Tag Archive | Lionel October

Changes to Protection of Investment Bill

sent to clients 13 Oct…. updates yet to be posted ….

Unpopular Bill on its way to final vote….

After some marathon debates in the Portfolio Committee on Trade and Industry, Parliament put aside the newly named Protection of Investment Bill (previously the Promotion and Protection of Investment Bill) until after the recent winter recess for members to consider two important substitution clauses suggested by an Opposition member.

Whether the final Bill will meet international expectations still remains a query despite being finally hammered through. (report and details still with clients)

lionel octoberThe Trade and Industry Department (DTI) was represented throughout the two days of clause by clause debate by director-general, Lionel October; Mustaqeem De Gama: DTI Legal Director: International Trade and Investment (ITED) and Counsellor to the WTO; with Ms. Phumelele Ngema: Parliamentary Legal Advisor. This followed earlier hearings which included many submissions from business, industry and institutions such as the Institute of Race Relations.

Taking it seriously

Bearing in mind that a full back-up team from DTI was also present for the first clause-by-clause debate, including Ms. Xolelwa Mlumbi-Peter: DTI Acting Deputy Director General: ITED who promoted the Bill from DTI, it could said that DTI fielded their full team on the issue with a full bench of reserves and consequently had taken all submissions during the Bill’s hearings a week before in a serious light.

Main objections to the Bill had come in the areas in the definition of investment; fair and equitable treatment of both local and international investors on equal terms; the definitions of “property” in the case of expropriation and disputes, particularly the issue of arbitration and the locale and parties involved in such determinations.

Lack of clarity

Specifically complaints were received that Bill as tabled was unclear on the obligations of investors;

ack bdlive

ack bdlive

there appeared to be differences in standards of fair and equitable treatment for international investors; many disliked the omission of a favoured nation clauses; lack of reference in the Bill to exactly what was meant by expropriation; and the fact that DTI in the form of the Minister had express rights to regulate in the public interest and in dispute resolution remedies.

The fact that the Minister “may” allow cases to be referred to international arbitration was, by some, expressed as an objectionable approach to international business relations.

No movement on national bias

In the first meeting  to provide responses to submissions received, Lionel October assuring members that DTI had no intention to act in a manner that reduced investment flows into South Africa.    He said government had a duty to regulate in the public interest and needed the political space to do so. He insisted that any dispute resolution is to be limited at first to domestic remedies with the option, now, of state-to-state arbitration once domestic remedies had been exhausted.

Further, he said, DTI was amenable to deleting the part of the definition of ‘dispute’ that read “provided that a dispute will only arise once the parties agree, or as prescribed by law”. He explained that the proposal that the definition of “measure” could be changed to a definition reading “measure refers to binding governmental action directly affecting an investor or its investment, and includes laws, regulations, and administrative actions…etc.”

Cosmetic change to title

de GamaMustaqeem De Gama, in agreeing to the point that the title of the Bill should be changed to “The Protection of Investment Bill” in the light of the argument that there was little in the way of Promotion, said that he wished to assure all that the phrase regarding “use of available resources” in the clauses on security of investment as only referring to physical security and policing.

It was agreed that the state must provide this type of security on an investment. Wording would apply as such. It was also agreed that the word “dispute” would not be defined as such in the Bill allowing a court to fall back to the normal dictionary definition of the term.

Rights to establish investment

On the right of international enterprises to invest and the restrictive clauses in this respect referred to under Clause 6 as the “ Right of Establishment’”, De Gama said the clause does not seek to deal with or create a right of establishment up front but only sought to require that an investment be established in accordance with domestic laws. He claimed that any state had an inherent right to regulate who does and does not “establish” in their territory.

Opposition members said that wording as such was another investment barrier and Dean Mcpherson (DA) pointed to the Regulation of Land Holdings Bill where it is proposed that no foreign person may own agricultural land.  He felt that South Africa should not be limiting investment but rather welcoming all investment of whatever kind in order to grow the economy. He was wary of specifying who can and cannot invest in South Africa, particularly in the light of other Bills now being processed by Parliament.

State to hold rights on access

DTI responded with the view that “no investors have ever been so bold as to attempt to exempt themselves from following domestic law”. De Gama continued that international law gives any state the right to regulate the access of foreigners to their land. “If the investment negatively impacts the economy, the state should have a right to take action to mitigate these negative effects through various policy spaces”, de Gama concluded.

If expropriation is ever necessary in an extreme case, the Constitution requires just compensation be paid and that was clearly stated in the Constitution, DTI pointed out. Opposition members complained that the exact definition of expropriation per se “in terms of the laws of the country” was still being debated in another Bill, the Expropriation Bill, currently before the Portfolio Committee on Public Works.

Double talk

The chairperson, Joanna Fubbs, refused to allow debate on the subject to continue on the basis that joan fubbs“this definition was the responsibility of another department”. DA member, Geordan Hill Davies, complained that Committee was “just side stepping the issue insofar as The Protection of Investment Bill was concerned” and the apparent avoidance in “debating this issue in this forum just added to the uncertainty of South Africa’s intentions”.

Fair and equitable treatment

Also under the microscope was the issue raised during a submission from American Chamber of Commerce in SA and others during hearings that any form of iron clad promise of fair and equitable treatment of investments by foreign companies was not evident in the Bill. In this regard, Lionel October argued that this could not possibly be the case as South Africa needed investment and the Bill was designed to protect such.

However, the phrase “subject to national legislation” could not be deleted as a matter of state policy and the expression at the outset of the Bill of “in like circumstances” also had to stay in view that “national treatment” was necessary to avoid ambiguity, as previously stated.

Like circumstances issue

Lionel October argued that the SA government would be applying “national treatment” in line with WTO practice. The DTI had never discriminated based on place of origin, he said. The only reason for the ‘like circumstances’ clause in the Bill before them was because, for example, “minor abuses of black empowerment policies”, such policies and others being specific to South Africa, he said.

He said a dispensation had been granted on the issue that international arbitration was only to be allowed at the Minister’s discretion after all domestic legal avenues had been exhausted and to allow state-to-state arbitration to take place. Opposition members argued that in some cases in the world of modern investment this was both an impractical and unenforceable suggestion.

