Economic Development Department's 2014/15 Annual Report Presentation

1. Economic Development Department2014/15 Annual ReportPresentation to the National Council of Provinces 27-October-2015

2. Introduction • The Annual Report of the EDD present performance against the Annual Performance Plan • Tabled in Parliament at the end of September 2015. • Highlights a few areas covered in the Report - not a detailed account of activities.

3. Context at start and during year • Annual Report period 1 April 2014 to 31 March 2015. • Transition between Administrations • Global context: growth slowed down • China’s demand for resources declined • Developed markets growth lackluster • Energy shortages • Impact of industrial action • While, Investor confidence in SA was still positive

4. Context: The commodity boom and growth Index of mineral prices • The fell of our top four Exports signalled the end of the commodity boom • Make progress on jobs more difficult • Sending negative multiplier of the mining industry on the rest of the economy • Hence the government’s 9-point plan 2015/16

5. The APP • The APP provides basis for audit against pre-determined objectives • It does not include all the work of the EDD • As required by the Auditor General, the tables in the published Annual Report provide an overview of the number of achievements and reasons for variation

6. Performance Overview for the 2014/15 • EDD had 154 targets for its frontline work, and achieved 209 deliverables • For the financial year under consideration, the Department spent 99.7% of its allocated budget, met all its targets and exceeded its targets for 50% of the indicators included in its Annual Performance Plan (APP) for 2014/15. • For the year under consideration the EDD and all its agencies received unqualified audit reports.

7. Economic Highlights: Jobs • Jobs grew by 405 000 • Total employment of 15.5 millionby March 2015 • Women’s employment grewby 111 000 (total women in employment 6.8 million) • The number of jobs for youthincreased by 233 000 (total youth jobs: 6.2 million) • Since adoption of the New Growth Path in October 2010, employment grew by 1.8 million

8. Other economic Highlights • GDP is now R3,8 trillionfor the year and growth rate was 1.6% • Investment grew by R47 billion • Government infrastructure spending wasR254 billion • Agricultural value add grew byR5 billion or 7.5% • Manufacturing value add declined byR1.1 billion or 0.3%

9. EDD interventions for the reporting period EDD’s focus in this period was on 8 key interventions: • Infrastructure • Industrialisationand investment • Trade measures • Competition measures • Provincial interventions • Social dialogue • Coordination • Equitable growth

10. Institutional Highlights • By March 2015, PICC monitored infrastructure projects spending had reached R1 trillion • R880 million was received from the Competition Commission for fines and penalties imposed by the Tribunal • 39 mergers with employment and other public interest conditions that were imposed by the Competition Commission • ITAC tariff increases on 9 products • ITAC tariff rebates (reductions) on 7 products

11. Infrastructure & Investment

12. Intevention 1: Infrastructure work done ncludes: • Operationalisation of the Infrastructure Development Act including appointment of members of governance structures (Secretariat, Manco and Council) • Monitoring 18 Strategic Integrated Projects (SIPs)for Cabinet to provide high-quality, credible information for policy-making • Resulting in 72 progress reports to Cabinet • Tracking projects worth R1 trillion to monitor spending patterns

13. Infrastructure • EDD convened and provided assistance to PICC Secretariat and Manco meetings, including • meeting packs, documentation and discussion documents on key issues • Identifying key blockages for consideration by the PICC • Developing a records of decisions for Cabinet and follow up of decisions • Provided Support for an innovative system: the PICC

14. Infrastructure Maintaining large-scale infrastructure spending boosts growth and jobs • 200 000 jobsin PICC-monitored projects • Substantial gains madefor both large projects and at a community level, though much remains to be done. Examples - • 160 000 new housesconnected with electricity • Cities building new bus lanesfor BRT • BRT operational in three citieswith thousands of users • Tshwane every bus has free Wi-Fi, useful to students

15. Infrastructure Examples of work done by EDD on infrastructure includes (cont..): • Completed project on skills for infrastructurewith DHET • After obtaining inputs from relevant departments, EDD drafted a discussion document on how infrastructure supports inclusive growth, with a review of some key trade-offs, opportunities and risks • At Dirco’s Heads of Mission Conferenceon 25 August 2014, the Minister presented a strategic vision on how South Africa’s missions abroad can support domestic economic development through efforts with infrastructure and industrialisation • The focus was on expanding markets for South African products as well as accessing technology and capital from abroad as appropriate • The presentation had reference to the National Infrastructure Plan

