1) IPAP in brief a USER’S GUIDE 

2) IPAP in brief a USER’S GUIDE Accelerating industrialisation Enhancing local and export competitiveness Campus 77 Meintjies Street, Sunnyside, Pretoria 0002 Sustainable energy for growth Postal Address Private Bag X84, Pretoria 0001 Supporting innovation and new technology Reducing poverty and inequality Customer Contact Centre 0861 843 384 Website www.thedti.gov.za Driving African regional industrialisation the dti | IPAP In Brief 1 

3) MESSAGE FROM THE MINISTER “This compact booklet is intended as a guide to the recent evolution of industrial policy in South Africa – and, more specifically, to South Africa’s Industrial Policy Action Plan (IPAP) – which has now been in place since 2007. It tries to avoid, on the one hand, being too specialist and, on the other hand, dumbing down the often complicated issues that face us as an emerging middle income country in difficult economic times. It is aimed at all interested South Africans who are concerned about how to meet the daunting challenges we face in terms of economic recovery, sustainable growth and the struggle to overcome the triple scourge of unemployment, poverty and inequality. “The IPAP’s business Why the IPAP? If the National Development Plan (NDP) sets the overall vision for South Africa’s economy and society on the road to 2030, then IPAP provides the targeted actions and the continuously updated rolling implementation framework for is to tackle ‘the devil in the detail’ head on” 2 the dti | IPAP In Brief the dti | IPAP In Brief sustained and deepening industrialisation. The IPAP’s business is to tackle ‘the devil in the detail’ head on – and get results. It therefore combines comprehensive policy research, institutional coordination and consensus-building with a problem-solving, bottleneck-busting approach to SA’s industrial development challenges – never losing sight of the wider goal of a stable, secure and prosperous South Africa, more at ease with itself, the African continent and the wider world.” Rob Davies Minister of Trade and Industry April 2015 3 

4) WHAT IS INDUSTRIAL POLICY? In broad terms, the Industrial Policy of a country is the sum of its strategic efforts to develop, expand and sustain a competitive manufacturing sector that fosters stable growth, diversification, technological development, decent employment and an improving quality of life for all. Why is industrial policy so important? • Manufacturing is indispensable for the development of a strong export strategy based on globally competitive, value-added products. contributions of construction (0.81); mining (0.60); finance (0.49); transport and communication (0.03) and electricity (0.03). Industry operates as a hub to the wider economy, offering an important market for supplies and services from other sectors • Employment multipliers: Likewise, every R1 million of additional investment spending in the manufac turing sector will create about 3 decent and sus- tainable jobs. This in contrast to 2.5 jobs that would be created in construction; 1 in finance; 0.5 in mining; 0.1 in transport and communication and 0.1 in electricity. • Business services as well as other non-industry sec- tors strongly benefit from industry’s demands across the upstream and downstream value chains. • In the South African context in particular, it is of critical importance to create strong linkages between manu- facturing and the mining and agricultural sectors – linkages which in turn help to consolidate a sustainable services sector. Industry is the backbone of the economy • Given that industry has the highest economic and employment multipliers – and the strongest linkages to all sectors – it is critical for South Africa’s long term development. Industry fosters important growth and productivity factors • A strong industrial base goes hand in hand with higher economic growth and technical progress. • The manufacturing sector is more productive than other sectors – about 15% higher than the overall average. It leads to significant productivity improve ments in all other sectors and is a critical driver of research and development (R&D) and innovation. 4 Industry generates strong positive spillovers to other sectors • Despite having suffered enormous pressure in the wake of the 2008/2009 financial crisis, manufacturing remains an important, potentially decisive sector within the South African economy, given its capacity to generate positive and significant spillover effects on the rest of the economy. • Demand creation: As noted earlier, manufacturing draws in and creates demand for a huge range of upstream inputs and services, whilst also stimulating very significant additional downstream economic activity in services, maintenance and retail. • Output multipliers: In South Africa, every additional R1unit of investment spending in the manufacturing sector generates 1.13 units of additional output in the total economy. This in contrast to the output INDUSTRIAL POLICY IN THE LOCAL CONTEXT Where the IPAP fits in In 2007 the government adopted the National Industrial Policy Framework (NIPF), and its associated practical implementation plan – the IPAP – as its guiding approach to industrialisation, in line with the job creation strategy advocated in the New Growth Path (NGP). Industrial growth both depends on and spurs higher quality education and training: • Sustaining industrial jobs and wages – which contri- bute strongly to aggregate demand in the economy – depends on building competitive advantage in key productive sectors; and this in turn requires continu- ous workforce training and up-skilling. • The result has been that investment in the consump- tion sectors of the economy – which have been growing at twice the rate of the