16 February 1999

The year 1998 saw the DTI taking strides in the unfolding of its host of programmes and projects. Significant developments took place in our export promotion programmes as well as in small business development programmes. The Spatial Development Initiatives (SDI) saw the launch of three projects, namely, the Saldana Steel, the Lubombo Tourisim SDI, and the much-awaited Wild Coast SDI.

Throughout 1998 South Africa was involved in different trade negotiations with three trading blocs, namely, the European Economic Community, Southern African Development Community (SADC), and the Southern African Customs Union (SACU). A breakthrough was made with the EU a few weeks ago. The deal still has to be formally ratified by the fifteen EU members. We shall soon be engaged in the finalisation and ratification of the trade agreement and get structures in place for its implementation in conjunction with our SADC partners as well as monitor its impact.

South Africa acceded to SADC in August 1994, only three months after the inauguration of the democratic Government, reflecting the priority it accorded to economic integration in the Southern African region. In 1996, Heads of State of 11 SADC countries signed a Trade Protocol in Maseru which created the framework for negotiating a Free Trade Agreement.

Economic integration among SADC Member States, however, has to extend beyond the dismantling of tariff barriers and encompass supply-side measures - primarily investment - if the benefits of economic integration are to materialise.

To that end, the South African government’s endeavours have been two-pronged:

• Driving the negotiations to conclude an FTA
• Implementing supply-side measures in the form of SDIs

South Africa was the first country (together with its SACU partners) to table a trade offer to the other SADC Member States. This was a catalyst to the commencement of negotiations as other countries responded by tabling their own offers. At a SADC Trade Negotiating Forum meeting held in November 1998, Member States agreed to embark upon an intensive process of negotiations during January - June 1999, with the objective of concluding negotiations in July 1999. The first TNF meeting, held in January 1999, created the momentum necessary to drive the process and the FTA is likely to be implemented in January 2000.

SACU’s offer is asymmetrical - offering faster and more generous access for other SADC Member States than they offer SACU. At present, the ratio of South Africa's exports to imports stands at 6:1. Our exports to the region are concentrated in the high value-added sectors such as minerals and base metals, chemicals, machinery, transport equipment and food and beverages. These sectors generate overall growth and high-wage formal employment in the domestic economy and have grown dramatically - almost tripling between 1992 and 1997.

The objective of the tariff offer is to provide our SADC partners with rapid access to our markets. Although the impact of such trade liberalisation will be limited in the short-term, it will serve to convince our SADC partners that we are serious about the FTA. In the long-term, together with additional supply-side measures such as the Spatial Development Initiatives (SDIs), access to the South African market should enable SADC countries to develop industrially as they will have a captive market in South Africa by virtue of preferential tariffs vis-a-vis the rest of the world.

Botswana, Lesotho, Namibia and Swaziland (the BLNS States) are South Africa's partners in the Southern African Customs Union. Trade with these countries is free and no tariff barriers exist.

Exports to the BLNS States exceeded R25 billion during the financial year 1997/98 (the latest data available). A large percentage of BLNS imports from South Africa are value added goods and the role of South Africa's exports in the creation and maintaining of jobs should be noted. The BLNS States, furthermore, derive substantial financial benefits from their membership of SACU. During the 1998/99 fiscal year, these countries' total share in the common revenue pool of customs and excise duties amounted to R5,6 billion. These receipts form a substantial percentage of total government revenues. This creates jobs in the BLNS States and enables them to fund government projects. This, in turn, creates excellent export opportunities in South Africa. About eighty to ninety per cent of the BLNS total import requirements are sourced in South Africa.

The present SACU Agreement was negotiated and finalised in 1969 between the former apartheid government on the one hand and Botswana, Lesotho and Swaziland, who had at that time only just gained independence, on the other. The SACU Agreement is, therefore, in need of change. Good progress is being made in renegotiating the SACU Agreement and it is expected that substantive agreement on all the outstanding issues would be reached by the middle of 1999.

The period since the inauguration of the democratic government has seen SA spreading its trade wings to all corners of the globe. Besides our deepening trade links with Africa, relations are being nurtured with Latin American, Asian, and Middle Eastern economies with which we had no or very little links in the past. As part of this drive in 1998 the DTI organised outward trade and investment missions, bilateral fora meetings, and signed a number of agreements and records of understanding.

