Input by Dr Rob Davies, Deputy Minister of Department of Trade and Industry on debate on Budget Vote 32, Trade and Industry, National Council of Provinces

Chairperson
Honourable Members

Programme 9 of the National Industrial Policy Framework relates to matters which are of particular relevance to Members of this House, namely, matters of spatial and regional industrial development. To give effect to this, our Department has been involved in the preparation of a Regional Industrial Development Strategy which has formed the basis of our interactions with provinces, particularly through the framework of MinMec, and I would like to begin with a few reflections on this matter.

Our Constitution is singularly vague when it comes to prescribing the roles of National, Local and Provincial Government in the area of economic development. Schedule 6 defines trade without any further qualifications, as a concurrent function between national and provinces and all spheres of government recognise within the framework of the ambition to create a developmental state, that they have roles and responsibilities in promoting local economic development.

As we move into the elaboration and more importantly, enhanced implementation of industrial policy however, practice rather than just theory will require of us that we sharpen up our definitions of the respective roles of the three spheres of government within the framework of the principle of co-operative governance.

The National Industrial Policy Framework and the Industrial Policy Action Plans which have emerged from it have involved the selection of priority sectors. Simultaneously, provinces have embarked on Growth and Development Summits (GDS) which have also identified within the provinces, a number of priority areas and sectors. At the same time, local GDS processes in district municipalities have performed similar exercises at that level. What these exercises at the three different levels of our government system demand of us, is first of all, that we ensure a level of co-ordination and harmonisation, and secondly, that appropriate support measures are put in place to ensure that the actions of departments operating in the three spheres of government are mutually reinforcing.

It has not been necessary at the level of evolution of our industrial policy that we find ourselves at present, to exercise hard choices about what projects and programmes arising from provincial and local government processes, national government would want to support. Often indeed, provincial processes have identified areas of activity that are genuinely province specific, and which have no resonance in other provinces in the country. An example of this is the oil and gas rig servicing programme which the Western Cape has successfully embarked upon. However, we can anticipate that as our industrial policy becomes more operational on a larger scale, there will be a need for us to make sharper choices at national level, which could have implications at provincial and local level.

Even today, it is apparent that more than one province has ambitions to become active in particular lines of economic activity, which probably the country could not support in more than one of them. Co-ordination and harmonisation has therefore emerged as a significant challenge for industrial policy and sector strategies across our three spheres of government.

Beyond this we face the long standing, but also very difficult challenge, to try to promote a broader spread of economic activity throughout our country. There are very strong economic forces which tend to concentrate on economic activity in the established urban areas of our country, Gauteng, the Western Cape, the Durban - Pietermaritzburg area, by simultaneously excluding from opportunities, people who are residing outside of the major metros. A principle which has been established in the Regional Industrial Development Strategy, is that we need to make purposeful interventions to try to bring about a more equitable spread of economic activity and of opportunity. This has to be based in the first instance, on an objective and sober assessment of economic potential of particular areas, and then an identification of steps and strategies necessary to promote that potential in that areas.

The instruments which we have developed since 1994 include Industrial Development Zones (IDZs) and the Spatial Development Initiatives (SDIs), sometimes known as Corridor Programmes. IDZs exist at the moment in Coega, in East London, Richards Bay and in the IDZ linked to O.R. Tambo International Airport. IDZs have operated by providing particular infrastructure, and the opportunities of concentration around that infrastructure orientated particularly towards export activity. IDZs have therefore been linked to the major international airports and to ports.

In addition to this, they offer duty free entry of inputs, which are then used to manufacture products which are exported in a special customs administration arrangement. A range of other incentives have also been developed in the IDZs. The IDZs which we have in place, have had some limited success in achieving their objectives that could all potentially reach much higher levels of activity. Together with our partners in MinMec, we have identified a need for a significant review of the operation of IDZs and for a new IDZ Act to be presented to the next parliament. Among other things, the IDZ policy strategy needs to deal with issues of governance, defining more clearly the roles of national government, of the province, of local government as well as of the authorities established to run particular IDZs.

In addition to that, there is a need for a clear funding stream and an incentive programme for IDZs. We have recently lifted the moratorium on new IDZs, and the Mafikeng IDZ business plan has been prepared, and is well in the process of adjudication. In addition to that, other potential IDZs at the Kruger National Park airport, at the Dube trade port, and at the Harrismith freight and logistic hub, are in the process of being prepared. What we have recognised though, is that IDZ's are a model applicable only to activities in certain parts of the country, in particular activities as I have already mentioned, related to exports and which are linked to ports or airports.

We have accordingly developed and discussed with our colleagues in MinMec another model to encourage broader Spatial Economic Development, called Special Economic Zones (SEZ) or Regions. A number of candidates for Special Economic Zone Status have already been identified, including the Mzimbuvo Development Zone in the Eastern Cape, the Northern Cape Diamond Hub, the Wadeville Industrial Corridor in Gauteng, the Durban Clothing and Textile Special Economic Region, Agro Processing Special Economic Zone in Mpumalanga, an SEZ for Agro Processing in the Western Cape, and a metal SEZ in KwaZulu-Natal. Beyond this, we anticipate assisting municipalities in developing particular Industrial Clusters and in developing a series of support services and related schemes, related both to Special Economic Zones, and to Municipal Industrial Clusters.

