1

IPAP2 Progress and Progression

2010/11 IPAP2 Nine Month Implementation and

2012/13 IPAP2 Overview

Portfolio Committee on Trade and IndustrySelect Committee on Trade and International Relations

22 March 20111

2

IPAP 2: Key pillar of the New Growth Path

Agriculture

Mining

Food Textiles

Wearing apparel

Leather & leather products

Wood & wood products

Motor vehicles, parts & accessories

Other manufacturing

Wholesale & retail trade Transport & storage

Financial services Government services

Paper & paper products

Basic chemicals

Basic iron & steel Basic non-ferrous metals

EGW Business services

Excl. medical, dental & vet

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

0 7 14

Employment multipliers

To

tal

Bac

kwar

d l

inka

ges

Low employment multipliers & strong backward linkages

Low employment multipliers & weak backward linkages

High employment multipliers & strong backward linkages

High employment multipliers & weak backward linkages

1. Other chemicals & man-made fibers 2. Furniture3. Plastic products4. TV, radio and comm equip5. Electrical machinery and apparatus6. Paper and paper products7. Rubber products8. Non-metallic minerals9. Beverages10. Glass & glass products11. Professional & scientific equip12. Metal products excl. machinery 13. Machinery & equipment14. Footwear

1

2 34

5

6

7

8 9111

1 13

14

IPAP: value-added sectors with high employment and growth multipliers

Source: CSID

2

33

IPAP2: Requires comprehensive and integrated action

1. Macro-economic policies which support more competitive and stable real exchange and interest rates

2. Industrial financing channelled to more labour-intensive and value-adding sectors

3. Leveraging procurement to raise domestic production and employment in a range of sectors

4. Developmental trade policies such as tariffs and standards deployed in a selective and strategic manner

5. Competition and regulation policies: competitive input costs for productive investments and affordable goods and services for poor and working-class households

6. Skills, technology and innovation policies better aligned to sectoral priorities

7. Deploying these policies in general and in relation to more ambitious sector strategies, as set out in detailed Cross-cutting and Sector KAPs

44

IPAP2: Sectors

Cluster 1: Qualitatively new areas of focus– Metals fabrication, capital and transport equipment sectors:

leverage Capex programme, rebuild and position as future exporters

– Green and energy saving industries: solar water heating, concentrated solar power, wind power, energy efficiency

– Agro-processing linked to food security and food pricing imperatives

Cluster 2: Scale up / broaden interventions in existing IPAP sectors– Automotives, Components, Medium and Heavy Commercial

Vehicles: raise economies of scale and localisation of components– Downstream Mineral Beneficiation: based on establishing

minimum beneficiation levels– Plastics, Pharmaceuticals and Chemicals: focused on plastics

and value-adding pharmaceuticals– Clothing, Textiles, Footwear, Leather: recapture domestic

market share through competitiveness upgrading and tackling illegal imports

55

IPAP2: Sectors

Cluster 2: Scale up / broaden interventions in existing IPAP sectors– Biofuels: establish regulatory framework and support agricultural

and refining investment– Forestry, Paper & Pulp, Furniture: unblock water licences and

promote further processing– Strengthening linkages between Cultural Industries and

Tourism– Business Process Services: broaden and deepen SA’s product

offerings

Cluster 3: Sectors to develop long-term advanced capabilities– Nuclear: leveraging local production and technology transfer– Advanced Materials: feeding into new growth industries such as

aerospace, solar and nuclear– Aerospace: strengthening integration into supply chains

66

Key progress: Cross-cutting highlights• Public procurement and SOE supplier development

Preferential Procurement Policy Framework Act Regulations- Cabinet approved revisions to PPPFA regulations developed by NT,

EDD and DTI Alignment with B-BBEE Codes DTI to designate sectors / subsectors for domestic production at

specified level of local content DTI has developed sector designation methodology and is compiling

necessary research to designate a range of sectors Awaits promulgation by NT

- 72% by value of R4,2 billion ARV tender awarded to SA manufacturers with significant price reductions relative to the 2008 ARV tender

