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Annual Report (2015/2016) Presentation to the Portfolio Committee on Economic Development

Annual Report (2015/2016) Presentation to the Portfolio Committee on Economic Development 13 October 2016 Siyabulela Tsengiwe Chief Commissioner. Introduction. Tariff Investigations. Trade Remedies. Import and Export Control. Economic Impact Assessments. Human Resources Management

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Annual Report (2015/2016) Presentation to the Portfolio Committee on Economic Development

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  1. Annual Report (2015/2016) Presentation to the Portfolio Committee on Economic Development 13 October 2016 Siyabulela Tsengiwe Chief Commissioner

  2. Introduction. Tariff Investigations. Trade Remedies. Import and Export Control. Economic Impact Assessments. Human Resources Management Corporate Governance. Auditor General’s Report. Financial Performance. Contents

  3. The Minister in his foreword states “More recently, since the 2008/09 global financial crisis, levels of global growth slowed down, reaching 3.1% in 2015. South Africa’s own growth slowed to 1.3% in 2015 and is anticipated to be 0.1% in 2016, buffeted by global headwinds, a severe drought and energy constraints. This is the context within which ITAC is undertaking its work.” The financial year 2015/16 saw ITAC receive a record ten applications for tariff increases on primary steel from one company, Arcelor Mittal (AMSA) which is South Africa’s largest steel producer. The ten investigations had to be completed within four months, a turnaround time set for sectors in distress. The investigations covered: galvanised/coated and painted steel; tin plate; wire rod; rebar; semi-finished products of iron or non-alloy steel; steel plate; cold rolled; sections; other bars and rods; and hot rolled. Introduction

  4. Despite the complexities and the highly technical nature of these investigations as well as the tough contestation in the value chain, eight of these investigations were finalised within the tight schedule of four months without compromising on quality. In all these investigations including the two on other bars and rods and hot rolled steel that exceeded four months, the Commission made recommendations to the Minister of Trade and Industry that sought to promote domestic production, investment and jobs in the whole value chain. These investigations also saw the Commission strengthening the requirements on reciprocal commitments by the primary steel industry taking into account downstream concerns, which has set a standard for future investigations. Introduction

  5. Introduction TREND ANALYSIS OF TARIFF INCREASES FOR THE PERIOD 2003/04 - 2015/16

  6. Achievements against targets TARIFF INVESTIGATIONS TRADE REMEDIES IMPORT AND EXPORT

  7. Tariff Investigations Completed During 2015/2016

  8. Tariff Investigations Completed During 2015/2016

  9. Tariff Investigations Completed During 2015/2016

  10. Administration of APDP AUTOMOTIVE PRODUCTION AND DEVELOPMENT PROGRAM (APDP) • On 01 January 2013 the APDP replaced the then Motor Industry Development Program (MIDP). The APDP is a customs-based programme comprising a tariff component, production incentive (PI), volume assembly allowance (VAA) and automotive investment scheme (AIS). The AIS is administered by thedti. The objective of the APDP is to create an enabling environment for the domestic industry to significantly grow production volumes and local value addition, leading to the creation of additional employment opportunities across the value chain. Whereas the MIDP was export-oriented, the APDP is based on production. • thedtiis the policy making authority for the APDP & ITAC administers the program. • Certificates issued under the MIDP: • Productive Asset Allowance Certificates (PAAs) – 75% of the PAA certificates within the set timeframe. • Certificates issued under the APDP: • Eligible Production Certificates (EPCs) – 88% of the EPC certificates within the set timeframe. • Production Rebate Credit Certificates (PRCCs) - 98% of the certificates within the set timeframe.

  11. Trade Remedies ORIGINAL INVESTIGATIONS REVIEWS

  12. Trade Remedies SUNSET REVIEW INVESTIGATIONS CARRIED FROM PREVIOUS YEAR SAFEGUARD INVESTIGATIONS INITIATED

  13. Import and Export Control IMPORT PERMITS ISSUED • During 2015/2016 import permits issued amounted to 17 188. The target was 16 000. • Majority of the permits were for the following imported products: • Marine Resources • Mineral fuels and oils • Chemicals • Rubber and tyres • Metals • Capital Goods and Mechanical Appliances • Automotive EXPORTPERMITSISSUED FOR 1 APRIL 2015 TO 31 MARCH 2016 • Export permits issued in 2015/2016 amounted to 14 657. The target was 7 500.

  14. Controls on scrap metal PRICE PREFERENCE SYSTEM FOR SCRAP METAL EXPORTS (PPS) • During 2013 the Minister of Economic Development issued a policy directive in terms of Section 5 of the International Trade Administration Act, directing ITAC to:- • regulate the exportation of ferrous and non-ferrous waste and scrap; • not allowing ferrous and non-ferrous waste and scrap to be exported unless first offered to the domestic consumers of scrap metal for a period determined by ITAC and at a price preference determined by ITAC. • The policy intent being: • to promote scrap metal beneficiation and to reverse the decline in the metal fabricating consuming industries. • to allow the domestic industry to have access to affordable quality scrap and to supply inputs into governments infrastructure programme. • The latest review of the guidelines aimed at strengthen the administration of the PPS is at the final stages. • The process of procuring for an impact study has been initiated and it is anticipated that the study will be finalised in June 2017.

