GCIS PARLIAMENTARY MEDIA BRIEFING
20 September 2001
MINISTRY OF TRADE AND INDUSTRY

Document handed out:
Minister’s Media Briefing September 20, 2001 (see Appendix)

Questions from the media, and Minister Alec Erwin’s replies
(Q): What do you think the implications are for the South African economy as a result of the attack on America? Do you think there is a likelihood of a global recession that would also affect South Africa?

The Minister cautioned against the notion of a global recession being present or imperative although the Department has been watching the US economic downturn with interest but "one can’t automatically say we are now in a global recession."

He said South Africa had some potential "for counter cyclical processes" through its drive to add value and to diversify its export base by linking up with new trading partners. This could cushion against some of the negative effects of any world economic downturn.

Events likely to have an impact are expected to be felt through the "uncertainty factor" and if there could be a global recession, South Africa would be better prepared to survive through its recent industrialisation strategies.

(Q:) Are there any opportunities available for Southern Hemisphere countries like South Africa to accept the massive repatriation of capital from the United States in the wake of a terrorist attack? An example of Japan was given as a country that was withdrawing its capital from the US.

(A): The Minister replied that they had adopted a system that was working perfectly under current circumstances and "whether this rush to cash can be converted into an opportunity for us, I wouldn’t say. There is a lot to be gained out of the current circumstances but our strategy is to do what we have been doing before", and that is to create conditions for the economy to merge with the global economy on a competitive basis.

(Q): What was the current Foreign Direct Investment (FDI) situation in the country?

(A): The Minister responded that the FDI situation was promising especially if one looks at the figures committed for the months of April to August this year which have picked up to R3.5 billion. None of which was related to privatisation and some of which underlined new technology partnerships with countries like Japan.

The Minister said new investments fell largely in sectors like automotive, chemicals and agroprocessing, and clothing and textile. The latest World Investment Report, released recently by the United Nations Conference on Trade and Development (UNCTAD), noted that investment flows to South Africa were down more than 4 percent to R877 million last year, largely due to reduced merger and acquisition activity.

(Q): There are squabbles amongst the economists about South Africa’s trade figures. Some are claiming that this is a ‘miracle’ economy for exporting so much while others say it is too early to say. What is the Department’s view on this?

(A): The Minister responded that his Department was exploring the possibility of a preferential trade agreement with African countries. A generalised system of preferences permissible under the World Trade Organisation (WTO) was envisaged.

Trade talks were underway with Nigeria, Kenya and Egypt to deal with incompatibilities between the South African trade regime and that of the Community for Eastern and Southern African countries (COMESA), which was not specific enough on questions of rules of regulations.

Sectors that were dominant in the export sector were automotive with earnings of R9 billion, agroprocessing R4 billion, and machinery R2 billion. Clothing and textiles were also growing with the latter linked to the US’s African Growth and Opportunity Act (AGOA) and the free trade agreement with the European Union.

Trade with Southern African countries remained important, with growing trade surplus with Southern African Development Community countries (SADC) offsetting deficit with other regions.

Trade agreements with Mozambique and Malawi, which set such unrealistically high value added criteria that they led to illegal imports were renegotiated so that with regard to clothing and textiles only single stage processing was required to meet the rules of origin requirements.

Trade in clothing and textiles with Mauritius almost doubled in the past year and Nigerian exports to South Africa were growing. Technical trade missions to African nations were planned to reach trade agreements. Memorandums of understanding (MoU) had already been signed with Nigeria, Tanzania and Rwanda.

(Q): The Minister was asked to give details of how much was South Africa importing from and exporting to Nigeria and what products are involved?

(A): His response was that Nigeria had a trade surplus with South Africa emanating from the importation of oil but that he was not worried about that as the trend was likely to change and to resemble trading patterns that exist between South Africa and Zimbabwe. In the meantime different business groups from different sectors including empowerment consortiums are being sent to Nigeria to find out possible purchases that Nigeria could make from South Africa.

(Q): The Minister was asked to comment on the impact of the rising price of gold on the world markets during this downturn.

(Q): The Minister said the price of gold at the moment was positive and certainly was of help to the economy but he did not think in the long run that it would impact positively on "our trade figures."

Appendix:
PARLIAMENTARY MEDIA BRIEFING BY THE MINISTER OF TRADE AND INDUSTRY, MR ALEC ERWIN, Cape Town, 20 September 2001

SERVICE DELIVERY AND CUSTOMER SERVICE
The Department of Trade and Industry has gone from milestone to milestone since the President's state-of-the-nation address at the beginning of the year. We have, on several occasions talked about the transformation of the department, which has had major implications for the improved delivery of services to our economic citizens.