productive sectors – has over time generated unsustainable levels of household debt, whilst manufacturing and agri culture have continued to contribute far less to the economy than they are potentially capable of doing. Since then, the IPAP has continuously updated and refined its emphases on an annual basis, both to ensure that it remains in tune with rapidly changing global and local economic and social developments and, more recently, to align itself with the overall vision and perspectives set out in the National Development Plan (NDP) of 2012. • Quality work: Manufacturing provides quality jobs that offer higher wages and better career prospects than many other sectors. Whilst modern industry builds its core workforce around employees who have completed secondary rather than tertiary education, manufacturing sector wages nevertheless remain above average in every skill class. • At the same time, the country has steadily lost some of the most important capabilities built up over time in key manufacturing sub-sectors such as foundries, casting, tooling, mining capital equipment and trans- port equipment, chemicals and marine engineering. Overcoming the structural problems facing the SA economy South Africa’s economic growth, post-1994, has been on a largely unsustainable path. • At the same time, dynamic modern industry is becoming more and more dependent on employees with STEM skills (science, technology, engineering and mathematics); which means that producing these skills to scale (both in-house and in the public secondary and tertiary sectors) has become a critical component of sustainable industrial development. the dti | IPAP In Brief • This has led to significant market failures – where the high short term returns available in the consumption- driven sectors of the economy – retail, finance and insurance, real estate, transport, logistics and security – have operated to the detriment of long term ‘bricks and mortar’ investments in the productive sectors. • The economy has experienced extensive financialisa- tion – meaning, at the most basic level, that financial markets and the trading of financial instruments have predominated over the industrial economy and the agricultural sector. the dti | IPAP In Brief • Unemployment levels remain unacceptably and de- stabilisingly high – fluctuating between 22.5% and 25% on the narrow definition – and contributing to South Africa’s unenviable position as the most unequal country in the world. • It is therefore critical that concerted support to South Africa’s industrialisation is provided by both govern ment and the development finance institutions (DFIs), to begin building a strong platform for the re-entry of large scale private sector investments into the produc tive economy. HOW DOES THE IPAP TACKLE THESE PROBLEMS? • IPAP is centrally focused on bringing significant struc- tural change to the South African economy over the medium to long term. Its main priorities are: - increasingly synchronise macroeconomic and To industrial policy. - To work with and support manufacturing by con- tinuously developing a wide range of policy mea - sures to raise competitiveness and realise multiple wider benefits to the economy, including expansion of the tax base and a healthier trade balance. WHY? WHAT ARE the OVER-ARCHING GOALS? • To diversify the economy away from primary resource dependence by providing concentrated support to value-adding manufacturing activities and associated services, with strong linkages between manufacturing and primary sectors. • To help develop enabling conditions for decent job creation; and to include historically disadvantaged people and regions. • To contribute towards complementary industrial isation in Africa, focused on infrastructure, rapid enhancement of productive capacity, technical cooperation and expanded trade. 5 

5) THE IPAP process IPAP is the product of systematic analysis of the latest trends in the global and regional industrial policy space; and of the continuous search for optimal policy coherence: both within government and between government departments, State-Owned Companies (SOCs) and the full range of stakeholders and social partners. IPAP’s research efforts are aimed at developing effective instruments for public-private sector cooperation and identifying key investment opportunities. This has two aspects: On the one hand: • Developing close and supportive reciprocal working relationships with carefully identified leading and dynamic firms to help further enhance their com petitiveness, position them favourably in export markets and ensure that they implement strong domestic supplier development programmes. On the other hand: • Understanding the dynamic and interlinked evolu- tion of high-tech sectors and new digital technologies; and engaging practically with the foreseeable impacts of these developments on existing and emerging industry sectors. 