IPAP2 Nine Month Implementation Report 2010/11 – 2012/13 Industrial Policy Action Plan (IPAP) Select Committee on Trade

1. IPAP2 Nine Month Implementation Report 2010/11 – 2012/13 Industrial Policy Action Plan (IPAP) Select Committee on Trade and International Relations 16 February 2011 1

2. IPAP 2: Key pillar of the New Growth Path IPAP: value-added sectors with high employment and growth multipliers 2 Source: CSID

3. IPAP2: Requires comprehensive and integrated action 1. Macro-economicpolicies 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 3

4. 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 4

5. 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 5

6. Key progress: Cross-cutting highlights Public procurement and SOE supplier development Agreement by NT, EDD and DTI senior officials and processing through Nedlac of amendments to PPPFA Regulations to designate sectors for local production and alignment with B-BBEE codes. Awaits promulgation by NT. DTI developed sector designation methodology and is compiling necessary research to designate a range of sectors 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 - 72% by value of R4,2 billion ARV tender awarded to SA manufacturers with significant price reductions relative to the 2008 ARV tender Industrial Financing IDC reviewed its business model and balance sheet and identified R70-100bn over the next five years for investment in NGP and IPAP sectors, dependant on economic conditions 6

7. Key progress: Cross-cutting highlights Industrial Financing (continued) Phase One of study to finalise proposals to identify and create long-term sources of concessional industrial financing, completed Phase Two proposals to feed into the budget through the 2010/11 adjustment estimate process and successive budget processes Competition Referrals against: tyre companies; scrap merchants; chemical companies; airlines; online ticketing company; bicycle companies; construction companies Findings against bread price collusion Trade ITAC has processed numerous applications for increases, rebates and reductions of duties in line with IPAP priorities Early warning system developed by South African Bureau of Standards (SABS) identifying technical barriers to trade for exporters and distributed to exporters on a monthly basis 7

8. Key progress: Sectoral highlights • Automotives • Automotive Investment Scheme finalised leading to investment commitments of R13bn from assemblers and component suppliers, supporting 24,000 jobs in the sector. Large increases in levels of volumes and localisation • Clothing & Textiles - Rollout of the Clothing Textile Competitiveness Programme (CTCP) and Production Incentive (PI) with 106 and 94 companies benefiting under the CTCP and PI respectively • Business Process Services • R40 million investments made and 950 jobs created. R42 million new investment commitments approved linked to 806 jobs. 3,400 are currently being trained under the Monyetla II Programme – 70% guaranteed employment by BPO consortium.

9. Key progress: Sectoral highlights • Green Industries • Revision of building standards that will require higher levels of energy efficiency and mandatory installation of solar water heaters in new buildings • 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 • Forestry • 161 water licences for 10,000 hectares issued by the Department of Water and Environmental Affairs (DWEA) which 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

10. 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 such as China, India, Brazil • This implies a challenging process of trade adjustment in a context where value-added exports have gone to advanced trading partners and commodity exports to 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

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

12. Key challenges: Investment Real gross fixed capital formation Q1 2005 to Q3 2010 (R’m 2005 prices) Source: SARB

13. 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) 13

14. 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) 14

15. Summary Very substantial progress has been recorded and most KAPs are on track Some KAPs require fast-tracking DTI is engaging at various levels to facilitate completion by end of March 2011 With relevant Departments Economic Sectors and Employment Cluster Department of Performance, Monitoring and Evaluation of the Presidency 15

16. IPAP 2011/12 -2013/14 • IPAP First Annual Report to be tabled to Cabinet and Portfolio Committee by end of Q1 2011/12 FY • Revised three year IPAP2 to be finalised and tabled to Cluster, Cabinet, Nedlac and Portfolio Committee and launched at the beginning of April 2011 • Next iteration will be a consolidation of IPAP2 and not another major quantitative leap and will focus on: • Maximising alignment between sector strategies and skills development system • Scaling up of Green industries work including SARI • Introduction of product development support measures • Addition of limited number of new sector/sub-sector programmes at a stage of development where they can added to IPAP2

17. Appendix A Real interest rates Short term interest rates – January 2011 Source: The Economist

18. Appendix A Real interest rates Long term interest rates – January 2011 Source: The Economist

19. Appendix ACurrencyReal Effective Exchange Rate, Jan 2009 – November 2010 (2000 = 100) 19 19 Source: SARB

20. Appendix AGDP by sector Real GDP growth by broad sector (Q2 2009 – Q3 2010) 20 Source: SARB

21. Appendix AManufacturing Manufacturing monthly production indexed (2005 = 100) and Y-O-Y growth, January 2005 to December 2010 21 21 Source: StatsSA

22. Appendix ATrade Balance Trade balance by sector Q1 1990 – Q32010 22 Source: Quantec

23. Appendix AManufacturing employment Employment in the manufacturing sector ‘000, Q1 2008 – Q3 2010 23 23 Source: StatsSA