No “certainty”

geordin hill-lewisGeordin Hill-Lewis said this whole section was the crux of the Bill’s weakness in encouraging investment. He felt that the essence was that foreign investors wanted be treated in like manner to domestic investors and the wording of the Bill still implied, or gave the impression, that SA would treat foreign investors less favourably.  In addition, SA could legislate in the future to the further disadvantage of foreign investors. “There was no certainty in the wording at present”, he said.

New clauses

Geordin Hill-Lewis produced two amending clauses, one on “Standards of Treatment” (to be inserted after Clause 7 to become Clause 8) and a further on “Legal Protection of Investments” (to replace Clause 9 which would become Clause 10 because of the above addition). These had been prepared overnight by the DA’s legal advisors.

DTI and all members were asked to study these two clauses during the two week recess when the Bill would be finally concluded. The Chairperson noted that this issue was not closed. DTI confirmed that they would study the recommended changes. In addition, seven issues within the Bill were carried over for further discussion before the Bill could be recommended to go forward until after the recess.

The hearings conducted before the debate included submissions from Anglo-American, SA Institute of Race Relations, Banking Association of SA, The Mandela Institute of Wits University, NUMSA, the EU-SA Chamber of Commerce and the American Chamber of Commerce in SA. All expressed disquiet to varying degrees on the Bill as originally proposed.

(further articles to be posted in due course leading to final committee vote)

Other articles in this category or as background

Promotion and Protection of Investment Bill re-tabled

Promotion and Protection of Investment Bill opens up major row – ParlyReportSA

Expropriation Bill phrases could be re-drafted – ParlyReportSA

Land Holdings Bill joins state acquisition trend – ParlyReportSA

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AGOA : Parliament this week 3 Nov 2015

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Editorial…….

AGOA : What and who to believe….

Reported to clients 5 November……On June 10 2015, a meeting took place in Parliament between the Department of Trade and Industry (DTI) and the Portfolio Committee on Trade and Industry, chaired by Ms. Joanna Fubbs, during which DTI was reporting back on its progress with B-BBEE.

The meeting was interrupted by the appearance of Faizel Ismail, the special SA Trade Ambassador to thefaisel ismail AGOA talks, who dramatically made an announcement with the Chair’s agreement despite nothing on the agenda, to all members of the Committee. To sum up the statement he said that the negotiations on the AGOA trade agreement could be considered a success. There was considerable joy amongst MPs generally.

Then on September 8, Lionel October, Director General of the Department of Trade and Industry (DTI), surely “Mr. Big” when it comes to knowledge of trade relationships and policy with other countries, made the following rather obtuse statement to the PC on Trade and Industry when asked for the current position with regard to the AGOA.

He answered, “As for SA’s US relationship, no one relationship would save SA. The US has decided to re-industrialise with an emphasis on energy development in Africa after a previous emphasis on the service industry. The AGOA had been reviewed, and meat trade issues needed to be resolved but in general the AGOA had grown in its relationships.”

What this was supposed to mean was difficult to interpret. But then discussions were on-going at the time between SA representatives and the US congress over poultry, meat and pork issues and relationships were admittedly difficult. Dumping by the US was the accusation. Lack of certification of SA exports was the reply. Most were downcast.

The context

The occasion for DG October’s remark was DTI’s presentation of its annual report to Parliament, with Minister Rob Davies present, and it was in answer to an Opposition member on the subject. It was apparent to all at the time that the AGOA had not been mentioned as one of the “achievements” of DTI for the year 2014/5 and the first quarter of the present year. That’s as close as Parliament can get to being up-to-date.

Then newspapers announced that South Africa’s inclusion had been agreed to by Congress and the AGOA Bill had been sent to President Obama for signature. The poultry and meat issue had been resolved apparently.

lionel october 3Everybody relaxed and Lionel October told Parliament in a further PC Trade and Industry meeting, this time on the Protection of Investment Bill, that indeed the Bill had indeed gone for signature and all was done and dusted.

Reverse gear

The we heard from the media, not DTI, that everything is held up again after DTI had admitted under pressure that they had failed to meet a poultry declaration deadline under the AGOA. A war of words started on whose fault that was, DTI claiming that the fault was mutual between the US and South Africa.

In the meanwhile we had put the AGOA behind us, the focus having shifted in the meanwhile to watching the Portfolio Committees of Police and awaiting the return of Private Security Industry Bill, President Zuma staying “mum” on the subject and the Cabinet saying nothing in their regular statements from GCIS.

Clearly the preamble to the AGOA agreement had fallen foul with the US Constitution finding this particular Bill objectionable in terms of international obligations on expropriation, presumably connecting AGOA to US investments in the security sector industry where US owned interests stood to lose control of their investments in South Africa. This time it was the US media reporting, not the negotiating parties.

Just recently, Ms. Joanna Fubbs, chairperson of the Trade and Industry Committee, refused Oppositionjoan fubbs members the right to discuss the issue of the Private Security Industry Bill in her Committee, stating that the subject matter was the domain of another Committee. The subject at the time was the Protection of Investment Bill, now passed at committee level, and whether this Bill would contribute further to poor US relationships, as was apparent with the Security Industry Bill already.

 Passing the cushion

But that was not the full truth. The PC Committee on Police, as far as we can establish, has never discussed in depth the implications of the Private Security Industry Bill as far as the AGOA is concerned. Meanwhile President Zuma, who had the Bill and still has, must be perfectly aware of the implications as must the whole Cabinet, since it is not just the poultry industry that is affected but the security industry, the automotive industry and a whole lot more.

This is especially in the light of the fact that, according to reports, this Bill has been mentioned in Congress in front of the SA Ambassador called to Congress to answer on the subject. Nobody knows therefore, if Parliament will again verbalise on the Bill because nobody will come clean on why the Private Security Industry Bill is stuck where it is in the Presidential office.

 AGOA vs Security Bill

Is AGOA on the altar of ideology, one must ask therefore.

courtesy iol

courtesy iol

During a very recent briefing to the PC on Trade and Industry on AGOA progress, Minister Davies told parliamentarians that everything “was in the hands of veterinarians, both on the US side and in South Africa, both parties taking the issues of animal disease and sickness very seriously“. He continued, “It has been more than we dare do in DTI to interfere or intervene in this process. It is supposed to be an independent process. Avian ‘flu in the US is a repeating disease but, however, all is now resolved from an SA perspective.”