6 • Each year, the dti launches a revised three-year rolling IPAP in the context of rapid economic change and , continuing global uncertainty. • It is important to understand that the annual iterations of IPAP do not represent “New Policy’ or “Yet Another New Plan”, as is sometimes suggested in the media. As its title indicates, the IPAP is an action document that coordinates, adjusts and modifies ongoing interventions aimed at catalysing dynamic, balanced, sustainable and inclusive growth. IPAP synchronises the activities and responsibilities of many different agencies and stakeholders in both the public and private sectors; and it holds everyone to account for the actions to which they have committed. • This has proved to be a robust formula, which allows continual scaling up of interventions and sufficient flex- ibility to respond to change. Just as many of today’s successful industrial firms have built up their capabilities through a process of learning by-doing, IPAP clearly demonstrates the dti’s commit- ment to constantly refining and improving on the design and implementation of its industrial policy initiatives. KEY LINKAGES: THE IPAP THE , NDP AND THE MTSF The National Development Plan (Ndp) Highlights the need for SA to develop a more competitive and diversified economy with a higher global share of dynamic products and greater depth and breadth of domestic linkages. (NDP 103). , p. Recognises that resources are either a curse or a blessing (NDP 98) – which way this goes , p. being critically dependent on the coherence of investment and regulatory policy. Posits the need to move steadily away from an exchange rate linked primarily to commodity prices towards one based on the sophistication of SA’s overall export basket. (NDP 98-99). , p. In order to achieve these objectives it advocates deepening the productive base in mining, agriculture, manufacturing and services, intensified stimulation of local and foreign markets and strengthening of conditions to support labour-absorbing activities. (NDP , p. 103). The Medium Term Strategic Framework 2014-2019 (Mtsf) Positions the IPAP as one of the key pillars of radical economic transformation in South Africa, predicated on rapid and inclusive growth in the productive sectors of the economy and the creation of a skilled and capable workforce to support an inclusive growth path. (MTSF, pp. 20, 22). the dti | IPAP In Brief “Understanding the dynamic and interlinked evolution of high-tech sectors and new digital technologies” the dti | IPAP In Brief 7 

6) how ARE the ipap’s goals achieved? • By targeting specific industries for rapid development – particularly labour-intensive value-adding sectors where South Africa enjoys potentially decisive com- petitive advantages - notably in mineral resources and agriculture. Beneficiation, or value-added processing, involves the transformation of a primary material (produced by mining and other extractive processes) into more finished products which have a higher export sales value. 1 “Promoting innovation and research to make local manufacturing more competitive” 8 the dti | IPAP In Brief Beneficiation can take a wide range of different forms - e.g. the use of platinum in catalytic converters and fuel-cell technology; various agro-processing applications (high-grade mohair, cotton and lint products); forestry (mining timber, construction poles, particle boards for furniture manufacturing, specialised cellulose products for export); leveraging plant biodiversity into products for the cosmetics sector; other labour-intensive processes such as metal fabrication, craft jewellery, and ceramic pottery. Each successive level of processing permits the product to be sold at a higher price than the previous intermediate product or original raw material - and adds value at each stage. Beneficiation has been defined by government as ‘a principal driver of our mineral resources regime and industrialisation’. the dti | IPAP In Brief • By working intensively with industry and labour to develop new industrial clusters and create dynamic backward and forward linkages between larger com- panies and smaller local enterprises. • Sound industrial policy can also successfully stimulate and drive other sectors. For example: - Agro-processing can create new opportunities across the agricultural value chain as a whole; - Beneficiation1 can extract more value from mineral and other primary resources; - Services become more viable in the context of manufacturing diversification. • By implementing stronger developmental condition- alities and extracting stronger reciprocal obligations from beneficiaries of state support in areas such as investment in plant and technology, competitiveness upgrading, employment retention and creation etc. • By cooperating actively with the Department of Science and Technology (DST) to promote innovation and research, in order to make local manufacturing more competitive – both domestically and in international markets. • IPAP interventions range from economic stimulation, procurement, industrial financing and incentives to carefully-focused regulation: vigilant competition policy, flexible tariff setting, effective customs controls and so forth. 9 

7) TRANSVERSAL (CROSS-CUTTING) FOCUS AREAS – 2015 and beyond instruments to drive structural change Focus areas 1-3 (left-hand side of the mind map) seek to to leverage localisation in state and private sector procurement to stimulate growth in the productive sectors of the economy, whilst at the same time driving innovation, improving regulatory standards, combatting abuse of market dominance and eliminating importexport fraud. Focus areas 4-6 (right-hand side of the mind map) are focused on developing an integrated industrial financing system, providing sustained support for Industrial Development Zones and Special Economic Zones and building a strong platform for African regional integration - based on enhanced trade, infrastructure development and shared, complementary industrialisation. Monitor and ensure compliance with sector designations and localisation requirements in state procurement Transversal (cross-cutting) and sectorspecific interventions aimed at fostering balanced and inclusive industrial development. Strategic, coordinated, integrated industrial financing system, combining the joint efforts of the state and development finance institutions Increase localisation of components in fleet procurement RFPs and the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) Engage directly with private companies in key sectors to support localisation - eg. mining, health, ICT, electro-technical Public procurement Industrial financing Flexible/strategic tariff setting Further development of enabling standards and compulsory specifications Closer and more detailed collaboration with Customs to prevent illegal imports Developmental trade policy IPAP TRANSVERSAL FOCUS AREAS 2015 SEZs and Regional Economic Clusters Continued realignment of technical infrastructure activities in support of key IPAP sectors Ongoing review of incentives and instruments for Science, Technology and Innovation (STI) to finalise an STI system, aligned to incentives and industrial financing Innovation and technology Regional Integration Integration of DST innovation and commercialisation support measures with incentives, industrial financing and support for technology acquisition Priority processing for dynamic firms - with greater selectivity/strengthened conditionalities Expansion of existing Industrial Development Zones; creation of new Special Economic Zones Develop SEZs as dynamic platforms for foreign direct investment (FDI) and for the deepening of strategic industrial and export capacity, both in the SEZs themselves and in associated regional industrial clusters Coordinated development of African regional infrastructure, support for complementary industrialisation, integration of value chains and expanded trade. Formalise an R&D-led industrial development approach through implementation of the Emerging Industries Action Plan (EIAP) Develop a portfolio of R&D projects aimed at scaling up industrial growth 10 the dti | IPAP In Brief the dti | IPAP In Brief 11 

8) IPAP SECTORAL INTERVENTIONS: 1 IPAP SECTORAL INTERVENTIONS: 2 IPAP identifies a number of key manufacturing and service sectors for special attention and support in order to leverage higher levels of innovation, productivity, export competitiveness, integrated rural development and job creation. These include: a) sectors with strong growth multipliers (automotives; metal fabrication, capital and rail transport equipment; plastics, pharmaceuticals and chemicals); b) sectors with particularly strong employment multipliers (agro-processing; forestry, timber, paper, pulp and furniture; c) stressed sectors (like clothing, textiles, leather and footwear) which have significant import substitution and export potential; and d) sectors offering paths to skills upgrading (business process services and crafts - with expanded and deepened support for SMMEs and producer co-operatives). IPAP also pays careful attention to sectors that are a) crucial for long-term resource sustainability (oil, gas, renewable energy, green transport); b) have the potential to leverage key domestic comparative advantages (South Africa’s massive mineral resource endowment); or c) keep the country ‘in the game’ internationally in crucial areas of high-tech, ICT, advanced materials and niche manufacturing. SECTORAL CLUSTER 2: RESOURCES, ENERGY AND HIGH-TECH – 2015 and beyond SECTORAL CLUSTER 1: TRADITIONAL SECTORS AND SERVICES – 2015 and beyond APDP: Continuous support for OEMs and local component suppliers through the Automotive Production and Development Programme (APDP) OEMs: Stronger bi-lateral work with individual original equipment manufacturers NEW SEGMENT STRATEGIES: motor-cycle and electric vehicle manufacturing and localisation AFRICA: Stepped up work on African integration across the full auto sector value chain Plastics, Pharmaceuticals & Chemicals Automotive Forestry, timber, paper, pulp & furniture LOCAL CONTENT: Meet state localisation targets across all government procurement tenders COMPETITIVENESS: Deploy competitiveness enhancement and training programmes at company level FINANCE: Roll-out tailored industrial financing packages Metal fabrication, capital & rail transport equipment IPAP SECTORAL FOCUS AREAS 1 PLASTICS: Develop a Plastic Production and Innovation Cluster - focus on testing, R&D and skills DESIGNATIONS: For selected pharmaceutical and medical devices tenders COSMETICS: Develop a comprehensive Strategy for local firms, including integrating their production with SA retailers' expansion into sub-Saharan Africa FORESTRY: Forestry beneficiation, production parks and technology upgrading SAWMILLING: Technology upgrading and development of a sawmilling hub PULP AND PAPER: Specialised cellulose applications FURNITURE: Develop a Furniture Production Hub Food and Beverage Sector Investment Programme Agro-processing New product and trade promotion Regional Development Programme and Municipal Agro-hub Programme Agro value chain development and linkages CTCP: Continuous support for the sector through the Clothing and Textiles Competitiveness Programme (CTCP) VALUE-ADD: Extended beneficiation of local raw materials: mohair fibre, flax fibre 'cottonisation', exotic leather, cotton lint; communal hides commercialisation pilot projects Food Innovation Programme with focus on incubator food technology stations Clothing, textiles, leather & footwear Business process services Develop agro-chemicals sector Ongoing implementation of the BPS incentive programme, with proactive development of Acton Plans for emerging sub-sectors DEVELOP THE MINING/MANUFACTURING INTERFACE to galvanise resource-based industrialisation KEY VALUE CHAINS: Focus on policy and project levers for beneficiation of iron ore/steel, titanium, platinum group metals (PGMs), polymers and mining capital equipment CATALYTIC CONVERTERS: Support for expansion of SA producers FUEL CELLS: Jump-start development of fuel cell manufacturing industry INDUSTRIAL FINANCE: Develop financing scheme for local PGM fabricators Explore opportunities to process SA’s vast magnetite iron-ore resources PGMS the dti | IPAP In Brief Leveraging SA's mineral endowment IPAP SECTORAL FOCUS