IPAP2 Progress and Progression 2010/11 IPAP2 Nine Month Implementation and

1. IPAP2 Progress and Progression 2010/11 IPAP2 Nine Month Implementation and 2012/13 IPAP2 Overview Portfolio Committee on Trade and Industry Select Committee on Trade and International Relations 22 March 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 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 6

7. 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 7

8. 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 8

9. 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 9

10. 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 10

11. 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

12. 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

13. 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

14. 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

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

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

17. 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) 17

18. 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) 18

19. 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

20. 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

21. 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

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

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

24. AppendixCurrency Real Effective Exchange Rate (2000 = 100) and Rand / US Dollar, Jan 2009 – Jan 2011 24 24 Source: SARB

25. AppendixManufacturing Manufacturing monthly production indexed (2005 = 100) and Y-O-Y growth, January 2005 to December 2010 25 25 Source: StatsSA

26. AppendixTrade Balance Trade balance by sector Q1 1990 – Q32010 26 Source: Quantec

27. AppendixManufacturing employment Employment in the manufacturing sector ‘000, Q1 2008 – Q4 2010 27 27 Source: StatsSA