The Minister added, “Furthermore on our side we, the Department of Agriculture and Fisheries and their veterinarians have written to the US side to say we are ready to implement all conditions so President Obama can sign. All the deals are done in both the US and SA industries and we just await the US response”, he concluded with Faizel Ismail present.

Dave MacPherson (DA) pointed to the fact that the whole of AGOA would be torpedoed anyway if the Private Security Industry Bill were to go through. Minister Davies responded that the Private Security had not come up once in the AGOA talks with the US. “Too much of this has been a media debate”, he said.

Under pressure

Consequently Minister Davies is fully aware the situation but dealing with the issues as if they were not connected, which could be considered slightly disingenuous. It is known that Minister Davies very much wants the AGOA deal signed but Oppositions members conclude, when asked, that they also cannot think of a single reason for pushing through the Private Security Industry Bill if it is at the expense of the AGOA and growth.

Unless it can be put down to disharmony within the Cabinet or intransigence on the part of the Minister of Police, they say.

As for the future of the AGOA then, for the moment don’t hold your breath but rather cross your fingers that Cabinet as a whole will come out of its ideological bubble, if this is the case.

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25.1% is maximum BEE control, says DTI

DTI upbeat on implementation of BEE codes…..

lionel october 3

In a report to Parliament on the amended BEE Codes of Practice and their implementation as from 1 May 2015, Lionel October, Director General of Department of Trade and Industry (DTI) and his B-BBEE staff team, emphasised that the generic scorecard was aligned to government’s key priorities. He also said the State had no ambitions to take their target on black control beyond 25.1% of ownership.

Supplier Development is new title

DG October said the main emphasis of the codes had now switched to greater emphasis on what was previously termed procurement – now referred to as “supplier development”. This approach was more in alignment with the National Development Plan (NDP) objectives, DG October said, simply because that was the main direction needed to empower the development of black enterprises and build the economy on a stable growth path.

“In fact the German auto industry working with the German Chamber of Commerce had established a fund

BMW-Werk Südafrika

in South Africa”, he said, “for financing, training and building expertise in black businesses to supply the auto industry”.

There was considerable discussion on this by members and DG October said that there had been a general recognition in business and industry of the word “must” had replaced “may” in terms of B-BBEE requirements; that level four had to be reached for incentives and in general now “certainty” had been restored to the business environment on BEE issues, he felt.

Five “Elements”

The generic scorecard now had five elements, he said, which all companies, except those micro-exempted, had to comply with for recognition. All employment equity and management control had now been merged into one of those elements, now termed “management control”.    Sector codes were now to be aligned by 1 Nov. 2015, as set out in Code 003.

He said that “in response to public submissions” the import exclusion principle would be maintained and that the definition of an “empowering supplier” in the context of code alignment was a compliant entity which could demonstrate that its production and/or value adding activities were taking place in this country.”

DTI said that that “deviations of sector codes in terms of targets must be over and above those of generic codes and companies that derive more than 50% of revenue from sectors where there is already a sector code must be measured in terms of that sector code.”

DTI has no doubtful intentions

George Washington, having cut down the cherry tree, with his fatherIn general, DG October said in response to questions from MPs about the amendments, it had been his impression that business seemed to accept there were no political mala fides on the part of DTI; just a wish to get on with the planned NDP growth path which required the co-operation of business and industry on black empowerment.

The funding of Sector Charter Councils was a “joint responsibility between government and the private sector and entities must report annually on their B-BBEE status to sector council who will in return reports to the BEE Commission”, DTI said.

New sectors in the sights

Sector codes were being considered for the tourism, which had reached the stage of gazetting for public comment; “alignment” was being reached in the construction, integrated transport, ICT, financial services and chartered accountancy sectors; the property and forestry sectors had reached gazetting stages and marketing, advertising and communication were with their appropriate ministries for approval.

DG October mentioned the fact that the manufacturing industry stood alone as there were so many different sectors but over a period, aspects would be dealt with such as the film industry and textile and clothing industry.

DTI concluded their input to the meeting by advising that a technical assistance guide to B-BBEE was in process and DTI were in the process of finalising the B-BBEE verification manual.

Recent faux pas

rob davies2Opposition members asked how it was that DTI went so wrong with the question of  downgrading the pointing system for employment schemes and why it was that the Minister of Trade and Industry, Dr Rob Davies, had to retract that portion of the amendments which were not gazetted for public comment.

Chairperson Joan Fubbs intervened at this point, noting the Minister had taken the blame, had apologised for the mistake and could do no more than admit that DTI had been wrong.

DG October added that at a DTI workshop on the subject with “some stakeholders” this direction had been considered as a good option for broader rather than narrow empowerment but it had now been recognised by DTI that “they had gone down the wrong route as far as investor confidence was concerned”.

DTI had now reversed everything with the promise that this would not occur on the agenda again.

Better ideas could come

It had also been realised that such a move could also destroy imaginative plans for black management control such as that pitched by Standard Bank where 40% shareholding went to staff who could have representation on the board; 40% went to recognised BEE shareholders and 20% went into community organisations and trusts.

In answer to direct questioning by MPs, DG October confirmed that by the term “black”, DTI translatedlionel october this as African, Coloured, Indian and Chinese. He also confirmed that all these groups, if foreign and not South African citizens, were excluded.

More than 25.1% “unrealistic”

DG October, when asked by ANC MPs whether the 25.1% target for black ownership was realistic and fair considering that the demographics in South Africa demonstrated a far larger proportion of black people, he said that 25.1% could be considered as a “basic critical mass to engender a solid forward movement”.  To go any further would be unrealistic, he added.

In Malaysia, he said, local ownership was considered fair at 30% and other African countries as high as 50%, but he felt that in South Africa, where the need for the transfer of skills and training from large to small companies, especially through supplier development by state utilities and large businesses, was essential, this was a fair percentage assumption and which called for co-operation and fairness between all parties, all bearing in mind “a pretty hideous past”.

Redress of the past in all preambles

joan fubbsAt this point, Chairperson Joan Fubbs referred to the South African Constitution, reading out the clauses which not only stated that all were equal despite race colour or creed but that discrimination was possible if it was fair and she reminded MPs that redress of the past was “fair”.