Since we have a growing number of new trading partners, we shall, this year, continue with sectoral studies of these countries as well as of different regions and how to access their markets. Regarding our relations with Taiwan, we shall re-build our economic relations and establish mechanisms for economic co-operation following the break in diplomatic ties and negotiate the Investment and Protection Agreement.

Last year saw the establishment of the first export council. Export councils are formed by different industrial sectors to help sectors work together and to collectively identify and enter selected foreign markets. They are also meant to increase export awareness and entrench the export culture among manufacturers in a particular sector. Export councils will also serve as a platform to assist and train SMMEs to enter and compete in export markets.

Last October the capital goods Export Council was launched and the structural steel council will be launched next month. Others are still at different stages of negotiations. In this regard the DTI plays a facilitating role.

In November 1998 the DTI organised the Export Week during which exporters from different sectors gathered to discuss matters of common interest and laid basis for the future. Each sector developed an export strategy of its own which will guide its export operations. An export strategy will also help to prioritise manufactured products within the sector based on export readiness of the manufacturers and export potential of the products. The strategy will also assist a sector to continually update statistics and other relevant information on the availability of exportable products and foreign market opportunities in target markets.

Another milestone that took place during export week was the establishment of the National Export Advisory Council. The council consists of representatives from sectors’ export councils, as well as from industrial and commercial federations like NAFCOC and SACOB. The council advises the Minister of Trade and Industry and the Government on export related matters.

The DTI is currently involved with a number of stakeholders in facilitating a programme to help small exporters. The programme aims to support small exporters in their export business endeavours with quality information and to represent them on issues relating to exports.

The Government’s drive to attract fixed direct investments (FDIs) has been gaining momentum since 1994. Starting from R 4,7 billion of direct foreign investments in 1994, it rose to R 5,4 billion the following year, and then grew to R 5,8 billion in 1996 and then reached R 11,66 billion in 1997 (this figure includes the Telkom deal). The 1998 preliminary statistics put the figure at R 7 246 billion divided as follows:

Asia  -  R 493.5 million

Europe  -  R 501.5 million

N. America  -  R 5 738 billion

In 1999 Investment South Africa (ISA) will commence its pro active marketing strategy which entails critical focus on an image building campaign of SA in Europe, Asia, and North America. The primary target countries for foreign direct investment are:

North America  -  USA, Canada

Europe   -  UK, Germany, France, and Italy

Asia  -  Japan, India, Malaysia, and Singapore

The strategy is to intensify investment from traditional partners and build a new image of SA. In the case of new partners such as Asia we need to differentiate SA from Africa, but yet retain our Africanness. The second leg of the strategy is to intensify after care, which essentially entails increasing expansion of existing multinationals in SA.

The target sectors are:

• Pharmaceuticals
• Chemicals and petrochemicals
• Food processing
• Automotive components and upstream suppliers
• Electronics and Information technology
• Tourism infrastructure

Total estimated Fixed Direct Investment (FDI) for 1999/2000 inclusive of all the promotional agencies in SA is R 10 billion.

The incentive schemes aimed at encouraging investments are also bearing fruits. Under the Tax Holiday Scheme, in 1998 alone, approvals were granted to eighty-six (86) local and foreign companies with investments amounting to R 2,6 billion with a potential to create 7 200 jobs. Since its inception the scheme has attracted R 3,6 billion in investments with a potential for about 11 000 jobs out of 129 approved projects.

The Small Medium Manufacturing Development Programme aimed at encouraging investment in manufacturing by small business has made tremendous strides since it started operations in July 1997. Last year alone this programme approved 666 projects with a total investment of R 1,6 billion and a potential to create 21 000 jobs.

The two-year old Industrial Participation Programme is contributing tremendously towards our investment strategy and our drive to gain high value exports and the transfer of technology and skills to sustain such exports. The value of exports committed for the next seven years is expected to be over R 300 million from contracts concluded in 1998.

This programme aims to kick -start economic growth and job creation in SA by attracting local and international investors into the country’s competitive industries. Under this programme eleven local SDIs at various stages of delivery have facilitated investment projects in excess of R 113 billion with the capacity to generate over 104 000 new jobs. Furthermore, there are a number of ports and airports under investigation as potential Industrial Development Zones (IDZs).