This process, the scale of which had not been attempted in a national government department before, has for all intents and purposes been completed. Unlike the private sector, where restructuring often involves large scale retrenchments and selling off of assets, resulting in immediate and visible improvements, the impact of large scale changes in a government department are not immediately apparent in the same way.

Recent experience of deep-seated change in large private sector firms has shown that fundamentally changing a large institution could take up to 10 years and that the really good institutions continually change in order to remain competitive. By any standards, the restructuring exercise in DTI has been extremely rapid. That, together with meeting the pressing demands of everyday operations and setting policies which will influence the South African economy for decades to come, has meant an extremely intense period for the DTI during the last 18 months. For continued success, we intend increasing the intensity of efforts during the next 18 months.

Other than the products developed by the line divisions, transversal initiatives to modernise work processes will continue in parallel with the delivery of core day-to-day initiatives. A sample of the initiatives currently taking place and which will continue intensively until we have reached bench-marked world-class standards include:

1. Focus on the Customer:
We have already examined the DTI's customers in all their facets - who they are, current versus potential, big or small, what their needs are and how these relate to the DTI's work, and where the DTI's reach and depth of penetration to its customer base can be improved, with a particular focus on SMMEs, exports, BEE and women in the economy, and the region. These results were the product of the first phase of the work of an innovation team established to develop the most effective ways of reaching our customers.

The second phase of developing effective mechanisms to dramatically increase our reach to our customers has already progressed to the point where structures are being established and results will become apparent during the next 6 months.

2. Serving the Economic Citizen:
For a government department and for the DTI in particular, this customer focus is nothing short of revolutionary. For the first time, the DTI is thinking in terms of redefining its relationship to the people, the economic citizens of South Africa, in search of giving content and substance to the term "a better life for all".

3. Change from Within:
This is what the DTI set out to achieve when it launched its transformation process 18 months ago. It is a testament to the success of that transformation that the customer-cantered discussion of our Executive Board (EXBO) was led and integrated by the divisions within the DTI themselves. A range of action plans are being rolled out to design, package and market a range of DTI incentives that reach and support the economic citizens meaningfully and effectively.

4. New ways of working:
There are seven divisions within the DTI, broadly divided into those that are policy driven and those that are marketing and sales driven. For each of them the new DTI's vision demanded a change in the way they worked, across various spectrums. These are, in turn:

* Culture/values (epitomised by branding);
* Focus on the customer through the organisation-wide Value Chain (subsequently extended to begin including the broader DTI Group via the Council for Trade and Industry Institutions (Cotti);
* Identifying gaps in resources, whether skills, people, or IT systems;
* Analysing work processes throughout the organisation to streamline them and increase efficiencies;
* Focusing on the retail end of the DTI, where it interacts with the customer, understanding who the DTI's customers are and redesigning DTI incentives and delivery mechanisms to meet customer needs-especially for the previously marginalised of our society;
* Communicating all of this to the full spectrum of DTI stakeholders, especially but not only to the provinces, through a range of new, modern, carefully thought-through communication media of world class appearance and content, including some entirely new publications;
* Changing the organisational culture away from an inward-looking, ossified bureaucracy towards an outward-looking service-centred, benchmarked and performance-linked department-this is epitomised by the new DTI "brand" and logo, which gives the new culture a symbolic content;
* Workshopping the above and building teams around the new vision and the role of business units within it; and
* Researching practical needs from key performance indicators to becoming a learning organisation.

These initiatives just mentioned are at a higher level within the DTI as an organisation. At a more practical level, our focus is on the following key areas:

* Rooting out fraud and wasteful expenditure on a concerted, ongoing and planned basis;
* Improving communication in terms of quality, frequency and reach;
* Redesigning incentives for the economic citizens;
* Building CIPRO as the engine and data base of the DTI's retail interface;
* Redesigning business processes to make them more efficient;
* Planning an IT revolution within the organisation to reduce costs and improve customer ease of access;
* Imbuing the DTI with a customer-service focus, embodied through service level agreements within divisions;
* Implementing the best practices of Corporate Governance requirements; and
* Devising a whole new DTI customer interface through an internal DTI "Innovation Team".

All of this is part of the DTI's overall move towards Vision 2004. And it is given context by the DTI's preparation to move to a new trade and industry hub, still within the Pretoria CBD, but designed in the interests of efficiency, coordination and focus on serving the economic citizen in a modern and energising environment conducive to a creative and committed staff.