Ultimately, and this is a challenge which will probably largely fall to a new administration, we have identified a need for a Regional Industrial Development Fund, somewhat similar in conception to the European Union's Regional Fund Programmes.

The other key measure which we have developed since 1994 to promote a more equitable Spatial Economic Development has been the Strategic Development Initiative (SDI) or Corridor Programmes. These are programmes related to particular infrastructure developments such as road or transport links, which package together a series of investment opportunities linked to those infrastructural investments, and potentially benefiting from them, and then embark on a co-ordinated investment promotion activity in the name of the SDI, or Corridor Programme.

These programmes have had some measure of success, the most important perhaps having been the Maputo Corridor Programme. Here again, there is a need for us to revisit the SDIs that we have established in different parts of the country, to take stock of the successes and challenges, and confront them as well as to consider the possibility of new SDIs linked to our current infrastructure development programmes. All of this requires a much higher level of co-ordination and of interaction between the different spheres of government. At the last MinMec Meeting, which we held in March of this year, I believe that we took some decisions that could potentially take us forward. These have related mainly to the functioning of the MinMec process. MinMecs can no longer be justified as gatherings where MEC's and Members of the Ministry meet together to simply receive unprocessed reports about current policy developments at either level.

Meetings of the Ministry and MECs, need rather to be grounded in on-going work, at technical and official levels. We have accordingly agreed that MinMecs will be preceded by meetings at the level of Heads of Department, and more frequent interactions between officials and experts. These will identify issues that need particular political decision making, in particular, over harmonisation and co-ordination efforts to spur on developmental programmes.

A much sharper focus and more rigorous MinMec process, is a practice that we believe needs to be taken forward by the administration that succeeds us. Important recommendations have also been put forward for greater co-ordination of small business and co-operative support programmes, between provinces and national government in particular.

I am not going to discuss these in any detail, but I am simply going to suggest that in the course of time, a similar discussion needs to take place on the matter of trade and investment promotion. Our Department through Trade and Investment South Africa (TISA) has been developing an export strategy which is being used as the basis for a decision about the location of the dti foreign economic offices. A feature of the strategy has been to develop a methodology to identify in particular, new markets where we have big opportunities to increase our trade through appropriate promotion activities, and to concentrate our forces and our efforts on these. An example of such an area, where I have personally been involved in supporting trade promotion activities has been in Central and Eastern Europe, among the new members of the European Union.

South Africa has long standing historical trade relations with the original members of the European Union (EU), but we have identified that the possibilities for growth in these rather mature relationships, is not as great as that which lies in regard to the new members, with whom our relations have been rather limited. These are countries into which we now enjoy the same preferences as in the other members of the European Union. I believe that this decision to focus is already born out by some of the statistics for the increases in exports last year compared to the year before.

In Belarus, the Czech Republic, Hungary and Poland to name just a few, we've seen increases in trade and exports last year compared to the year before, of well over 100%, compared to much more modest increases among our established trading partners. Another feature of the export strategy is a much more careful identification of sectors in target markets where we could increase our export performance. The importance of this I believe for our present discussion, is that it is necessary for us to confront the challenge of harnessing and concentrating our efforts at both national and provincial level, to a greater extent and to avoid a situation in which we have a proliferation of export and investment activities targeting essentially the same old established trading partners. This is a discussion and a debate, which I largely believe will have to take place in the new administration.

Finally, let me say that I am very pleased to see that the National Council of Provinces (NCOP) continues to take an active interest in international trade negotiations. We had an opportunity to speak on these matters at length in the National Assembly yesterday, and I don't want to repeat the points in great detail here, but let me just say that the challenges we face in international trade, are fundamentally about translating supposedly agreed principles on promoting growth and development, into real commitments.

In the processes that I have been engaged in, in the time of my appointment and also in the time I have been able to monitor these processes in the Parliamentary Committee before that, I am afraid I have noticed too much distance between professed developmental principles and the actual positions taken by many of the major parties in international trade negotiations. It has been at this juncture, between principles and positions taken, that has led to the long delay in the conclusion of the Doha Round negotiations in the World Trade Organisation (WTO).

The insertion of a series of provisions to underpin commercially driven offensive interests by the European Union is also the main reason I believe South Africa has found it difficult to initial the Interim Economic Partnership Agreement, which a number of our neighbours, because of the threat of trade disruption, have been obliged to sign onto. Perhaps this is a reflection of the international balance of forces, in which case I believe; developing countries will need to re-double their efforts to put in place alternative trade relations among themselves. This is in any case I believe an emerging priority, given the reality that the dynamic parts of the world economy are no longer located in the advanced industrialised countries of the traditional north, but are increasingly located in the tigers of East Asia and Latin America.

Chairperson, Honourable Members, it's been a pleasure, albeit a challenging pleasure, to have been able to serve in government over the past nearly three years. On the limited number of occasions that I have been deployed to debate or to answer questions in this House, let me say that it has been a real pleasure to be here and to have participated in discussions among all of you. I believe that this Chamber, presenting as it does provincial interests, has an important role to play, and I thank you for the opportunity which I have had in the past to be present here among you. I trust that this House will support Budget Vote 32.

Thank you.

Issued by: Department of Trade and Industry
3 June 2008