16. Infrastructure Examples of work done by EDD on infrastructure includes (cont..): • Cable and Metal Theft, PICC recommendations on cable and metal theft were approved by the PICC Council at its 11th December 2014 meeting. • EDD coordinates and participates in the Presidential Business Work group: Infrastructure Technical Task Team. The work covers the following. a) Create early visibility of government’s infrastructure build programme b) Maintaining & upgrading municipal infrastructure c) Strengthen mechanisms of incorporating and effective execution of developmental targets in programme and project procurement designs • Strengthen / optimise infrastructure procurement systems • Unlock private sector investment in and funding of infrastructure

17. Infrastructure • Provided Support for President’s role as champion on infrastructure in the African Unionwhich includes unlocking key corridors, water and energy projects for the continent • The President also engaged with global business at the World Economic Forum meeting in January 2015 in Davos, Switzerland on African infrastructure.

18. Infrastructure EDD engages pro-actively to unblock projects on behalf of the PICC • Case study: Hobhouse in Mantsopa in the Free State • A site visit was conducted by the PICC • It helped to unblock efforts to finalise a bucket eradication project • The technical quality of the system requires further work • Case study: Ngobi in Moretele in the North West • This is a Presidential Nodal Point Project identified as part of water and sanitation hotspots under SIP 18 by the PICC • The PICC mobilised Eskom to connect electricity to boreholes. • The boreholes have been commissioned and are functional • Case study: Gibson Bay Wind Farm in the Eastern Cape • The wind farm will involve an investment of over R2 billion as part of the renewable energy independent power producer drive • It required authorisation under the Subdivision of Agricultural Land Act • The PICC, with support from DAFF, unblocked the application, enabling the wind farm to go ahead

19. Infrastructure • Case study: Mokolo Crocodile Water Augmentation Project Phase 2 (MCWAP2) - Conditional National Treasury approval for the increase in the pipeline was obtained. • Case study” Olifants River Water Resource Development Programme (ORWRDP Phase 2) - The directive for ORWRDP Phase 2D and other subsequent phases has been issued to the National Water Resource Infrastructure to implement the project and the Trans-Caledon Tunnel Authority (TCTA ) to provide technical support.

20. Infrastructure • Promoting transformation: the competition probe into cartels operating in the infrastructure space is intended to open the market to new entrants, including bringing black construction companies into the infrastructure mainstream, thus promoting transformation and economic development.

21. Case Study: Infrastructure & local procurement Through the PICC, the department supported efforts to localise the manufacture of components and rolling stock for the National Infrastructure Plan. New and expanded factories directly supplying components for rolling stock infrastructure include: • Thin-film solar experimental plant in Stellenbosch • Wind-towers plant in Coega • Large truck factoryin Coega, with 450 new jobs • Factory to assemble and laminate solar panels in Epping • Truck and bus plantin Pretoria , with 350 new jobs initially • Factory making solar inverters in Cape Town • Majority black-ownedfactory in Blackheath that supplies buses to municipalities • Expansion in locomotive-furbishingcapacity • 200 new jobs in Atlantis in a further wind tower plant

22. Intervention 2: Industrialisation and Investment • EDD interventions supported the development of opportunities for industrialisation, higher levels of private investment and industrial funding and localisation in the economy. These included - addressing investor meetings and addressing challenges - supporting efforts to maintain high levels of IDC funding - supporting localisation and local procurement - promoting the development of new sectors - unblocking, fast tracking investment • The IDC approved investment projects with private investor partners worth R36,8 billion with the IDC committing R11,5 billion of its resources • sefa’s R1 billion supported the development of small businesses and cooperatives

23. Case Study: Building renewable energy industry • Minister issued a Directive to the IDC to develop a renewable energy industry • IDC invested R14 billion in solar, wind and renewable projects • During the year: opening of the Kaxu Solar Plant in Pofadder in N Cape • The plant brings 100 MW of solar energy onto the grid • By March 2015, South Africa generated 1 730 MW of energy from the sun, wind and water.

24. Industrialisation and Investment • Facilitated, fast-tracked and/or unblocked 13 investment initiatives • Sectors included forestry, agro-processing, biofuels, pulp and paper, chemicals, textiles, construction, green energy and steel • Unblocking included: • securing land and finalising lease agreements • facilitating access to financing • mobilising trade measures • addressing energy challenges • helping secure pricing that promotes local manufacturing • supporting with social dialogue • measures to deal with illegal imports • fast tracking administrative processes to save jobs

25. Industrialisation and Investment Examples of Unblocking • Potato processing industry: The potato processing industry was destabilised by a surge in imports. EDD facilitated interaction with ITAC to fast-track consideration of an application for increased duty. Based on the evidence before it, ITAC decided to increase the duty. The IDC offered a loan to a processing company in the Eastern Cape to expand production to supply Spur. The result was an expansion of local productive capacity. 2. Nestle complained of water and electricity cutsin Babelegi near Tshwane as a result of cable theft, which led to R47 million losses in the period from January to 5 March 2014. EDD convened a meeting of COGTA, the dti and Eskom in July 2014 to discuss the challenges. As a result of the intervention, mitigation measures were put in place in the area, including better policing of hot spots.