State Owned Enterprises- First phase of mobilisation within SOEs to introduce localisation and

supplier development into the procurement process. SOEs introducing new policies, processes, systems and capacity building to embed supplier procurement leverage more systematically

- Some success stories e.g. recent Transnet procurement of 100 locomotives: 90 to be assembled in SA

77

Key progress: Cross-cutting highlights• Industrial Financing

Industrial Development Corporation- IDC reviewed its business model and balance sheet

Identified R70bn over the next five years for investment in NGP and IPAP sectors, dependant on economic conditions

R10bn Job Creation Fund at Prime less 3% over five years R25bn earmarked towards Green Economy R5bn Agro-processing fund

- IDC funding April – December 2010: 6,471 direct new jobs created and 7,295 direct jobs saved in IPAP sectors

DTI Enterprise Investment Programme (EIP)- Small-medium manufacturing investments- EIP April – December 2010: 10,211 direct jobs created

12(i) Tax Incentive- Large manufacturing investments- Nominal R20bn = R5.6bn

88

Key progress: Cross-cutting highlights• Industrial Financing

Study on long term funding- Phase One: study on long-term sources of concessional industrial

financing, completed: South Africa has well developed stock market but it is highly

concentrated in terms of market capitalisation Only the largest firms and niche sectors like mining use stock

market to raise capital Bond market only tapped by very large private firms, SOE’s and

government A key issue is mismatch between short-term sources of funds

(largely deposits) and long investment terms required in real sectors like manufacturing

Development banks play a fundamental role in closing this gap in many countries such as Brazil and Germany

- Phase Two: policy proposals to be completed in 2011/12 and feed into appropriate processes

99

Key progress: Cross-cutting highlights• National Industrial Participation Programme

- Study into more strategic evolution of NIPP – including consolidation of CSDP and NIPP – completed

- Development of revised NIPP architecture on track - Obligations monitored in the region of +/- US$16.5bn- Of these, 80% arise out of the Strategic Defence packages - More than 220 projects have been implemented- Under the Strategic Defence Packages, 5 out of the ‘Big 6’ have

completed their obligations in full- 2010/11 financial year: 123 new jobs created and 432 jobs saved

• Skills- Customised Sector Programme inputs into sectoral skills processes

• Competition- Referrals against: tyre companies; scrap merchants; chemical

companies; airlines; online ticketing company; bicycle companies; construction companies

- Findings against bread price collusion including establishment of associated agro-processing fund at IDC to promote competition

1010

Key progress: Cross-cutting highlights• Trade

- Exporters Early Warning System on Technical Barriers to Trade developed by SABS launched

Identifies technical barriers to trade for exporters notified to WTO Distributed via email free to exporters on a weekly basis

- ITAC processed numerous applications for increases, rebates and reductions of duties in line with IPAP priorities

- SABS developed a range of enabling standards for various industries / products

Key progress: Sectoral highlights

• Automotives- Automotive Investment Scheme (AIS) finalised- AIS 2010/11 financial year

R14bn in investment commitments from assemblers and component suppliers secured

Conservative estimate of 12,000 new jobs 2011 – 2013 Large increases in levels of volumes and localisation

• Clothing & Textiles- Clothing Textile Competitiveness Programme (CTCP) and Production

Incentive (PI) 2010/11 financial year: 146 and 25 companies benefiting under the CTCP and PI respectively 40,591 jobs supported / saved At least 1,111 new jobs created

- SARS Illegal imports campaigns focussed on Gauteng and KZN At least 56 premises inspected R37m of merchandise detained in relation to counterfeit goods and

various forms of tax non-compliance

11

Key progress: Sectoral highlights

• Business Process Services- 2010/11 financial year:

R40 million investments made and 950 jobs created R42 million new investment commitments approved linked to 806 jobs 3,400 young trainees being trained under the Monyetla II Programme

– 70% guaranteed employment by BPO consortium.

