Despite a challenging 2016, great strides were made in SA
This is an edited version of the Review of Economic Development in 2016, written by Economic Development Minister and Deputy Minister
2016 WAS a challenging year for economic development globally and domestically, but significant progress was also registered in South Africa.
The economy avoided going into a recession in part through the collective action of business, labour and communities working with the government, though growth remained very modest.
It was a year when all rating agencies were focusing on South Africa, with prospects of a downgrade that would have increased the cost of borrowing. By year-end, the country maintained its investment-grade rating.
The Economic Development Department played a major role in ensuring a co-ordinated infrastructure investment programme and in expanding the levels of development finance in the economy.
It entailed rallying stakeholders around certain policy and programmes that will have a major impact on our economy, as well as ensuring that the government responded in an informed and more aligned manner across the three spheres to the challenges of the economy.
A mid-term review of the New Growth Path jobs drivers was completed for Parliament’s Portfolio Committee on Economic Development, which indicated that more than 2 million new jobs had been created in the period since the adoption of the NGP in 2010.
Increased investment in the National Infrastructure Plan was projected at R987 billion over the next three years.
Economic transformation was a key theme in 2016 and we made significant strides in opening up the economy to new black-owned companies and expanding levels of youth entrepreneurship.
The Ministry of Economic Development is responsible for the work of the Economic Development Department (EDD), the International Trade Administration Commission (ITAC), the Competition Commission, the Competition Tribunal and the work of the Secretariat and Technical Unit of the Presidential infrastructure Co-ordinating Commission (PICC). Highlights of the work of the Ministry and its agencies are reported below.
Competition interventions and settlements
During 2016, the Ministry of Economic Development concluded settlements with AB InBev, CCBA (Coca-Cola Bottling Africa), Edcon, Clicks, Arcelor Mittal and seven construction companies.
These are major transactions that introduced either new public interest obligations on mergers, provided for funding for developmental projects or supported actions by the competition authorities against collusion in specific industries.
In addition, the Ministry facilitated the introduction from May 1 this year (2016), of new criminalisation provisions against collusion and cartel conduct in the economy, with stiff jail sentences of up to 10 years.
The competition interventions impact, a summary:
R4.8bn was committed by the companies listed above in development spending or penalties;
R6bn is the estimated value of the BEE-transactions;
61800 positive jobs impact: a total of 57200 jobs were saved and an additional 4 600 jobs (minimum) will be created as a result of the transactions.
More than 120 000 spaza shops and taverns will be given the right to stock and display products from competitor brewers and soft-drink bottlers, opening the market for beverages in the boldest way yet in SA retail history.
Some of the key transactions and settlements concluded in 2016 included:
AB InBev on the purchase of SAB Miller, which included, among others, commitments to R1bn that will be spent to promote new employment outside its core operations.
The company will support small, emerging farmers with a R600m facility through which 800 new farmers will be developed, with a total employment gain of 2 600 workers.
The remainder of the funding will support entrepreneurship and social programmes in South Africa – turning SA from a net importer to a net exporter of beer inputs.
It will retain the current 6 000 jobs of the workforce for a five-year period and provide protection against retrenchment; open up competition by craft brewers through granting them access to 10% of fridge space in taverns; develop low-alcohol and no-alcohol choices for the SA market and commit to the location of the African headquarters in South Africa.
Coca-Cola on the merger of three bottling operations, which included commitments to retain the current 7 500 jobs for a three-year period and provide for protection against retrenchments for specified categories of staff; provide R800m funding to create new jobs in its valuechains, of which a R400m facility will support small, emerging farmers as well as packaging companies; and a further R400m is available to support the opening of new spaza shops and retail outlets; setting aside 20% of the equity in Appletiser for black South Africans and 20% equity in Coca-Cola Beverages Africa for black South Africans; opening up 10% of the fridge space in coolers and display cabinets owned or financed by CocaCola in 117000 spaza shops and small retail outlets, to smaller and rival soft-drink bottlers; deepening the localisation of its local supply-chain including commitments to retain the production base of Appletiser in South Africa.
The Edcon Group, with the conversion of debt to equity and transfer of ownership of the company to its creditors, which included commitments by Edcon to support the local clothing, footwear and textile industry, retain 43630 current jobs in the company subject to market conditions and grow the number of new jobs in its retail and manufacturing operations by 2 000 workers.
ArcelorMittal, which was fined R1.5bn during 2016, required to commit to fresh capital spending of R4.6bn to upgrade its plant and equipment in South Africa, curb price increases through limiting its earnings before profit and tax to 10%, and limit retrenchments in its operations.
Seven construction companies (Murray &; Roberts, Aveng, WBHO, Group Five, Steffanutti Stocks, Raubex and Basil Read) committed to a new R1.5bn reparation fund for developmental projects in addition to a R1.4bn penalty for past collusion; and agreed to deepen transformation through the sale of equity or support for the development of black construction companies that will place many billions of rand in share-value or contracts in the hands of black South Africans and thus help to turn a new page of partnership between major players in the industry.