She asked for all “not to isolate clauses in the Codes to determine personalised interests but get on with job of re-aligning communities that had been excluded from ownership for over 300 years”.

One ANC MP asked that the focus on big businesses be less emphasised and that DTI rather spent considerably more time with the job of developing ownership of black small business, which he stated could be “the power house of South Africa”.

He called for legislation that enforced government and public utilities, “as custodians of state power” to set an example on supplier development since, he said, one could hardly expect the private sector to follow suit, if the SOEs did not lead the way on this issue.

Incentives needed, not law says DTI

DG October said such sort of things were “impractical in the real world” and said the main challenge was a phased process of change which now had the support of many in positions of power in business. He also emphasised that B-BBEE had to tie in business and industry with incentives rather than with the law.

When asked about his recent public statement that he had set DTI’s target to produce “100 black industrialists”, he was referring rather to 100 black industrial leaders “financed and supported by DTI initiatives”.

Other articles in this category or as background
BEE comes under media scrutiny – ParlyReportSA
Rumblings in labour circles on BEE – ParlyReport
B-BBEE Codes of Good Practice far more onerous – ParlyReportSA
One year to implement B-BBEE Codes – ParlyReportSA

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DTI does flip flop on BEE codes

B-BBEE codes changed on “management control”…

Rob+DaviesA  lack of understanding of the effect of B-BBEE Codes on business and the industrial environment, despite a workshop on the subject, was demonstrated when the department of trade and industry (DTI) amended its own amendment in a matter of days on the point scoring issue in terms of broad- based employment share ownership schemes.

More emphasis has been placed in the Codes generally on procurement from black business, now referred to as “supplier development”.

As you were…

However, the minister of trade and industry, Dr Rob Davies, confirmed in a statement that the second amendment corrected the changes as far as employment schemes were concerned and any such changes would not be retrospective on deals already done, such earlier deals continuing to reap the same benefits under B-BBEE Code pointing as before.

Control is everything

Minister Davies said that DTI still had a think tank operating on how further to make BEE in generalplan BEE more effective insofar as pressure on business was concerned to effectively ensure that management, control and ownership by black persons was increased.  His task team appointed would report back by the end of the month. He repeated this in his budget vote speech.

DTI completely avoided established government procedure by issuing an “explanatory notice” to a gazetted publication on B-BBEE procedures by announcing a completely new aspect on the rules on B-BBEE award-pointing, in this case termed as “amending guidelines”, thus avoiding the issue of public comment.

Most worrying was the fact that minister Rob Davies failed to make any reference to this in his earlier introduction to DTI’s strategic plan to Parliament a week before, subsequently presented to the portfolio committee on trade and industry by DG Lionel October and then to the select committee on economic affairs in the NCOP.

Forgot the union movement

Just as as business leaders were, so was the trade union movement, many of whose members are part of share employment schemes, options or not, and are therefore touched on the issue of reduced profit and dividends.

As far as not mentioning this in a budget vote speech, which was an excellent opportunity to inform business, there is fine line, say opposition members, between failure to disclose to Parliament and avoiding a contentious disclosure to Parliament that that might compromise a negotiation but in this particular case of changes to B-BBEE, the matter  appears to have only involved some members of cabinet and certainly none of the large spectrum of stakeholders involved. It all came as a big surprise.

The minister has published two further notices on the amended B-BBEE Codes regarding the second phase now implemented. The Chamber of Mines was yet another body caught by complete surprise, thinking that their relationships, in this case the minister of mineral resources, were far better than they actually now seem to be. There seemed to be a vacuum in communications.

DTI has now reported to Parliament on subject

To the rescue...

To the rescue…

DTI, in the form of DG Lionel October, has since reported to Parliament on the subject of the amended B-BBEE Codes of Good Practice and explained that Minister Davies had admitted that DTI had taken the wrong route with all good intention “to take a narrower view on black management control” but now had apologised for the descision, now reversed, on this aspect of the pointing system. All is reversed, retrospectively as well.

A full report is with our clients with further comments by DTI on the Codes and their application as revised “after the event”.     This analysis of DTI’s presentation will be archived to this website in the course of time.

In the meanwhile, we note that there is useful extra-parliamentary political comment on http://www.polity.org.za/article/da-geordin-hill-lewis-calls-for-debate-in-parliament-over-elitist-bee-codes-2015-05-08

Other articles in this category or as background on this website
http://parlyreportsa.co.za/bee/dti-earns-ire-parliament-bee/
http://parlyreportsa.co.za/bee/liquid-fuels-industry-short-transformation/
http://parlyreportsa.co.za/bee/one-year-implement-b-bbee-codes/
http://parlyreportsa.co.za/bee/b-bbee-codes-of-good-practice-far-onerous/

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DTI Manufacturing Competitiveness Programme scrutinised

 pics ack bdlive

Plan not easy to work, says October…..

lionel octoberLionel October, acting DG, department of trade and industry (DTI) admitted to Parliament the Manufacturing Competitiveness Enhancement Programme (MCEP) had been a difficult programme to run.   Over eight hundred applications with a grant value of R5.1bn had been agreed upon but only R1.5bn disbursed.

However by  2018, he said, DTI would have allocated all R7.4 billion and the amount granted One of the major problems faced, October said, was brought about by the confusion in the minds of many on the nature of the MCEP.  A good number of applicants had tried to apply as if their applications were for a social grant, which was certainly not the case.

MCEP was a short term stimulating package designed for already successful manufacturing companies to assist them during current global and difficult times. Addressing Joan Fubbs of the trade and industry portfolio committee, DG October told parliamentarians that national treasury had been approached for funds in 2012 to revive the manufacturing sector for a period of six years.    R7.4bn in the end was provided.

One year later, trade and industry minister Dr Rob Davies reported that R3bn MCEP approvals had beenRob_Davies made, which would support industrial investments by 436 applicants  and this would a sustain more than 116 000 manufacturing jobs.

The MCEP was conceptualised as a result of the one-million jobs shed during the 2009 recession, he said, and which had badly hurt the nation’s finances. Minister Davies described at the time how the MCEP incentive programme was a critical element of DTI’s Industrial Policy Action Plan (IPAP) designed to stem the sudden loss of the manufacturing sector’s contribution to GDP.