AREAS 2 POLYMERS Leverage state procurement of plastic products (pipes etc.) RESEARCH: Step up research scoping capabilities for opportunities and constraints in both upstream localisation and downstream energy generation and beneficiation INTERNATIONAL: Intensify work with oil majors and domestic and international suppliers - including development of a local content roadmap for offshore and onshore conventional and unconventional exploration and production the dti | IPAP In Brief GREEN TRANSPORT: Develop policy for production of compressed natural gas (CNG), bio-methane and electric vehicles REIPPPP: (Renewable Energy Independent Power Producers Procurement Programme): leverage designation and procurement of solar photovoltaic ENERGY EFFICIENCY: Scale up Industrial Energy Efficiency Programme GREEN SKILLS: Launch Programme to stimulate demand and supply of critical and scarce Green Skills CARBON: Develop a calibrated approach to carbon mitigation and implementation of carbon tax targets PROCUREMENT & EXPORTS: Programme to scope existing industry capabilities, supply chains, opportunities for localisation and support for exports through the Export Council CAV: Ramp up cluster development and investment in Centurion Aerospace Village IRON / STEEL Cluster development to address training, skills and testing Evaluate downstream opportunities presented by shale gas resources Aerospace and defence Advanced materials GAS: A dti-led national effort to develop a road map for gas-based industrialisation 12 Green industries ICT LOCALISATION: Personal computers and tablets; composite infrastructure products Broadband Oil and gas Localisation of composite product development for aerospace, automotives, municipal infrastructure projects - e.g. glass reinforced composite poles, fibre glass, carbon fibre, epoxy resin White goods & electrotechnical ROLL-OUT: Create support mechanisms for the roll-out of the Department of Communication’s broadband policy Work closely with and support local manufacturers to raise competitiveness and exports Increase local manufacturing capability Establish a long-term procurement programme for investment preparedness and industrial financing Ship/ boatbuilding Skills development programme and strategic marketing campaign Infrastructure investment led by Transnet National Ports Authority 13 

9) HOW IS IPAP IMPLEMENTED? Delivering on the IPAP involves coordinating efforts across a wide range of government departments, public entities and supporting agencies. Its actions depend on, but are not limited to: • Core resource allocations as reflected in the dti’s budget. In particular: PUTTING RESOURCES TO WORK: A FEW HIGHLIGHTS infrastructure partner institutions: SABS, SANAS, NMISA and the NRCS.2 Monitoring and evaluation The implementation of IPAP is subject to rigorous monitoring and evaluation. To this effect, a matrix with Key Action Plans (KAPs) is used as a tool to track implementation. Infrastructure The monitoring and evaluation matrix mechanism allows for early detection of problems as they emerge, so that corrective action can be taken within the shortest possible time-span. It also facilitates regularly updated progress-reporting to Cabinet, the Economic Sectors and Employment Cluster, the Parliamentary Portfolio Committee and NEDLAC. • Over the past five years, R1 trillion has been spent on infrastructure investment, with steadily increasing localisation. Over the coming three years, govern- ment will spend a further R840 billion to develop the country’s infrastructure in support of deepening industrialisation. - The suite of competitiveness incentives offered by the Incentive Development and Administration Division (IDAD); - Investment and export promotion – administered by Trade & Investment South Africa (TISA). Industrial financing • The Industrial Development Corporation – see also next page – has over the past 20 years approved total project funding of more than R128 billion (R204 billion in 2013 prices). These financial commitments sup- ported the creation of 360,000 direct jobs and saved an additional 43,000 jobs. • Industrial financing – provided by the Industrial Development Corporation (IDC). 2 SABS: South African Bureau of Standards SANAS: South African National Accreditation System NMISA: National Metrology Institute of South Africa NRCS: National Regulator for Compulsory Specifications CSIR: Council for Scientific and Industrial Research NEDLAC: National Economic Development and Labour Council 14 • Support for B-BBEE, as provided by the National Empowerment Fund (NEF), which focuses on pre ferential procurement and widening the spread of equity ownership. Manufacturing competitiveness • From the start of the financial year to date 236 en- terprises were approved for funding under the MCEP , with a total grant value of R1 billion. The investment leveraged as a result is R3.7 billion in support of 28,093 jobs. • The strategic deployment of tariffs – administered by the International Trade Administration Commis- sion (ITAC) – to support manufacturing. • In-depth cooperation with Customs, the Competi tion Commission, the CSIR and the dti’s technical the dti | IPAP In Brief the dti | IPAP In Brief The automotive sector • Concentrated IPAP support for the auto industry has helped it to retain its position as the leading manu- facturing sector in the domestic economy, employing more than 100,000 people. • During the year under review the Automotive Invest- ment Scheme (AIS) and the People-carrier Automo- tive Investment Scheme (P-AIS) together approved 40 projects with total incentives of R515 million and an estimated investment value of R2 billion. • Vehicle and component exports increased by 8.2%, from R94.9 billion in 2012 to R102.7 billion in 