  15. In addition to providing trade instruments in reaction to industry applications, ITAC has to be more visible and proactive in the technical advice that it provides on the implementation of trade policy. The renewed role of ITAC required a research capacity that goes beyond ITAC’s traditional method of research used during investigations in response to applications. The Commission has now started building technical capacity to conduct economic impact assessments of its instruments. Government’s outcomes approach provides a framework for the enhanced monitoring of service delivery, including guidelines for results-driven performance. To ensure continued relevance and alignment to both EDD and the dti, the Commission has begun to gauge the performance of the beneficiaries of its instruments against the policy objectives set out in the NGP, IPAP and South Africa’s Trade Policy and Strategic Framework. Whether or not ITAC’s instruments have made a positive impact depends on the extent to which the support has resulted in increased domestic manufacturing, investment, employment, value addition and competitiveness after the support was given in comparison to the periods before the support. The realisation of these policy objectives remains critical in ensuring that ITAC’s trade instruments are efficiently and effectively utilised towards the realisation of the NGP targets. Economic Impact Assessments

  16. During the year under review, the following impact assessments were carried out, with key findings emanating from the studies: The impact of the Anti-dumping duties on drawn and float glass originating in or imported from China and India: A case of PFG Building Glass the anti-dumping duties have helped to increase manufacturing output, and recapture the domestic market. The firm has regained a total of 38 695 274 Kg in volumes (or 36 per cent) after the duties were continued in 2010-2014. Compared to 2009, total domestic manufacture has increased by a factor of approximately 1.7 or 66.1 per cent by 2014. The firm was able to retain 88 per cent of the jobs. Economic Impact Assessmentscontinued

  17. The impact of a rebate provision on certain fabrics for the manufacture of home textiles in South Africa: (i) A case of Maytex The creation of the rebate facility has seen Maytex cease the importation of finished goods. Output has almost doubled in 2011 (growing at 85.7 per cent) after the provision of the rebate support in 2010, before narrowing in 2012 and 2013, albeit with signs of recovery in 2014 at 10.3 per cent. About 109 additional jobs have been created since the creation of the rebate facility. The domestic value addition increased from 30.3% (in 2010) - 48.3% (in 2012) before narrowing to 32.6% (in 2013) and 40.1% (in 2014). (ii) A case of Sheraton textiles Sheraton Textiles ceased the importation of finished goods. Domestic production (59% in volume ) was recovered in 2010. Despite decline in output since 2011, the firm managed to recover 47 jobs following the provision of the rebate support in 2010-2014, leaving a total number of 40 jobs yet to be recovered in order to cover the total jobs lost of 87 before the support in 2007-2009. The domestic value addition increased to 35.8% & 37.9% in 2010-2012 and 2012-2014 respectively following the continued rebate support. Economic Impact Assessmentscontinued

  18. The impact of the anti-dumping duties on acrylic blankets originating in or imported from China and Turkey. The industry has invested an additional R8 million in real terms, particularly in machinery and equipment upgrading. Continued large volumes of cheap imports from China – in this case, of knitted polyester blankets and no longer the acrylic blankets for which the duties were imposed – has neutralised other gains that could have been made from the continuation of the anti-dumping support. The negative effect of the excess imports from China on domestic production has undermined the ability of the industry to operate at full capacity and avoid decrease in competitiveness. The industry has lost 159 jobs since the antidumping duties were continued, with total jobs declining from 973 in 2008/10 to 814 in 2011/13. However, employment almost always responds positively to changes in domestic production. The implication is that any improvement in the current level of employment would need to address the current problem of underutilisation and sustain an increase in volumes. Economic Impact Assessmentscontinued

  19. The impact of a rebate provision on the manufacture of light aluminium and composite parts for passenger aeroplanes: The case of Aerosud Exports increased four-fold from 100 513kg prior to the support to 400 208kg, an average growth rate of 44 per cent. Aerosudexports accounted for 12% (2009), 43% (2012) and 26% (2013) respectively. The support has contributed to the employment of 33 additional people at Aerosud. Economic Impact Assessmentscontinued

  20. The Human Resources (HR) unit aims to create and maintain an environment which supports and develops the well-being and professional skills of ITAC’s employees by providing quality service in the following areas: Health and Wellness: ITAC has procured the services of Careways (Pty) Ltd. Through Careways, a number of health and wellness programmes in the form of professional or clinical counselling for employees as well as other wellness interventions in order to advance a good organisational culture are conducted on an ongoing basis. Training, Development and Performance: ITAC has provided 10 training programmes in line with its Workplace Skills Plan in compliance with the Skills Development Act. This was aimed at addressing the skills gap and to further develop the existing talent. Employees have been awarded bursaries to further their studies in different disciplines, and they have also attended workshops and conferences to acquaint themselves with recent developments which are taking place in various professional environments. In addition to economic rewards for performance which is above expectations, ITAC has non-economic awards in recognition of excellence for its employees. Human Resources Management