• Green Industries- Mandatory installation of solar water heaters in new buildings

Revision of building standards: mandatory installation of solar water heaters or similar technologies in new buildings

Communication campaign to be rolled out in 2011/12- SABS finalised enabling standards for: solar water heaters; wind energy

turbines; energy efficient lighting, appliances and products; electric batteries and alternative fuel vehicles; co-generation of electricity and biofuels

- Significant progress with development of feed in tariff (REFIT) rules- Intra-departmental South African Renewables Initiative (SARI) initiative to

leverage international climate finance to supplement domestic funding sources for renewable energy production linked to domestic manufacturing

12

Key progress: Sectoral highlights

• Forestry- 161 water licences for 10,000 hectares issued by the Department of Water

and Environmental Affairs (DWEA) Represents between 8,000 – 9,000 direct jobs to be created Lays the basis for more rapid progress

• Iron and Steel- Intra-Departmental Task Team Report on lron Ore and Steel adopted by

Cabinet mandating DMR, DTI and EDD to secure developmental steel price in exchange for cost plus iron ore

13

Key challenges

• Slow recovery of global economy and key traditional export markets, in particular the US and EU

• Sustained rapid growth of large developing economies / regions such as China, India, Brazil and Africa

• This implies a challenging process of trade adjustment in a context where value-added exports have gone to advanced trading partners and Africa and commodity exports to other developing trading partners

• Continuous appreciation of real effective exchange rate (REER) to highest levels on record in Q3 2010 in the context of massive capital inflows and a large current account deficit

• South African economy still recovering domestically from the global economic crisis

• Slowdown in public and private fixed investment expenditure

• Large drop in manufacturing employment between Q1 2008 and Q2 2010 with slight improvement in Q3 2010

14

Key challenges: Currency Balance on current account, financial account and real effective exchange rate (2000=100) (R million) Q1 1990 – Q3 2010

Source: SARB

15

Key challenges: InvestmentReal gross fixed capital formation Q1 2005 to Q3 2010 (R’m 2005 prices)

Source: SARB

16

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70000

80000

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General government Public corporations Private corporations

1717

KAPs requiring fast-tracking• Tri-lateral technical process to amend PPPFA regulations completed and

awaits promulgation (Lead Departments: NT and EDD, supported by DTI)• Process to amend SOE shareholder compacts to secure fleet identification

and localisation underway and to be completed (Lead Department: DPE supported by DTI, DST and EDD)

• Customs Fraud Campaign underway but requires scaling up (Lead Agency: SARS supported by DTI, EDD and DOJ)

• Promulgation of Biofuels Mandatory Uplift Regulations (Lead Department: DOE, supported by DTI, EDD and DAFF) and implementation of Biofuels fuel levy rebate (Lead Department: NT, supported by DOE, DTI, EDD and DAFF)

• Significant progress with REFIT rules with associated localisation requirements for renewables (Lead Department/agency: DOE and NERSA supported by DPE, DTI)

• Strategy drafted to establish and define minimum levels of beneficiation for 10 commodities to lay foundation for building beneficiation value chains (Lead Department: DMR supported by DTI, EDD and DST)

• Implementation of export tax on scrap metals (Lead Department: NT supported by DTI)

1818

KAPs requiring fast-tracking• Standard offer for Solar Water Heaters SWH’s with associated localisation

requirements (Lead Department: DOE supported by DTI)• Inclusion and timing of nuclear in energy mix (Lead Department: DOE,

supported by DPE, NT, DST and DTI)• Progress with Aquaculture strategy (Lead Department: DAFF, supported by

DTI, EDD and DWA) and Organic standards (Lead Departments: EDD and DAFF, supported by DTI)