26. Industrialisation and Investment Examples of Unblocking • Fast-tracked the competition process for the buy-out by Lewis Furniture of 68 Beares Furnishers (the Lewis offer to purchase was time bound). The intervention avoided the liquidation of these stores and resulted in the saving of 393 jobs, with the potential for the creation of 126 additional jobs • EDD’s intervention facilitated the decision by the Ekurhuleni Metro Municipality to provide the required energy for the construction of a R350 million plant by Mpact to recycle plastic bottles • Pulp United Company – Resolved a dispute between the IDC and the uMhlathuze municipality on the price for the purchase of municipal land. This resulted in the IDC taking a decision to do a feasibility study for an investment in a pulp factory valued at US$250 million

27. Industrialisation and Investment Examples of Unblocking • Facilitated that Hall Longmore, a steel pipe company in KZN, could secure a competitive price to secure order to manufacture locally steel pipes for the Greytown water treatment works, which instead was to be delivered from China. • Subsequent to the successful sales of Lodox Machines to the Gauteng Provincial Department of Health, EDD assisted Lodox in finding markets in the other Provinces. EDD introduced Lodox to the KZN Department of Health. Four Lodox Scanners were sold to the Provincial Department of Health in KZN. • This initiative has leveraged South African medical technology developed through the commercialisation of an IDC project

28. Industrialisation and Investment • The Minister engaged with companies in the labour-intensive clothing and textiles • Engagements took place with both employers and workers at Trade Core Investments Apparel (TCIA), Colibri, Peter Blond, Impahla Clothing and House of Monatic • Focus of engagement • Assess the impact of IDC and government supportin the sector, • Identify export opportunities and assess import penetration • Investment and incentive support by government and its agencies was R5,1 billion in the sector over the past five years • Took Action on illegal imports – in three years, government confiscated R1,8 billion in clothing and textiles imported illegally into SA

29. Industrialisation and Investment • The Minister launched the development of a R25-million design centreat TCIA in Cape Town, part of a focus on improving fashion innovation in South Africa • EDD obtained a legal opinion on the pricing of mineral products under the MPRDA amendments, which entailed a Ministerial level meeting with legal advisors as well as engagement with DMR, the dti and NT • EDD drafted a report for the Presidency on migrant labour in the platinum beltand how it relates to workplace conflict, in collaboration with TIPS and SWOP • Numerous engagements had taken place Steel, Finance, Tourism, Agro-processing, Retail, Telecommunications and other sectorsin order stabilise sectors where required, attract investment, promote industrialisation and localisation, etc. • Minister addressed global investors in Davos, London, New York, Indonesia to share the South African infrastructure and investment narrative

30. Industrialisation: IDC Investment EDD provided oversight and strategic guidance to the IDC during the year through engagements with Board, management and potential investors

31. Industrialisation: IDC Investment IDC highlights in the past year, in tough circumstances

32. Institutional Highlights • Investment approvals of R11.5 billion • Funding disbursements of R10.9 billion • R5.9 billion in black-empowered and owned companies in 85 transactions • 20 388 jobs supported • R1 billion funding approved • R924 million set aside for youth-owned enterprises over 3 years

33. Industrialisation: IDC Provincial Investment • IDC investments are situated across South Africa, providing local jobs and supporting local economies. • Of the R9.7 billion funding approvals within South Africa, 46% went to transactions in targeted provinces. • The funding allocated to these provinces also accounted for 42% of jobs IDC expects to create/save. • Of the priority provinces, the Eastern Cape is the largest beneficiary in terms of number of projects, with 19 projects that are worth R50 million and above, across 9 sectors.

34. Examples of IDC projects • Case study: Greening the Manufacturing Sector • Since 2011, the IDC has worked with an enterprise that produces sports and leisure wear for an international brand. The company is South Africa’s first carbon-neutral clothing company. It has increased its employment from 190 to 431 in the past three years. • In the 2014/15 financial year the IDC approved a R2-million facility to be utilised for asset and working capital for the establishment of new manufacturing lines.