Five SDIs have released projects into the public domain and are focussed intensively on promoting these to private sector investors: the Maputo Development Corridor, the Fish River SDI, the West Coast Investment Initiative, the Wild Coast SDI, and the Lubombo initiative. In these areas, elements of SDI work programmes are being backwardly integrated into relevant government line departments and existing institutions, specifically the provincial investment facilitation agencies, to ensure that capacity to attract inward investment is sustained at the local level.

An innovation in the agri-tourism SDIs on the Wild Coast and Lubombo has been the delivery of sound and sustainable investment projects structured as strategic community/private partnerships through a competitive bidding process.

A second phase of SDIs is planned which moves away from the original SDI concept of scanning and scoping investment projects in an area with an identified locational advantage for industry in sufficient numbers to attract significant interest from international investors. Phase 2 SDIs more closely resemble the international concept of special economic zones with their strong sectoral focus, dedicated infrastructure and specialist management. Current initiatives in Richards Bay-Empangeni, various Gauteng nodes, the Greater Algoa/Addo and the Gariep area fall into this category.

With a view to developing strong regional economy, we have offered the SDI methodology to our neighbours. Trans-national SDIs at an advanced stage of delivery are the Maputo Development Corridor and the Lubombo Initiative. The new Maputo N4 and Platinum Highway routes will open up the first trans-African highway and a tourism-led Coast-to-Coast corridor is being conceptualised to run from the port of Maputo to Walvis Bay. This will exploit synergies between the Namibian-led Walvis Bay SDI, Platinum SDI, the Gauteng SEZs, the Pharaborwa SDI and the Mozambique-SA led Maputo Development Corridor, but presents further opportunities tor strategic liaison with neighbouring countries.

Within the context of SADC trade negotiations, the SDIs have been implemented in tandem with the negotiations to conclude a Free Trade Area (FTA). Their implementation throughout the region, coupled with trade and investment missions led by the DTI from South Africa to SADC Member States, has resulted in substantial investments in the region which are of mutual benefit to South Africa and the recipient countries.

The Department of Trade and Industry led Business Missions to Angola, Mauritius and Tanzania. These missions proved to be successful as evidenced by the conclusion of a number of joint-ventures. The missions provided a framework for South African businesspeople to identify a number trade and investment opportunities which offer them high returns while contributing to investment, technology transfer, employment and inputs for local production in the three SADC countries.

Likewise, the SDIs have contributed to investment flows to SADC countries as evidenced by progress in the following areas:

The Maputo corridor is expected to attract US $7.6 billion in investment in terms of the projects identified to date. Successful implementation of the project is ongoing and will undoubtedly prove to be a success story that can be replicated elsewhere in the region.

The Walvis Bay SDI has been approved by the Namibian cabinet and the process of implementation - i.e. the appointment of a project manager and an appraisal of the project - has been set in motion.

The Nacala, Beira and TAZARA corridors have been the focus of the DTI during this year. Discussions with Malawi, Tanzania, Zambia and Malawi are at an advanced stage and these SDI’s will be implemented during the course of this year.

Coupled with the extension of the mandates of the Development Bank of Southern Africa and the Industrial Development Corporation to provide finance to the entire SADC region for the development of infrastructure and industry, these initiatives have, and will continue, to play an important role in stimulating investments to SADC Member States resulting in higher growth, employment and industrial development in the recipient countries.

Last year the Government promulgated the National Empowerment Fund Act. The DTI is currently, until this coming Friday, calling on the public to submit nominations to the NEF Board of Trustees. We hope to formally launch the Fund during the first half of this year. The establishment of the NEF is the Government’s recognition for the need to redress the unequal distribution of wealth and ownership in SA as an integral part of its economic policy. It intends to address this issue specifically in the process of restructuring state-owned enterprises. The Fund will be a vehicle to meet this social objective in a way that is financially and economically responsible. In doing so, the NEF will provide for a wider ownership of productive assets and stimulate greater savings from historically disadvantaged persons (HDPs).

The NEF operates through three independent but integrated trusts. In their design the trusts will provide access points for the new or small investor, the more sophisticated investor, and the entrepreneur.

The Lefa Investment Trust is an investment share scheme where the sale of shares will be targeted at a level to involve the HDPs especially those new to the financial markets.