• Food Safety Agency (Lead Department: DAFF, supported by DTI, EDD and DOH)

• Important progress recorded with issuing of water licences for forestry but requires scaling up (Lead Department: DWA supported by DTI, DAFF and EDD)

• Set Top Boxes (STB’s) roll-out and associated localisation (Lead Department: DOC, supported by DTI)

Taking IPAP2 Forward2011/12 -2013/14

• Very substantial progress has been recorded in IPAP2 2010/11 and the majority of KAPs are on track

• DTI is engaging at various levels to facilitate completion of KAPs that require fast-tracking– With relevant Departments– Economic Sectors and Employment Cluster– Department of Performance, Monitoring and Evaluation of the

Presidency

19

Taking IPAP2 Forward2011/12 -2013/14

• IPAP2 2011/12 will focus on continuity and implementation of strategies and KAPs identified in IPAP2 2010/11

• However, there are some areas of intervention for further scaling up:– Stronger alignment between IPAP sector strategies and skills

development system Engagement with DHET to introduce sector specific programmes

derived from sector strategies, like Monyetla Work Readiness Programme

– Scaling up of Green industries work Engagement with REFIT tariff to ensure new renewable energy

generation is linked to development of domestic green manufacturing capacity

South African Renewables Initiative (SARI) to leverage international climate finance to supplement domestic funding sources for renewable energy production linked to domestic manufacturing

20

Taking IPAP2 Forward2011/12 -2013/14

• Areas of intervention for further scaling up: – Technology

Introduction of product development support measures– Addition of limited number of new sector/sub-sector programmes,

e.g. Oil and gas Boatbuilding

• Launch of IPAP2 2011/12 – 2013/14 in April 2011

• Refinement of monitoring system for measuring and reporting on impact, particularly jobs

• Capacity building: dedicated Certificate and Honours courses developed with Wits, African Programme on Rethinking Development Economics

21

Appendix Real interest rates

Short term interest rates – January 2011

Source: The Economist

22

Appendix Real interest rates

Long term interest rates – January 2011

Source: The Economist

23

2424

AppendixCurrency

Source: SARB

24

Real Effective Exchange Rate (2000 = 100) and Rand / US Dollar, Jan 2009 – Jan 20116

6.5

7

7.5

8

8.5

9

9.5

10

10.5

1185

90

95

100

105

110

115

120

Real Effective Exchange Rate Rand / Dollar

2525

AppendixManufacturing

Manufacturing monthly production indexed (2005 = 100) and Y-O-Y growth, January 2005 to December 2010

Source: StatsSA

25

26

Source: Quantec

AppendixTrade Balance

-5,000,000,000

-4,000,000,000

-3,000,000,000

-2,000,000,000

-1,000,000,000

0

1,000,000,000

2,000,000,000

1Q

1990

3Q

1990

1Q

1991

3Q

1991

1Q

1992

3Q

1992

1Q

1993

3Q

1993

1Q

1994

3Q

1994

1Q

1995

3Q

1995

1Q

1996

3Q

1996

1Q

1997

3Q

1997

1Q

1998

3Q

1998

1Q

1999

3Q

1999

1Q

2000

3Q

2000

1Q

2001

3Q

2001

1Q

2002

3Q

2002

1Q

2003

3Q

2003

1Q

2004

3Q

2004

1Q

2005

3Q

2005

1Q

2006

3Q

2006

1Q

2007

3Q

2007

1Q

2008

3Q

2008

1Q

2009

3Q

2009

1Q

2010

3Q

2010

Agriculture, forestry & fishing Manufacturing Mining26

Trade balance by sector Q1 1990 – Q32010

2727

AppendixManufacturing employment

Source: StatsSA

27

Employment in the manufacturing sector ‘000, Q1 2008 – Q4 2010

1400

1450

1500

1550

1600

1650

1700

1750

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q32009 Q42009 Q12010 Q2010 Q32010 Q42010