35. Examples of IDC projects • Case study: Chic Shoes - The Minister conducted a site visit to Chic Shoes, a major shoe factory, and opened its new premises on 16 September 2014, as part of the EDD’s work to support job creation and evaluate the impact of government measures. - The company was started by a black woman in 2004 and now employs 300 workers, with plans to expand to over 500 in the coming two years. - It has received support from the IDC as well as a competitiveness grant

36. Industrialisation: sefaInvestment case study • EDD provided oversight of sefa for the year under review sefa highlights

37. Industrialisation: sefaInvestment case study sefa highlights (Transformation)

38. Intervention 3: Trade measures Using trade measuresto back South African manufacturers in tougher global conditions, through trade remedies, tariffs, rebates and policy measures to promote inputs with a developmental impact/local use of national inputs

39. Intervention 4: Competition measures Challenging monopolies and cartels in the economy through competition measures to improve the dynamism of local industries and prevent abuse of market dominance

40. Intervention 4: Competition measures Competitionmeasure highlights

41. Oversight of Funds • Walmart Supplier Development Fund • Afgri Fund • Agro Processing Competitiveness Fund

42. An outcome of Competition measures The Afgri agreement • Agreement was reached with Afgri as part of the Competition Commission’s review of a takeover by Agrigroupe, a foreign investor • The agreement required Afgri to undertake a variety of support measures for small farmers • Since April 2014 Afgri has: • Spent R9,8 million on training to 68 farming entities consisting of 170 people. • On-lent R14 million to 13 entities from the Land Bank to smallholder farmers (Afgri assumes risk on the loans) • Provided 40% discount on storage to 213 farmers who stored under ten tonnes of grain • Purchased 14% of its poultry from smallholder farmers, to whom it provides extension and veterinary services as well as technical, feed and management support

43. Intervention 5: Working with provinces Working with provinces to enhance their capacity and increase their impact on local economies Highlights

44. Real GDP by province at 2010 Prices

45. Employment by province since the adoption of the NGP • Nationally, employment has increased by 15% since the adoption of the NGP in the 3rd quarter of 2010. • Gauteng (650), Limpopo (357), WC (267) and KZN (260) had the largest gains in employment numbers over the NGP period. • Limpopo (38%) and Mpumalanga (22%) accounted for the highest growth rates since the adoption of the NGP

46. Job creation by province

47. Working with provinces • EDD provided strategic support to KwaZulu-Natal, Mpumalanga and Limpopoat their respective strategic planning sessions • EDD helped identify how provincial plans could be better aligned with the NGP and also take advantage of national programmes, including the National Infrastructure Plan and the Spatial Development Zones • The department hosted two small business knowledge network sessions on unlocking the economic potential of townships in the North West and Eastern Capewith civil society, government officials and academics • The meeting focused on the need to improve the integration of township enterprises into formal value chains as well as to address the constraints on their development (infrastructure, market institutions, commercial and industrial sites) • The department has received requests to provide capacity building on township economy initiatives and locations; spatial planning alignment support; and green economy implementation support.

48. Working with provinces • EDD assessed five provincial APPs including Gauteng, KwaZulu-Natal, Eastern Cape, Free State and Mpumalanga • The assessments include analysis of growth, investment and employment trends • Findings include: • Most provincial APPs are aligned with the New Growth Path and the National Development Plan at least conceptually • They are not yet however aligned with Outcome 4 on inclusive growth in the new MTSF • They do not have many practical targets for inclusive growth • EDD should explore developing some standard KPIs for this purpose

49. Working with provinces • In an example of the partnership approach EDD is developing with the provinces, • On 29 August 2014 the Minister with the Premier of Gauteng launched an incubation hub in Diepsloot • The hub provides step-by-step support for small companies, starting with rent-free facilities and business support services, gradually building up to normal tenancy in the site. • It is an interesting example of a private-sector-led initiative to support small business • The Minister of Small Business Development and the Mayor of Johannesburg also participated in the event

50. Working with provinces • Deputy Minister has led series of engagements with the leadership of the following provinces Mpumalanga, Free State, Eastern Cape, Limpopo, KwaZulu-Natal on integrated economic planning and alignment of provincial economic plans to national economic development priorities • These engagements revealed that most of the provincial strategic plans and Provincial Growth and Development Strategies are beginning to focus on the national growth and development priorities as articulated in our NDP and NGP • The implementation support for provincial and local economic development remains a critical challenge which EDD has committed to working with provinces in future • While the local economic development capacity in the metros is fairly established, more support required for the districts and local municipalities. • EDD is working with our provincial partners to play a bigger role in supporting economic development initiatives at the local level