2013. • Development plans include a projected capital expen- diture of R7.9 billion for 2014-15, implementation of the revised Automotive Production Development Programme (APDP) and expansion of the successful Automotive Supply Chain Competitiveness Initiative. Rail fleet procurement In 2014, two major awards for rail fleet procurement were announced: - a R51 billion contract between the Passenger Rail Agency of South Africa (PRASA) and Gibela Rail Con- sortium for the supply of 600 commuter trains (3,600 coaches) over the next ten years; and - a R50 billion award by Transnet Freight Rail, split between four successful bidders, for the supply of 1,064 locomo tives: 599 electric locomotives to be built by China South Rail Zhuzhou Electric Locomotive and Bombardier Transportation SA; and 465 diesel locomotives to be built by General Electric South Africa Technologies and China North Rail Rolling Stock South Africa. All of the awards incorporate strong localisation requirements under the Competitive Supplier Development Programme (CSDP). Green industries • Between 2011 and 2014, the REIPPPP Programme awarded 4,944 MW to 64 projects – mostly solar photovoltaic and wind energy technologies. • The renewable energy sector has committed invest- ments totalling R120 billion, with R39 billion commited to local content. Clothing, textiles, leather and footwear • Since inception of the Clothing and Textiles Competi- tiveness Programme (CTCP) programme, approvals worth R 2.7 billion have been facilitated under the Production Incentive Programme (PIP), with disburse- ments of R2.1 billion. Approvals under the Cluster programme stand at R712 million, with disburse- ments to the value of R310 million. Business Process Services • The dti launched the revised Business Process Services (BPS) incentive at South Africa House in London. The revised incentive scheme will build upon the success of the previous scheme, which led to the creation of 9,077 jobs on the back of financial disbursements of R587 million. Support for the film industry • Between April and December 2014, the dti sup- ported 94 projects to a total value of R654 million. 15 

10) A SPECIAL NOTE ON THE ROLE OF THE IDC The IDC is the largest Development Finance Institution (DFI) in South Africa, providing funding aimed at increasing industrial capacity. The release of the National Industrial Policy Framework in 2007 and the subsequent development of the Industrial Policy Action Plan signalled a change for the IDC and its role in South Africa’s industrial development. The IDC responded by reviewing its strategy with an increasing focus on productive sectors of the economy and reduced its activities in some services industries. Over the past six years, the IDC has approved funding of close to R36 billion to businesses operating in the IPAP priority sectors as illustrated in the accompanying graph. The largest portion of this funding went to the renewable energy industry, where the IDC played a catalytic role in the establishment of the industry through its project development and funding activities during rounds 1 to 3 of the REIPPPP The IDC also . provided funding for manufacturers setting up local production facilities to manufacture components for the renewable energy programme. The fabricated metals and machinery industries saw the IDC approving approximately R4.5 billion since financial year 2008/09. This included funding for businesses supplying Eskom and Transnet’s respective capital ex16 But very significant problems remain to be overcome. The mind map presented below illustrates how some of the key structural fault-lines in the economy play themselves out in the form of under-investment, administered price pressures, institutional bottlenecks and both energy-supply and operational constraints. penditure programmes. The automotive industry, one of the major drivers of South Africa’s manufacturing sector, received R3.5 billion in funding. A large portion of this was linked to reduced liquidity and unavailability of credit during the global economic crisis. The IDC is also assisting component manufacturers to set up factories in an effort to boost local manufacturing of components for motor vehicles. KEY CONSTRAINTS FACED BY SOUTH AFRICA’S PRODUCTIVE SECTORS The IDC supported agro-processing and projects to a total amount of R2.9 billion. These have reverse linkages to high-value agriculture, with its important positive spin-offs for rural development. In addition, the IDC continued support for the labour-intensive clothing and textiles industries, working closely with the dti to support companies to improve their competitiveness and assist in stemming job losses. This successful partnership was extended to the Manufacturing Competitiveness Enhancement Programme (MCEP), parts of which the IDC manages on behalf of the dti. Cost and difficulty of mobilising industrial finance Lack of long-term investments in manufacturing sector Intragovernmental programme and regulatory bottlenecks Operational problems and noncompliance with key policy levers (procurement, supplier development) Government departments State-owned companies Skills shortages & mismatches in key IPAP sectors IDC FUNDING APPROVED TO IPAP PRIORITY INDUSTRIES 2008/09 TO 2013/14* Agro-processing and high-value agriculture CONSTRAINTS ON SOUTH AFRICAN MANUFACTURING SECTOR PERFORMANCE Monopoly pricing of key industrial inputs (especially steel and plastics) Forestry, timber, paper, pulp and furniture Clothing, textiles, leather and footwear Burden of administered prices Persistent illegal imports and customs fraud Chemicals, plastics, pharmaceuticals, and cosmetics Mineral beneficiation Port charges, road & rail freight charges/ inefficiencies Metal fabrication, capital equipment & transport equipment Automotives and components Renewable energy Slowdown in manufacturing R&D, technology acquisition R 13.5 bn Film, production facilities and broadcasting R billion 0 1 2 3 4 Ongoing electricity supply crisis Electricity base prices + municipal premiums 5 the dti | IPAP In Brief the dti | IPAP In Brief 17 