The DTI has never been more suited to deliver on the challenges facing our economy and our nation. Since the beginning of the year, the department has placed a number of legislation pieces before Parliament. These include the Companies Amendment Bill; the Close Corporation Amendment Bill; the Consumer Affairs (Unfair Business Practices) Amendment Bill; the International Trade Administration Bill; the Export Credit and Foreign Investments Re-insurance Amendment Bill; the Industrial Development Amendment Bill; the Copyright Amendment Bill; the Performers' Protection Amendment Bill; the Counterfeit Goods Amendment Bill; the Trade Practices Amendment Bill; the Patents Amendment Bill; the Merchandise Marks Amendment Bill; the Trade Metrology Amendment Bill; and the National Supplies Procurement Bill of Repeal.

While some of these pieces of legislation will be strengthening already existing legislation, bringing them in line with constitutional requirements and international best practice, others will create new institutions to implement and manage aspects of our economic policies. One of our major achievements this year is the establishment of the a Export Credit Agency and the transfer of powers and responsibilities from the Credit Guarantee and Insurance Corporation. The transformation of the Board on Tariffs and Trade is proceeding according to plan and we have concluded negotiations in SACU on new institution to regulate trade within the Customs Union. That legislation has entered the Parliamentary process.

5. The DTI in Africa:
As the United Nations' 2001 World Investment Report indicated, foreign direct investment has been falling, particularly in Africa. While this is a concern, in the post-1994 South Africa, FDI has been heavily driven by privatisation transactions. 2000 did not have any significant privatisation related investments.

However, FDI has already picked up significantly in 2001. Trade and Investment South Africa, the DTI's trade and investment promotion agency, reported a commitment of investments worth R3.5 billion, over April to August 2001. A significant feature of this investment is that none are privatisation related.

6. Improved investment performance:

Furthermore, TISA has already exceeded its annual investment targets for the year April 2001 to March 2002. These investments have largely fallen into three major sectors, namely: automotives, chemicals and clothing and textiles. This is attributable to major investment interest in the automotive sector (encouraged by the MIDP), chemicals projects ranging from pharmaceuticals and cosmetics to industrial chemicals, as well as investments in apparel and agro-processing related to AGOA and the EU free trade agreement.

Automotives have been the major export sector (R9 billion), reflecting the successful restructuring that is taking place in this sector. Agro-processing (R4 billion) also showed strong performance, followed by machinery (R2 billion). Early indications are that apparel exports (R0.5 billion) were set to pick up over the course of the year as a result of South Africa beginning to access AGOA from March 2001.

7. The economic component of MAP:
One of the areas receiving great attention in the department since the beginning of this year is the economic component of the Millennium Africa Recovery Programme (MAP), which was launched in July at the OAU Summit following its merger with the Omega Programme.

The DTI played a significant role in developing the economic component of this programme and integrated this vision into South Africa's global economic strategy, which is grounded in a vision of industrialisation for Southern Africa and the continent.

Southern Africa is of considerable importance to South Africa's macro-economy. While South Africa's growing trade surplus with SADC contributes to offsetting trade deficits with other regions, exports to SADC include a significant proportion of value-added manufactured goods. Increased trade and investment flows between countries at different levels of development can generate rapid regional growth, which can strengthen industrialisation processes in a manner that makes the region internationally competitive.

The structural trade imbalance between South Africa and its SADC partners is economically unsustainable over the longer term. We have to restructure regional arrangements by pursuing policies that promote industrialisation in SADC. This means encouraging regional imports and promoting outward investment to the region.

The DTI is spearheading a process where integrated manufacturing platforms are the basis for a regional industrial strategy. This entails using Southern Africa as an integral part of supply chains for globally competitive manufacturing processes. Through a combination of sectoral co-operation, policy co-ordination and trade integration, our regional policy aims to achieve a dynamic regional economy capable of effectively competing in the global economy. The Mozambique South Africa gas pipeline and the integration of South African small businesses into the Mozal project are a clear example of this.

South Africa can contribute considerably to African development in the areas of mineral and agricultural beneficiation and processing, in the rehabilitation of infrastructure, telecommunications and in the provision of technical and engineering expertise. We have already scoped and implemented successful projects in the power, water, transport, telecoms, minerals beneficiation, and other sectors. Furthermore, at the institutional level, project teams and business forums have been created to bring together multi-disciplinary teams to support these projects.

A range of institutions have been involved in this, including, the Development Bank of South Africa and in particular the Industrial Development Corporation. Currently legislation is in Parliament to broaden the mandate of the IDC to collaborate with other African institutions and to participate directly in investment projects on the continent. Other institutions involved in this process are parastatals like Telkom, Eskom, Transnet, and science councils like the Council for Geoscience, CSIR, ARC, Mintek, SABS, etc.

We are achieving this by implementing the Trade Protocol to provide rapid and significant market access to regional exports, while giving due attention to sensitive regional sectors through specific protocols; linking regional trade development and industrial restructuring to reflect current and dynamic comparative advantages across the region; promoting co-ordinated infrastructure and resource-based industrial development through the Spatial Development Initiatives (SDIs); encouraging South African firms to invest regionally through a further relaxation of foreign exchange controls on capital destined for the region; promoting regional trade facilitation, strengthening custom control and administration; and eliminating non-tariff barriers.