The MCEP was not designed to assist new companies but support existing ones with the potential either of recovering from an earlier troubling status or developing new markets, Davies insisted.

susan mangole Ms Susan Mangole, COO at DTI,  explained to parliamentarians at the recent meeting that the department maintained a “pay-out system” where, after initial approval, the incentive money was only paid once the agreed plan was up and running and jobs had been retained. There was accordingly a time lag between approving a grant and receiving the funds in reward. The time lag could be up two years before fruition of the project was apparent.

The programme, she told parliamentarians was now two and a half years old and, after a slow start, the applications “became a flood”.  Currently, DTI had already committed well over half of the total package. DTI focused on two components with MCEP, Ms Mangole said.   Firstly, through production incentives as described and then with industrial financing loan facilities through Industrial Development Corporation, who had been given R1bn from the fund by DTI.

Any company could only qualify if it had level 4 B-BBEE status or could achieve the status within twomanufacturing years. Lionel October concluded that DTI had been instructed (presumably by treasury) that by the end 2016 it should entertain no more applications and only deal with those already filed.   By 2018, he said, DTI would have allocated all R7.4 billion and the amount granted had now been rationalised to a maximum of R30m, although it had started at R50m.

Some DA opposition members complained that it was absurd to exclude companies because of their current B-BBEE status when the idea was to create more jobs.   DG October stated that this was a “must” in applying, since it was a fact that all companies had to comply with BEE and labour laws. But, he said, most larger companies did in fact comply and the focus of DTI remained revitalising such sectors as agro-processing sector, where most imports of machinery occurred.

“So the problem is not on the supply side but on the demand side”, he said and added that the agro-processing industry in South Africa was experiencing a massive turnaround with exports probably reach double digits of a percentage towards GDP.

He commented, “Then this industry could then pay its workers decent wages.”

The DA complained about poor communication between DTI and applicants saying that a year couldparliamentary committee elapse without even hearing an acknowledgment of an application. There was, the member said, without any doubt an enormous backlog of applications and delays in correspondence on those that were in process.

He complained that DTI was very inefficient in its customer/client care relationships. G Hill-Lewis (DA) agreed and said that it was nearly impossible to “get anybody on the ‘phone at DTI, let alone the person dealing with MCEP issues”.

Ms Mangole confirmed that DTI was working towards improving its response system but that DTI had informed its clients and stakeholders that there would be delays because the system was under strain and that it would be difficult to honour the claims within reasonable times. In subsequent presentations DTI showed a shortage of 271 posts of qualified persons.

lionel october 3On the subject of which industries were getting the most grants, Lionel October said those businesses, such as in the automotive and textile industries that had access to other schemes, were excluded by default. He thought now that the DTI might move to strategic sectors but in any case, in the final play out, it was the manufacturers who succeeded with good proposals who would determine where the market for incentives was.

He stressed that the programme was aimed at retaining and sustaining jobs but not creating jobs. He admitted that as DTI did not make labour law, compliance in this respect was of low priority in considering factors for approval of an application.

Acting DG Lionel October agreed to some extent with opposition members that the issue of complying with labour laws was indeed a matter for labour inspectors. Meanwhile, he said the main focus was on revitalising the companies involved.

Other articles in this category or as background

DTI earns ire of Parliament on BEE – ParlyReportSA

DTI gives warning on investment climate – ParlyReport

SA Manufacturing Competitiveness Enhancement cash grants from DTI

DTI claims new SEZ investment incentives are better

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Auto sector leads investment, saysDTI

Benz and GM lead in auto sector…

lionel octoberIn presenting its annual budget report to the trade and industry portfolio committee, director general Lionel October of the department of trade and industry (DTI) listed one of the past year’s highlights as the investment of R16bn that had been attracted into the auto sector in South Africa.

Mercedes-Benz SA, he said, had raised its total investment in SA to more than R5bn by increasing in its local output to 100 000 units a year, creating 800 new jobs in the process. Furthermore, it busy starting production of its new C-Class which would go from 250 units to 420 units a day.  In the same sector, he said, General Motors SA, together with component manufacturer Tenneco SA, was now about to export catalytic converters to the value of R6bn.

Volvo and MAN join in

On the subject of transport generally and important to include because of localised content factors, he said, was the contract in concluded in the year under review with Volvo SA to provide 40 new buses for MyCiti bus routes in the City of Cape Town for is commuter network; with Mercedes-Benz SA for 134 buses for the next phase of Johannesburg’s Rea Vaya system and with MAN for 80 new buses for the Limpopo area.

Of note, October said, was the fact that the energy sector had seen progress with the start of the independent power producer (IPP) programme.  Significant progress had been made with a number of smaller IPP projects already.

Movies and milling

In a vastly different sector, parliamentarians were surprised to hear that the movie Long Walk to Freedom, costing R239m to make in SA, had been premiered and had grossed more than R23m already locally.

In agro-processing, DTI in collaboration with German milling plant manufacturers Bühler,  launched an innovative semi-portable maize milling plant known as Isigayo, as a pilot for entrepreneurial maize milling development.

Settling down

October claimed that in the clothing industry, which had experienced such bad times, the DTI clothing and textile competitiveness programme had “stabilised” the clothing sector.

Over forty applications involving R645m had been received with R77.7m already disbursed.   Under DTI’s production incentive programme in the clothing industry, nearly 800 approvals had been granted to the value of R2.2bn.  DTI estimated that in that sector so far 63,311 jobs had been saved and 8,459 created.

Of note during the year, DTI said it had designated Saldanha Bay as an IDZ with pre-feasibility studies completed for Tubatse in Limpopo and Upington in the Northern Cape.  Another four IDZs in outlying areas were being planned whilst an application for designation had been submitted to the Manufacturing Development Board in respect of Dube Trade Port on the East Coast.

Industrial focus areas

Of importance, October said, was the passing by Parliament in the last year of the Special Economic Zones Bill which will “take the IDZ principle into new territory enabling the creation of new industrial hubs to bring previously marginalised regions into the mainstream economy.”