The Equity Management Trust will operate initially as a joint venture between the Industrial Development Corporation (IDC) and the NEF offering equity financing to various business initiatives of the HDPs.

The Portfolio Management Trust will operate as a warehouse for NEF investments identified to be distributed to various consortia, eg, church groups, burial societies, stokvels, etc.

Since 1994 small businesses have grown and spread across the length and breadth of our land. This was partly because of the removals from statute books of all restrictions that limited and even prohibited some sections of the population from exercising this right as well as the deliberate efforts of the democratic Government to promote this sector. The DTI has achieved all the targets set out in the White Paper on Small Business.

Last year we launched KhulaStart programme aimed at promoting greater access to micro credit by rural communities in SA. KhulaStart is based on a group-lending methodology and provides support for the lower end of the micro enterprise sector. It targets historically disadvantaged communities, particularly women in rural areas. It is envisaged that about 70% of the loans will be given to women.

For this year the focus will be on:

The spread countrywide of SMME products through the wholesale institutions to retain channels such as Local Business Service Centres (LBSCs). These centres offer training, counselling, technology-related industrial cocoons, market linkages, financial accommodation, and credit guarantees.

Submission to Parliament of the findings and recommendations of the Regulatory Review that investigated existing laws and regulations that in some way obstructed adversely the spread of SMMEs.

The filling of the void in the area of accessibility to reliable information by SMMEs. This is being done through a system called Business Referral and Information Services (BRAIN). When in full operation it will enable any aspiring entrepreneur access to information and know how in operating a small business. A website has been established whose address is : www.brain.org.za It will also make use of "call in" and "walk in" centres which will be established around the country.

A structured response to the issue of market accessibility. Two initiatives will reach fruition this year. One of them is the enhancing of the ability of small business to be competitive in Government procurement through product and quality up gradation, efficient pricing, delivery, and after sales service. The other one is the enhancing of opportunities for small business to obtain franchising opportunities through a franchising fund and a secured environment.

The strategy on access to finance for SMMEs and the establishment of a cohesive way forward among all the financial intermediaries and others in the non-financial sector. In this regard the DTI will also be working towards the expansion of Khula products to all financial intermediaries.

The national Lotteries Board is currently evaluating the three bids received. It will make a recommendation to the Minister who will award a licence to the winning bidder by May 1999. It is expected that the much-awaited National Lottery will be operational by the end of 1999.

The priority here is to ensure that all concerns about the constitutionality of the Liquor Bill are resolved for the Bill to be promulgated. The Bill introduces a new framework for dealing with registrations. The new framework facilitates simpler registration procedures and proposes better compliance for the industry’s participants.

The DTI plans to repeal the Gambling Act of 1965 to ensure an end to illegal gambling operations. The Lotteries Act of 1997 repealed some of its provisions but others remained pending the enactment of gambling legislation by provinces. Now that all provinces have passed their Gambling legislation the time has come for the Gambling Act to go.

The DTI also is proposing that the National Gambling Act of 1996 be amended to ensure that the State, or any related organisation, divests its financial interests in gambling activities as soon as possible.

Earlier this year the Government established a National Inspectorate to ensure effective enforcement of commercial legislation and implementation of related Government policies. The inspectorate is currently establishing itself and consulting widely internally and internationally so as to learn from similar experiences elsewhere as well as to build capacity.

It is envisaged that the inspectors should be able to approach the courts directly and a legislation to that effect may be drafted during 1999. Following are some of the legislation that will fall within the inspectorate’s terrain:

• Companies Act
• National Gambling Act
• Lotteries Act
• Liquor Act
• Usury Act
• Credit Agreements Act
• Sale and Service Matters Act
• Harmful Business Practices Act
• Patents Act
• Trade Marks Act
• Copyright Act
• Counterfeit Goods Act, TRIPS Agreement

During 1999 the DTI will pilot through Parliament an amendment to the Harmful Business Practices Act of 1988. The aim is to harmonise the Act with provincial legislation and to change the scope of the Act from harmful to unfair business practices. The amendment also proposes the establishment of a Special Court for appeals. The Bill also provides for the investigating officers with a warrant to enter and search premises and seize documents.

The Bill passed through the National Assembly last year and is currently with the Select Committee on Economic and Foreign Affairs. We hope that it will be approved during the current Parliamentary session so that a restructured Consumer Affairs Committee could be in place during the first half of 1999.