-out of BPO incentive scheme. 9 approved

projects: 9,132 jobs and R658,927 investment. A major global BPO&O operator - TeleTech has been successfully recruited to set up shop in South.

– Preliminary agreement reached with Telkom, subject to regulatory approval

– Monyetla Work Readiness Programme: funds currently committed to train 6,411 learners. The overall aim is to train about 30 000 learners over the next 4 years

• Tourism– Customised Tourism Enterprise Programme for small

business under umbrella of Enterprise Growth Programme

– National Tourism Safety and Awareness Strategies being implemented at provincial level

– Tourism Sector Skills Plan revised

25

ASGISA sectors

• Biofuels

– The national consultations on the biofuels industry strategy have been completed. A process of refining the strategy and taking into account the inputs of different stakeholders have been completed. The biofuels task team is finalizing the strategy for submission to cabinet.

26

Industrial financing and upgrading

• Launch of Enterprise Growth Programme (EGP) by July 2008

• Package of R5b tax incentives to be launched by December 2008

• Revised rebate for foreign and local production launched in March 2008

• Good progress with BPO incentive• Jewellery Manufacturing Precinct (JMP) at

Oliver Tambo International Airport will be designated as an Industrial Development Zone (IDZ) in October 2008

27

Reducing input costs

• Amendments to Competition Act to be taken to Parliament– Main elements of amendments include:

– To enable the Commission to become more proactive in investigating markets and take measures to ensure market transparency

– To remove uncertainty on concurrent jurisdiction in competition matters

– To give leniency programme legal foundation to encourage whistleblowers to disclose illegal cartel activities

• Review of import duties on key intermediate inputs into manufacturing set out above, particularly:– Chemicals – Aluminium

28

Challenges to implementation and ramping up of industrial

policy• Macro-economic conditions

– Interest rates– Currency volatility (and periodic overvaluation)

• Electricity– Much more strategic approach to electricity

allocation required• Intra-governmental co-ordination

– Financing• Lack of clarity on requisite ‘business case’• Needs to be comparable with other country

programmes e.g. Brazil (Appendix 1)– Public procurement issues: e.g. anti-retrovirals,

digital set top boxes– Competitive supplier development programmes

of State Owned Enterprises

29

Challenges to implementation and ramping up of industrial

policy• Intra-governmental co-ordination: continued

– Export tax on scrap– Skills– Transport

• Monopolistic pricing of inputs (Appendix 2)• Capacity

30

Strengthening of IPAP process going forward

• Movement to 3 year rolling action plan from January 2009

• Planning will commence in August 2008 to ensure better alignment with government’s Programme of Action and Medium Term Expenditure Framework processes

• Strengthening the quality and scale of industrial policy interventions

• Industrial policy opportunities / responses to the electricity crisis– Roll-out of solar water heating and other energy

efficiency devices– Promotion of more electricity-efficient / relatively

more labour-intensive industries– Industrial policy / technological potential of renewable

electricity generation, e.g. solar– Promote energy-efficiency of existing industry– Align with mitigation options to climate change

31

Appendix 1: Brazil launches its industrial policy

Brazil to cut taxes, fund export companies Mon May 12, 2008 10:38pm BST

By Mair Pena Neto and Rodrigo Viga Gaier RIO DE JANEIRO, May 12 (Reuters) - Brazil will deliver up to 21.4 billion reais ($12.74 billion) in tax breaks through 2011 and launch a sovereign wealth fund in an attempt to bolster the economy, Finance Minister Guido Mantega said on Monday. Mantega said tax breaks would help boost exports while the sovereign wealth fund was aimed at helping Brazilian businesses abroad. The measures come less than two weeks after Standard & Poor's upgraded Brazil to investment grade status -- a development many see as positive for investment, but that could boost an already strong currency BRBY and hurt exports. "The objective of our industrial policy is to stimulate investment and increase exports to ensure the sustainability of the growth cycle," Mantega said during the government's launch of the reinvigorated industrial policy in Rio de Janeiro. "We need a new wave of exports from Brazil." Imports have grown at more than double the pace of exports in recent months, partly because of the strength of the real. While exports in April hit their highest level since the beginning of the year, helping to widen Brazil's trade surplus, the increase came after Brazilian customs officials ended a strike that had delayed the shipping of goods abroad.

"I am certain that the policy that we are launching today provides sustainability to a long cycle of productive investments in Brazil," President Luiz Inacio Lula da Silva said.

32

Appendix 2: Carbon steel costs, supply, pricing

Production Costs 2008 Q1: Hot Rolled Coil ($ per tonne)

Vanderbijlpark40/168

= 24th percentileSaldanha

24/168= 14th percentile

0

100

200

300

400

500

600

700

1 3 5 7 9

11

13

15

17

19

21

23

25

27

29

31

33

35

37

39

41

43

45

47

49

51

53

55

57

59

61

63

65

67

69

71

73

75

77

79

81

83

85

87

89

91

93

95

97

99

10

1

10

3

10

5

10

7

10

9

11

1

11

3

11

5

11

7

11

9

12

1

12

3

12

5

12

7

12

9

13

1

13

3

13

5

13

7

13

9

14

1

14

3

14

5

14

7

14

9

15

1

15

3

15

5

15

7

15

9

16

1

16

3

16

5

16

7

$ p

er

ton

ne

Source: Metal Bulletin Research

33


Liquid Steel Production ('000 tonnes)

4,8555,067

4,863

4,231

2178 2194 2192 2144

70337261

7055

6375

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2004 2005 2006 2007

'000

to

nn

es

Flat Products Long Products Total Source: Arcelor Mittal

34


MEPS Regions HRC, 2-3 mm, width over 1.1 meters- Mar 05-Mar 08

2500

3000

3500

4000

4500

5000

5500

6000

6500

7000

7500

3841

2

Apr

-05

May

-05

Jun-

05

Jul-0

5

Aug

-05

Sep

-05

Oct

-05

Nov

-05

Dec

-05

Jan-

06

3874

9

3877

7

Apr

-06

May

-06

Jun-

06

July

-06

Aug

-06

Sep

-06

Oct

-06

Nov

-06

Dec

-06

Jan-

07

Feb

-07

Mar

-07

Apr

-07

May

-07

Jun-

07

July

-07

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Feb

-08

Mar

-08

Apr

-08

May

-08

Ran

d/T

on

Average EU Average Asia Average North America World Average MITTAL Price List Price (Less 2.5% Settlement discount)

Source: Meps

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