11) overcoming contraints - putting learning to good use Coordination, bottleneck-busting, solution-finding • Tackling both the external and the domestic constraints to the deepening of South Africa’s industrialisation strategy will require a careful, purposeful, coordinated and sustained effort by government. This will involve government implementing a practical solutions-based approach to the critical constraints, working in close collaboration with all its key social partners. • Driving this process is the Presidential Business Working Group, made up of five joint task teams focusing on education and skills, infrastructure, the regulatory environment, the labour relations environment and inclusive growth. “Supporting exporters through Export Councils, market Loosening the regulatory burden on business • A number of initiatives to cut red tape and make doing business simpler are in the immediate pipeline: e.g. ‘One Stop Investment Centres’; the co-location intelligence, insurance credit etc.” 18 the dti | IPAP In Brief the dti | IPAP In Brief of SMME support agencies; and speedy resolution of Strategic Environmental Assessments. Tackling electricity supply constraints • A four-point strategy with the following elements: Monetary policy • Especially in the light of limited fiscal space, it is impor- tant that monetary policy/exchange rate management supports growth and maintains the competitiveness of the Rand. Industrial policy and procurement • Industrial Policy will focus on more sharply defined conditional incentives and a tightened framework for the public sector procurement process: ensuring stricter compliance with localisation targets and supportive capacity-building across all state procuring entities and SOCs. It will also encourage large private companies to come to the procurement table through local supplier development and strategic sourcing initiatives. - A government ‘war-room’ to mitigate short-term supply constraints and speed up delivery of new base load capacity; - demand-side power-usage management A programme; - Faster roll-out of the Integrated Energy Plan and further stepping up the momentum of the REIPPPP; - Urgently renewed attention to electricity supply and pricing issues at the local government level. Trade policy • High priority will be given to a ramped-up, targeted export promotion strategy aimed at both old and new markets; but with a strong focus on BRICS and Africa. (See graphic: “The Road Ahead”, page 21). • This will include re-orientating the ports infrastructure towards a pricing model that more vigorously sup- ports the export of value-added manufactured goods; and will be underpinned by strongly intensified joint actions to eliminate the scourge of illegal imports and customs fraud. 19 

12) SUMMING UP: KEY PRIORITIES 2015 ONWARDS Economy-wide pursuit of a stronger articulation of macro- and micro-economic policies • Greater coherence and integrated, stronger implementation. • Stronger alignment of industrial policies and pro- grammes with investment and export promotion programmes, including support for Export Councils, Special Economic Zones and clusters/hubs. Deepening the process of ongoing monitoring and evaluation • Improved monitoring and evaluation of key support programmes, twinned with supportive efforts to modify and strengthen sector strategies and support instruments. Infrastructure-driven industrialisation • This means sustaining and expanding the public infra- structure programme, with stronger support for local manufacturing and economic infrastructure. 20 Resource-driven industrialisation African regional integration • This focuses on the leveraging of mineral and other key (non-mineral) resources to achieve higher levels of downstream beneficiation and value addition. • The obvious attractions of a concerted ‘turn to Africa’ are high growth and increasingly strong consumer demand across many areas of the continent; together with the huge opportunities that exist for resource exploitation and infrastructure development. • It is aimed at systematically building up both the demand and the competitive advantages South Africa enjoys in the upstream mining, transport and capital goods sectors. • Finally, it also includes important ongoing work to develop a roadmap for gas-based industrialisation. Advanced manufacturing-driven industrialisation • This involves a sustained focus on key spillover eco- nomic sectors. It comprises both the design of stronger conditionalities for state support to these sectors and a strong commitment to close stakeholder engagement with private companies – particularly global OEMs. We are busy laying the foundation for major advances; but it is very important that we maintain and intensify the momentum that has been achieved to date. This means giving urgent priority to practical and effective working partnerships that successfully draw together government, business, labour, civil society and communities. If this is done this with creativity, imagination and a genuine commitment to give-and-take, there is every chance of kick-starting a virtuous new cycle of dynamic and balanced industrial development that buffers the economy against global shocks, supports social inclusion and environmental sustainability and offers a much more stable and secure future for all South Africans. THE ROAD AHEAD: PULLING IT ALL TOGETHER • Taking these opportunities forward will require