Clicks, which acquired the pharmacies of the Netcare Group, committed to protecting 207 jobs, work towards creating a further 65 additional employees, maintain or improve its levels of localisation and small business procurement and provide at least 80 bursaries to pharmacy students and 100 learnerships to young pharmacist assistants.
The agreement with Walmart/Massmart to support localisation was relaunched during the year to expand its impact and resulted in a number of new localisation initiatives.
Industrial development and funding
The Industrial Development Corporation last year approved R14.5bn in new investment, the largest sum in its 76-year history. Of particular note is the fact that this included R2.9bn in transactions involving 54 black industrialists. Roughly R1bn was approved for youth-owned enterprises.
A sum of R1.2bn was made available to women-owned enterprises.
The IDC is driving new investment and commitments to improve the competitiveness of South African companies, with its initiatives in the past financial year saving and creating 15000 jobs.
During 2016, the IDC partnered with the Beijing Automotive Industrial Corporation (BAIC) to set up a new R43bn auto-plant in Nelson Mandela Bay that in the first phase will produce up to 50000 vehicles for the domestic and African market, with planned employment of 2500 workers during the construction phase and 800 permanent production workers.
Infrastructure development
The Ministry and Department provided the technical backbone for the work of the PICC during 2016. Highlights included:
Supporting the expansion of new infrastructure projects and funding, which is expected to rise by more than R120bn over the next three years, to R987bn;
Working with National Treasury to develop a financing instrument for all public infrastructure;
Technical work to support the development of a new multiyear budgeting and appropriations framework for infrastructure that would allow for better long-term planning, smoother phasing of construction works in a project and better value-formoney through infrastructure spending;
Identifying new sources of funding for infrastructure, including technical work on the approval of the $180m loan by the Brics New Development Bank for transmission lines for renewable energy plants; Trade development During 2016, the Ministry provided information to Parliament on trade patterns on import and export performance of the SA economy. The analysis showed that exports to the rest of the continent is now the largest component of SA exports, and Africa overtook Asia, Europe and the Americas, as the largest export market for SA-made goods.
The major highlights on the Ministry’s regulatory initiatives during 2016 included:
1. Introduction of provisions of the Competition Amendment Act to criminalise collusive actions by company directors and officials, with up to 10-year sentences in jail;
2. Issuing of a Trade Directive to ITAC to consider the commitments that recipients of trade relief make to address employment, investment and competitiveness concerns.
Other Ministerial Interventions
The Ministry and EDDagencies focused on measures to retain steel manufacturing in South Africa, evaluate the impact of measures to support the clothing, textile and footwear industry and grow the agro-processing and filmmaking industries.
A Steel Task-team developed a co-ordinated set of measures to address the impact of the global glut of steel on the local industry, the past collusive practices and the need to have a secure supply of steel. These included trade, competition and investment measures. A Pricing Committee was also set up with representatives across the value-chain to monitor steel pricing and Arcelor Mittal’s adherence to a range of reciprocal commitments it made in relation to tariff support including increased investment, retention of jobs and pricing commitments.
Support by the Ministry and EDD-agencies for the development of the soya processing industry has yielded exceptional results. South Africa now has nine soya crushing plants, with a capacity to crush 1.8 million tons a year. A total of 42 black farmers were identified for the planting of soya beans and by year-end, some 2005 hectares of land was being planted or considered for planting.
The EDD provided support for a “My-spaza” Township Enterprise Development Project to introduce 42 wholesalers to 28 spaza shop operators to partner with them and provide funding for structural/ infrastructure upgrades of the spaza Economic Development Policy Co-ordination.
Building social partnerships, supporting investment and addressing country-risk issues. Activities in the development of social partnership and supporting investment, job creation and economic opportunities can be listed in six categories:
1. Meetings with investors and business associations
2. Meetings with ratings agencies
3. Discussions with international financial Institutions
4. Meetings with organised labour
5. Social dialogue with business and labour
6. Meetings with communities
A number of meetings were held with investors or business associations during 2016, including with companies such as Google, Coca-Cola, SAB Miller, Chevron, Sasol, Proctor & Gamble, Edcon and ArcelorMittal, and business associations such as the Atlantis Chamber of Business, the Black Business Council for the Built Environment and the Progressive Business Forum.
The Ministry worked with the Minister of Finance on the South African narrative on investment and growth and met three ratings agencies on country rating: Moody’s, Fitch and Standard & Poor’s and one ratings agency on the IDC rating (Fitch) as well as with business and organised labour on a common country position. The Ministry also met the International Monetary Fund (IMF).
The Ministry was part of the government team led by the Deputy President, which engaged with business and labour on the National Minimum Wage and labour market regulation.
Key appointments Deputy Commissioner of the Competition Commission – new appointment: Mr Hardin Ratshisusu.
Competition Tribunal – two new appointments: Mr Enver Daniels and Professor Halton Cheadle
ITAC commissioner– Mr Siyabulela Tsengiwe – extension of term by one year.
IDC Board: two new members: Ms Matshepo More (Public Investment Corporation – PIC) and Mr Andre Kriel (organised labour)