  21. Internship Programme: ITAC appointed 5 interns to its internship programme in the period under review and 1 intern was subsequently retained as a permanent employee of ITAC. ITAC’s workforce as at 31 March 2016 was 119, Core business: 66; and Support services: 53. In addition, there were 15 contract employees in the period under review. Below is the employee profile breakdown: Gender: Males (44%); and Females (56%). Race: African (83%); Whites(11%); Coloured (2%); and Indians (4%). The vacancy rate for the period under review was 9.2%. Human Resources Management

  22. Corporate Governance COMPLIANCE & INTERNAL CONTROLS • ITAC as a public entity, is required to comply with all applicable legislation and regulations relevant to the public sector. The policies of the entity have been developed after taking into account the relevant and applicable legislation and regulations such as PFMA; ITA Act; Treasury Regulations; PPPFA and relevant SCM regulations; among others. The checklists have been developed to assist in enhancing compliance and any identified non-compliances are addressed. • ITAC maintains effective internal controls which are designed to ensure that risks are reduced or managed, and that the organisation is able to meet its objectives. ITAC’s internal control measures include amongst others the risk management activities, internal audit activities, the relevant committees (Audit and Risk) and other internal governance structures. • The internal controls are continuously monitored throughout the year by Management, Internal Audit and by other relevant Committees. All identified gaps are corrected.

  23. Corporate Governance Continued RISK MANAGEMENT AUDIT COMMITTEE REPORT • The Audit Committee (AC) held four regular meetings and one special meeting during the year under review. • According to the Audit Committee report: • The system of internal control applied by ITAC over financial risk and risk management is effective, efficient and transparent. • The AC is satisfied with the content and quality of monthly and quarterly reports prepared by ITAC management. • The AC is satisfied that the internal audit function is operating effectively, and that it has addressed the risks pertinent to ITAC with the support of the co-sourced Internal Audit function. • The AC has met with the AGSA to ensure that there are no unresolved issues. Management has taken note of the findings from the AGSA and has put in place an action plan, not only to address the findings but also to strengthen controls for the future. • ITAC has a risk management unit which conducts risk assessment continuously and also present the risk register to the Risk Management Committee (RMC) for review. • The RMC is a subcommittee of the Audit Committee (AC) which monitors risk management activities and present its operations to the AC. • The Internal Auditors assist the RMC by reviewing the risk register for any update. • The RMC then makes recommendations to the Chief Commissioner (CC) to approve the reviewed risk register. • ITAC Executive Committee monitored the internal controls and relevant risk management processes for 2015/2016 financial year and is satisfied with their effectiveness. • According to the National Treasury’s Risk Management Capability Maturity Assessment, ITAC is at level 5 (pertinent risks are well managed).

  24. Report of the Auditor General OPINION OF AUDITOR GENERAL • ITAC obtained an unqualified opinion in 2015/ 2016 financial year. IRREGULAR, FRUITLESS AND WASTEFUL EXPENDITURE • According to the AGSA audit report, ITAC did not incur irregular expenditure in the 2015/2016 financial year. • There was also no fruitless and wasteful expenditure incurred in the 2015/ 2016 financial year. IMPLEMENTATION OF AUDIT RECOMMENDATIONS • ITAC has developed an Audit Action Plan template with actions to be taken in order to address the audit findings relating to compliance, as identified by the AGSA. • Some of the weaknesses identified during the audit have been addressed and there is constant monitoring of the activities which are still in progress. • The Internal Audit’s three year rolling plan include following up on the audit findings of the AGSA. • The Executive Committee also plays a role of monitoring the implementation of the action plan through a report presented on implementation.

  25. Financial Position • ITAC is in a sound financial position as assets are more than its liabilities. Total assets amounted to R37.3 millionwhile total liabilities amounted to R17.4 million. OPERATING RESULTS – TOTAL ASSETS FOR 2015/2016

  26. Financial Position • Below is a graphic representation of ITAC’s total liabilities (R17.4 million) OPERATING RESULTS – TOTAL LIABILITIES 2015/2016

  27. Financial Performance • ITAC’s total revenue amounted to R88.6 million. OPERATING RESULTS – REVENUE 2015/2016

  28. Financial Performance • ITAC’s total expenditure amounted to R92.6 million and the deficit per GRAP reporting requirements amounted to R4.0 million for 2015/2016. This deficit is largely funded from previously accumulated surplus. • Contributors to the deficit include the following: • Increase in lease expenditure; salaries of contract employees for scrap metal; and interns. However, the EDD made additional allocation for conditional grants to cover salaries of scrap metal contractors. The remaining expenditure is funded from surplus as stated above. OPERATING RESULTS – EXPENSES 2015 -2016

  29. Financial Performance • In light of the fiscal constraints, ITAC has managed to contain costs on some of the cost items without undermining the quantity and quality of its basic services as exemplified below: OPERATING RESULTS – COST CONTAINMENT MEASURES

  30. Thank YouOffice Contact Details: 012 394 3713Cell: 082 454 8979 stsengiwe@itac.org.zawww.itac.org.za

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