On the domestic economy, Lionel October spent some considerable time reviewing the year in detail, most of which has been well covered in the media.  He noted that real GDP grew by an annualised quarter-on-quarter rate of 0.6% in the second quarter and the little growth had been led by government services, finance, real estate, business services, transport, storage and communication services.

The Marikana effect

Overall, the manufacturing sector had contracted by slightly more than 2 % in the second quarter of 2014 due to low production in autos, chemical products, rubber and plastics, glass and non-metallic mineral products, he said, but in an overall sense the contraction was mainly due to the prolonged strike in the platinum sector.

On the subject of legislation, October noted that the Lotteries Amendment Act and the Intellectual Laws Property Amendment Act, involving the protection of traditional knowledge, had been assented to and were awaiting implementation.

The National Credit Amendment Bill had been adopted by Parliament, he said, and a draft policy frameworks on IP and gambling had been developed. A new Licensing of Businesses Bill had been drawn up and public consultations conducted on the Liquor Act, with a new draft policy adopted.

Getting all in line

On trade matters generally, DTI reported that during the year under review SADC services negotiations had been undertaken, South Africa making initial offers on financial and communication services.  Steps were now to be taken, October said, “to encourage compliance by certain SADC members in terms of their commitments under the SADC trade protocol.”

Consensus had been reached in the year on the need for high level bilateral engagement within the Southern Africa Customs Union (SACU) towards more and better integration and SACU had now developed, with other countries, a number of partnerships and free trade agreements. Progress had been made to some extent with tariff negotiations, notably tariff offers to East Africa and Egypt.

Summing up he said the hosting of an Africa-India ministerial trade conference was underway and MOUs on economic cooperation had been tabled with Ghana, Benin and Nigeria. As far as Nigeria was concerned, a draft MOU specifically on automotive cooperation had been completed. Also commenced was the South Africa-Cuba agreement on economic assistance.

Lionel October noted with pleasure that DTI had been given the top ranking by business as the best performing national government department in SA.

Other articles in this category or as background
http://parlyreportsa.co.za/finance-economic/%EF%BB%BFdti-gives-warning-investment-climate/
http://parlyreportsa.co.za/uncategorized/dti-tables-two-bills-for-its-co-operative-strategy-for-sa/
http://parlyreportsa.co.za/finance-economic/minister-davies-continues-ipap-6/
http://parlyreportsa.co.za/cabinetpresidential/davies-presses-the-button-on-nuclear-development/

 

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Port charges and inefficiencies leaving SA behind

Transnet port charges far too high…..

portsharboursEscalating administered prices in SA’s manufacturing system including port charges that were amongst the highest in the world were amongst the subjects discussed during a colloquiun called by Parliament’s portfolio committee on trade and industry.

The meeting was called by Joan Fubbs, the PC trade and industry’s chair and in responding director general of department of trade and industry (DTI) Lionel October said these high costs pointed at Transnet were undoubtedly coupled with “significant logistical inefficiencies” to form a major reason for the country’s inability to compete in global export markets.  Transnet’s tariffs were far too high, he said and were contributing to high import costs in most sectors.

The good and the bad

He said there were some successes recorded recently, such as South Africa being high on the list of best places to invest in automobile assembly plants, but decreased demand from traditional trading partners, coupled with the fact that “container and automotive cargo owners faced price premiums of between 710% and 874% above the global norm. “Such facts were leaving South Africa as an uncompetitive nation”, he said.

During a rigorous and frank debate on the multiple shocks facing manufacturing in South Africa, which were stated as ranging from rising electricity prices to the costs involved as a result of unstable labour-relations, a gathering of Eskom officials, Transnet executives, South African Local Government (SALGA) representatives, the electricity regulator NERSA, and the department of trade and industry (DTI) gathered to debate the current picture facing the SA manufacturing sector under the chairmanship of Parliament’s trade and industry portfolio committee.

Electricity charges vary from one to another

In addition to existing other and well established problems in the electricity transmission and generation area, DTI’s deputy director Garth Strachan, weighed in saying that there were complete anomalies in tariffs charged either to members of the same sector of industry and to manufacturing plants existing next door to each other.

Strachan said DTI had examples where one manufacturer was facing certain price increases in electricity and another factory “right across the street” was paying a tariff more than double.

He said that whilst global recession might have played a part in the current negative situation mostly arising from “bunched up” administrative prices from state utilities, some thinking “outside of the box” was now called for if South African manufacturing was to gain any traction and contribute to growth in a meaningful manner, thus creating more jobs.

Next to New York comes SA

marineReturning to the high port cost issue, Strachan said that Cape Town, Port Elizabeth and Durban port terminals had the dubious honour of following Charleston, Baltimore and New York, as the top high-cost terminals worldwide, mainly as a result of excessive cargo dues charged.

Returning to electricity charges, he concluded by saying that one of the biggest problems facing South African consumers was the considerable publicity given to the NERSA announcement that Eskom had been restricted to an 8% hike, which had given the impression to consumers that “this was the end of the story”.

Yet manufacturers still had to face up to municipal mark-ups, he said, both in the case of urban and peri-urban situations, a matter which had not been discussed on a national basis nor any guidelines established.

Dry bulk goods to be target

On the matter of port charges, Transnet’s Mohammed Abdool said Transnet was applying to the ports regulator for a complete re-structuring of tariffs applying to containers, dry bulk goods and manufactured and beneficiated goods.

He said a complete “rethink” on the objective of encouraging the export of beneficiated goods had taken place, coupled with the principle that Transnet would move from becoming one of the lowest rental charging landlords in the world by re-aligning its land based rentals by upwards of 46%.

Abdool said the new suggestions would result in up to 43% reductions in total port revenues for containers, whilst dry bulk exporters would go from a current 18% contribution to about 33%. All this from April next year which was given as a possible starting date.

NERSA will control municipal incenses

Still on price hikes and specifically on electricity mark-ups, NERSA responded to DTI comments and confirmed that it was obligatory for Eskom not go above the 8% allowed but that agreed limits would be allowed for each municipality or local authority as per agreement made or being made. No deviations would be tolerated and the case brought forward by DTI of two adjacent manufactures with vastly differing electricity rates would be investigated.