Beyond SACU and SADC, we are engaged in a range of interactions on the African continent. In Africa, inter-governmental relations are critical in addressing developmental objectives. While some of the interactions on the continent involve export promotion, most require outward investment promotion and project formulation. This approach has led in the last two years to a distinct shift in the value added content of South Africa' export basket to the continent. The increased focus on capital goods exports has had a profoundly developmental effect on the recipient countries. This is clearly illustrated by the growth rates in Mozambique.

Africa's developmental challenges are well known. They include weak social and class formations, weak political and state institutions, poor human and physical infrastructure, and underdeveloped and distorted economic structures. The economies are characterised by undiversified production structures, excessive dependence on a few primary commodities for export, declining terms of trade, declining flows of official developmental assistance financial flows, low and stagnant FDI flows, and crippling debt.

These conditions pose serious challenges for South Africa. South Africa's destiny is inextricably intertwined with that of Africa and the success or failure of our own development objectives will ultimately depend on how the continent fares.

Economic growth on the continent will provide markets for our products, and provide the impetus for creating the integrated manufacturing economy that we seek to build in South Africa. Moreover, while our success could be central to the future economic growth and development of the continent, the converse is also true. Economic deterioration in Africa is likely to complicate our development objectives by limiting the possibilities to expand our markets on the continent and through processes of 'negative' interdependence (security threats).

The DTI has led the drive to promote trade and investment links with strategic African countries across the continent. South Africa has numerous bilateral trade agreements with the nations on the continent and DTI has led various trade missions to Africa to introduce South African businesses to opportunities in the region and the Continent. Already trade between South Africa and Mauritius has doubled in the past year.

* As early as last month, TISA hosted an investment seminar for the Democratic Republic of Congo as part of President Joseph Kabila's first state visit to South Africa.

* South Africa has a Bi-national Commission with Nigeria. The Trade, Industry and Finance Sub-committee of the Nigeria/South Africa Bi-national Commission met in Abuja, Nigeria in March this year to foster closer collaboration between the two countries and develop strategies to boost trade and investment flows between South African and Nigeria. Nigeria is South Africa's 5th largest trading partner on the continent and plans are well advanced to develop a free trade agreement between South African and Nigeria.

* Subsequent to the inaugural session of the South Africa-Rwanda Joint Ministerial Commission of Co-operation in Pretoria in June this year, DTI led a 22-member technical team to Rwanda in August to further consider and discuss areas of co-operation.

* To promote greater trade and investment between South African and the United Republic of Tanzania, South Africa signed a Memorandum of Understanding between our country and Tanzanian. Tanzania, as the coordinating country for the SADC Ministers of Trade is a very important partner for South Africa. South Africa, through DTI, is very active in this committee in SADC.

* Trade and Investment South Africa is planning five additional trade missions into Malta, Tanzania, Zambia, Uganda, and the DRC this calendar year.

Conclusion
As South Africa also possesses considerable economic advantages as the most-developed economy on the continent, these challenges can be turned into opportunities if our strategy is well defined and effectively implemented. The instruments that are required need to be multi-faceted, encompassing outward investment in infrastructure and production activities, market access agreements, and development finance. Given the range of challenges and instruments, the approach to promoting development on the continent will need to be constructed on the basis of well-defined projects.

A central consideration in elaborating the strategy is that each of the instruments or areas of engagement requires strong government-to-government interactions at the bilateral level. For South Africa, the success of the strategy will also require a co-ordinated approach across government departments, parastatals and the private sector in delivering the projects. The DTI, through ITEDD, will have to lead this co-ordination effort.

As has been proved through our work on a number of issues affecting our countries, our regions and the continent, Nigeria, Algeria, and Egypt are critical countries with whom we will need to collaborate closely in pursuing our African agenda. Closer to home, South Africa is deepening and strengthening its bilateral relations with Zimbabwe, Tanzania, Kenya, Uganda, Ghana, Mozambique, Cote d'Ivoire, Mauritius, and Angola.

These bilateral engagements are forming the basis for stronger collaboration in implementing the continental agenda, in line with the vision of the New Africa Initiative. Furthermore, we maintain a strong presence in Gaborone and Addis Ababa, the seats of SADC and the OAU respectively.

The department will continue to give greater emphasis to developing and promoting trade and investment between South Africa and the continent. This is a commitment made by our President which DTI is charged with delivering on.

Thus far, we have made great strides in this area. This can only augur well for MAP and needs to be continuously promoted and supported.