Touching up the recent decision to fix the Eskom price at 8% increase, NERSA said that in their view it was not correct for South African consumers to pay for massive reserves and financial safety margins on Eskom’s balance sheet and that Eskom should be run like any other state utility in an atmosphere of total adherence to the principle that where costs are concerned the interests of the consumer must be borne in mind.

SALGA must be committed

Joan Fubbs, chair of the committee, then sought a verbal pronouncement by SALGA to all present into Parliament, both stakeholders and members, that no deviations from the NERSA allowances to be agreed as reasonable mark-ups by their members would be accommodated by SALGA.

SALGA spokesperson, Mthobeli Kholisa, in charge of infrastructure development,  said there was no other system in place in most local authorities to pay for such items as street lighting, pumping of water services or handling of waste facilities. However, such an undertaking was  given by him.

Eskom chips in

Eskom presentations added little that was new to the situation, other than spokesperson for Eskom, Hillary Joffe, said that Eskom was “reserving its comments” on the situation until it had re-studied the entire financial situation but asked for an inter-governmental task team to be set up to align municipal tariffs and called for a plan to ensure that municipalities had sufficient fiscal support to maintain infrastructure and essential social services in the long term.

DOE warns on China

On the rising costs of fuel prices, department of energy’s deputy director general, Tseliso Maqubela, said  that oil and gas exploration would play a large part in South Africa’s energy future but that the unseen and hidden player in South Africa’s structural and economic future remained the economic giant China.

With vast reserves of cheap coal, China had not yet entered the market, he said, and when this occurred it would amount to a “game changer” in every respect, affecting not just the energy scenario for South Africa.

April looks better

On prices generally, he said that things were looking better for April but that oil and gas prices were long-term issues in general and current factors at play would not affect the situation in the short term.

He said exploration would probably would remain, by and large, in the hands of private ventures for years to come. He said that the costs of exploring for oil using one rig could amount to US$1m to 3m for one day alone and “that kind of money does not come easily to a state utility”. Maquebela said that the country owed the present private owned refineries much as they stabilized the chemical industry and saved much in imports but warned that they also faced enormous recapitalization costs in the near future.

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Posted in Finance, economic, Mining, beneficiation, Public utilities, Trade & Industry, Transport0 Comments

Rumblings in labour circles on BEE

The B-BBEE Amendment Bill hearings…..

What is emerging during the current BEE hearings held by the trade and industry portfolio committee on proposed amendments to the Broad-Based Black Economic Empowerment (B-BBEE) Act is that there is a vast difference between how the department of trade and industry (DTI) want to manage black empowerment and what the department of labour (DOL) think of the way things are going under their steerage.

It appears the one is far more radical than the other, as was evidenced by the agreement of DTI’s director general, Lionel October, to take some of the more implausible definitions contained in the B-BBEE Act to his minister to re-visit as far as wording was concerned.

Reality perhaps

Probably, with DTI dealing with business and industry and investment issues on a continual basis they see some of the traps well ahead that are causing South Africa to drop on the investments listings globally and thus are more pragmatic or perhaps even phlegmatic when it comes to running BEE, their daily business.

It is a voluntary, non-racial issue, they maintain; it is up to the individual company wishing to secure business with government to verify their make up and enter the scoreboard game if they want government business, although government does set down its BEE ambitions in legislation.

Criminalisation

At the moment nobody goes to jail or pays heavy fines unless they cheat.   Each industry has been encouraged to have its own special charter to suit its own special circumstances.

But clearly, the Commission of Employment Equity (CEE) do not like sectoral charters, a fact backed by their partners on this issue, the Black Business Council, the latter having expressed this fact a number of times. Both want them scrapped or “trumped” by B-BBEE, more rigidly enforced.

Sectoral charters are voluntary

Whilst Manufacturing Circle, who make sensible input at most hearings, made the point that the very number of sectoral charters sometimes leads to confusion in large conglomerates whose activities stretch over many industrial activities, they were just calling for clarity on some issues.

However, the input of CEE to scrap the voluntary charters and rely totally on legislation to bring about the aims of black empowerment as perceived by them is worrisome.

BEE remains mostly outside the law

The whole point and acceptability of BEE in the past as a principle is that in the light of the country’s history, it is acceptable, and the whole point to date has been that black empowerment has not been legislated for in totality.

DTI have always empahsised this. The nearest the country has got to the criminalization issue is those who wish to defeat the principles of BEE by trickery and by “fronting”, which is deception in any terms, will be dealt with severely according to the law.

Otherwise the law as such is not over skin colour but has been kept mainly on the lines of past disadvantage and the unfairness of what 90% of the community had to put up with for years.

CEE get into the Act

So who are the Commission of Employment Equity or CEE?

It is a commission which was established in terms of section 59 (1) of the Basic Conditions of Employment Act (BCEA) with members on the whole appointed by the minister of labour whose task it is to advise the minister on any matters relating to sectoral determinations. They are part of DOL and carry the department’s logo on their website.

Basic Conditions of Employment

CEE deals with any matter concerning basic conditions of employment; any matter arising out of the application of the BCEA and generally the effect of government policies on labour matters and conditions of employment in the public service – a massive mandate but specifically within their ambit of labour issues.

It says that BEE for all business and industry should not be voluntary, which seems stepping well outside of their mandate. So what does the minister of labour say, who appoints the CEE members?

Posted in BEE, Labour, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

New B-BBEE Bill avoids circumvention of the law

lionel octoberB-BBEE legislation needs overhaul…

Director General Lionel October led the department of trade and industry’s (DTI) presentation on the new B-BBEE Amendment Bill  to the portfolio committee on trade and industry, stating that the anchor BEE legislation in place for some ten years badly needed a “proper mechanism to support the actual implementation of black empowerment and methods to deal with non-compliance and circumvention”.

He said the new changes resulted mainly from the work of the President’s Special Advisory Council charged with investigation into the areas where monitoring, evaluation and reporting were clearly ineffective, resulting in a need and to introduce penalties and criminalise those who purposely made false declarations.

Maximum penalty only set by Bill

The Bill, he said, set the maximum penalty but it was up to the courts to set penalties according to circumstances’.

The purposes of the new Bill was to give further effect to the aims and objects of black empowerment legislation, said October, and especially to improve monitoring and evaluation of SA business and industry on the subject; strengthen access to procurement opportunities for black business with focus on opportunities; and funding to improve the technical capacity of the verification industry.

NEDLAC, BUSA, Black Business Council and government departments had been consulted, including all departments in the economic and employment “cluster”, he said.

Most agree changes needed

October said that public hearings had also been conducted. On the whole, these  submissions in broad principle had supported the necessity for amending legislation with a certain number of changes being acknowledged as badly needed, mainly because of misunderstandings particularly in the area of verification and scoring and to clear up a number of unintended consequences of the original Act.

Nomande Mesatywa, chief director of B-BBEE at DTI, told parliamentarians that the objectives of the Bill were to line up other legislation impacting on B-BBEE and also to line up with the Codes of Good Practice.

The Bill established a B-BBEE Commission to monitor and evaluate black empowerment as practised; to deal with non-compliance issues and circumvention and give effect to government policy on the issue of black business empowerment.

Material amendments included a whole number of key definitions and re-definitions and matters regarding the establishment of the B-BBEE commission office.

MPs complain of racial bias

A number of MPs complained that definitions included that of black persons, defining them as black, coloured and Indian, which was simply re-introducing racially based legislation based on skin colour.

October said DG had no option but to follow procurement legislation where the scorecard used such determinations. He said that South Africa was not returning to such levels as had been practiced “in the bad years” but it was now the option or choice of business in terms of a scorecard system whether to do business with government or not.

He said that South Africa was not like Malaysia or Zimbabwe where only nationals of a certain skin colour or nationality could do business with government.

MPs still disagreed with DTI and said not only was the legislation racially based but it disenfranchised white persons from an opportunity that was their constitutional right.

Furthermore, there was a differential between national and foreign business where one’s nationality was prejudicial in dealing with government on tenders and this was bad for investors to see and contributed to the idea that South Africa was unfriendly to foreign investors.

Fronting the main problem

Again, DTI rejected such notions stated by opposition MPs, October defending the proposals in that the B-BBEE legislation before them was mainly aimed at those attempted to defeat the regulations on “fronting” and by supplying false information when submitting scorecard facts. It also remained purely an option for business whether it wished to comply or not with the scorecard system when applying for government business, which he confirmed amounted to some 45% of GDP.

He concluded that it was important for government to have a B-BBEE commissioner as a party to investigate, regulate and impose penalties on those who wished to defeat the purpose of the legislation and who wished to counter government policy on the necessity to empower middle class black development; black small business development and therefore improve the black contribution to GDP.

Posted in BEE, Earlier Stories, Finance, economic, Labour, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

DTI claims new SEZ investment incentives are better

In launching it’s new Special Economic Zone (SEZ) plan, the department of trade and industry (DTI) has admitted to Parliament that a lack of specific attractive incentives did not lure investors to the various IDZs in South Africa in the manner intended accompanied by somewhat “ad hoc” funding arrangements with national treasury.

There was also insufficient marketing and a lack of stakeholder co-ordination, DTI has said.

Lionel October, director general of DTI and his team were asked to present to Parliament on the readiness of the new Special Economic Zones (SEZs) which are planned to substitute as a new investment drive and how the existing IDZs would be incorporated into the new plan.

In retrospect, October explained to parliamentarians, DTI had found that it’s officials  had often been provided with insufficient or untimely oversight of individual strategic plans and operations of the IDZs themselves had found the regulatory framework provided by DTI for the operation of IDZs insufficient to guide long-term planning and coordinate plans in order to integrate into other national, provincial and regional strategies.

Between the years 2002 to 2012, the government of South Africa has expended a total of R7,6bn to the three functioning IDZs on the East coast, R5,4 billion(76%) of this coming from the DTI’s budget and R 1,7bn from the host provincial governments.

Meanwhile, over the eight years of its operation, the current plan has attracted a total of 44 investors who DTI claimed have invested some R12.3bn, creating they say some 38,000 direct and indirect jobs.

Lionel October told parliamentarians that DTI now planned a “one stop shop model for investors where bureaucratic red tape will be reduced”; that the IDZs would be incorporated and integrated with SEZs with the assistance of experts identifying weaknesses in the previous systems and that DTI was developing a marketing strategy for the integrated result.

Tumelo Chipfupa, DTI’s deputy director-general, told the parliamentary committee that DTI admits that the three IDZs (Coega, East London and Richards Bay) should have achieved better results and a lot more had been hoped for but the result of under-achievement had resulted mainly because “the funding model did not cater for the dynamics needed by investors and the fact that allocation of funds had been inconsistent and inflexible”.

Posted in Finance, economic, Land,Agriculture, Public utilities, Trade & Industry, Uncategorized0 Comments

No labour dispensation for SEZs, says DTI

In a media release, the director-general of the department of trade and industry (DTI), Lionel October said labour laws will not be relaxed in the new arrangements for accelerating industrial development through special economic zones.

He was addressing organised labour at the Special Economic Zones Bill public hearings held by the department in Pretoria, yesterday.

Whilst government needs the full support from organised labour and business for the proposed special economic zones to work effectively, he said, “It is not in our best interests to deregulate labour laws in order to attract foreign investors and therefore exploit our workers.”

The timing of the remark would appear that pressure has come from organised labour to say something to the working force as a result of the introduction by President Zuma of special economic zones (SEZs) and their introduction into Parliament by October and the DTI.

October also said in his media release that government needs a regulated labour market to remain competitive and raise living standards for workers.

He went on to say, “The model of special economic zones that the government is pursuing shifts away from competing on the basis of cheap labour to competing on the basis of the quality of services and support measures provided in the zones and their host regions.”

DTI concluded that the challenge as they see it is to develop a comprehensive package of support measures that will be adequate to “attract desired investments but also assist the country to master the desired industrial capabilities”.

Public hearings are shortly to take place members involving the public, organised labour and business the SEZ Bill and government’s policy in this regard. The stated purpose of the Bill being to “accelerate of industrial development and create jobs through the creation of new industrial hubs in under-developed areas and industrial decentralisation from traditional zones by building targeted areas.”

The Bill, gazetted by the minister of trade and industry Dr Rob Davies last month, will be tabled once public hearings conducted by the DTI have taken place

Posted in Finance, economic, Justice, constitutional, Labour, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry, Uncategorized0 Comments


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