developing joint programmes of action across key value chains – particularly in the mining, agro-pro- cessing, pharmaceuticals and chemicals sectors – and higher levels of value-addition in the downstream minerals processing and beneficiation sector. Secure decisive measures to reduce the burden of inefficiencies and high administered prices Rolling-out the intra-governmental Operation Phakisa Plan for the marine economy • Operation Phakisa is aimed at driving development in marine manufacturing and in the upstream oil and gas and ship/boatbuilding sectors. It will include the strengthening of public investment in the ports infrastructure and further development of appropriate models for crowding in private sector investment. Secure stronger alignment between macro- and microeconomic policy in support of industrial growth Secure maximum compliance with local content levels in both public and private procurement Step up the war on illegal imports and customs fraud Strengthen alignment between IDC and other DFI and private funding streams for IPAP priority sectors Intensify sector- and enterprise-specific support for high-performance leading and dynamic firms, with incentives related to sharply targeted conditionalities on competitiveness and export performance Intensify focus on anti-competitive behaviour, collusion and high prices of wage staples and intermediate inputs to productive sectors Deepen, extend and intensify the development of industry demand-led skills training programmes Industrial financing • Ongoing work, not yet completed, to build an integrated system of industrial financing, incentives and export support, with a special focus on lead and dynamic companies that can compete effectively in global export markets; and Rapidly implement an expanding suite of incentives for Special Economic Zones to grow local jobs, create new skills and support export production Stabilise and secure South Africa’s long term energy requirements, with a balanced energy mix and a strong emphasis on renewables, energy efficiency, co-generation, a green built environment and green skills development • Stepped-up work to support emerging black industrial entrepreneurs. the dti | IPAP In Brief Strengthen and align R&D, innovation and technology development with commercialisation of new products, enterprise clustering and local value chain intergration Coordinate & integrate efforts to stimulate mutually beneficial BRICS cooperation initiatives and drive African regional integration through infrastructure development, shared industrialisation and expanded trade the dti | IPAP In Brief 21 

13) MAKING CONTACT - GETTING HELP A GUIDE TO IPAPRELATED INCENTIVES AND SUPPORT AVAILABLE INCENTIVE SCHEMES A. Incentive Development and Administration Division (Idad) IDAD’s aim is to stimulate and facilitate the development of sustainable, competitive enterprises, through the efficient provision of effective and accessible incentive measures that support national priorities. IDAD Sub-programmes: • Broadening Participation provides incentive pro- grammes that promote the broader participation in the mainstream economy of businesses owned by individuals from historically disadvantaged communities and marginalised regions. The Black Business Supplier Development Programme (BBSDP), Co-operatives Incentives Scheme (CIS) and Incubation Support Programme (ISP) form part of this sub-programme. • Manufacturing Investment Incentives promote additional investment in the manufacturing sector. Incentive programmes include: the Automotive In- vestment Scheme (AIS); the People-Carrier Auto motive Investment Scheme (PAIS); Aquaculture De- velopment and Enhancement Programme (ADEP); and the 12i Tax Allowance Incentive. 22 the dti | IPAP In Brief the dti | IPAP In Brief • Services investment Incentives provide incentives that promote increased investment and growth in the services sectors. Incentive programmes include: the Business Process Services (BPS), previously known as the Business Process Outsourcing (BPO) programme; and the Film and Television Production Incentive. to South African registered entities engaged in primary, secondary and ancillary aquaculture activities in both marine and freshwater classified under SIC 132 (fish hatcheries and fish farms) and SIC 301 and 3012 (production, processing and preserving of aquaculture fish). The grant is provided directly to approved applications for new, upgrading or expansion projects. • Infrastructure Development Support leverages investments to the South African economy by provi ding infrastructure critical to industrial development, thus increasing exports of value-added commodities and creating employment opportunities. Incentive programmes include: the Critical Infrastructure Pro- gramme (CIP); the IDZ programme; and the SEZs. Business Process Services (BPS) The dti implemented the Business Process Services (BPS) incentive programme from January 2011 with the objectives of attracting investment and creating employment opportunities in South Africa through offshoring activities. Since the programme’s inception, the incentive has resulted in the creation of about 9,077 new jobs with an average growth rate of 26% per annum during the period 2011-2014. • Product and Systems Development aims to develop, review, monitor and evaluate incentive programmes to support the National Industrial Policy Framework (NIPF) and its action plan as well as sector strategies to address identified failures. • Business Development and After-Care facilitates access to targeted enterprises by reviewing incentive schemes for their impact and the lessons learned to improve old schemes and develop new ones. As part of Government’s commitment to deepen the country’s profile as a preferred location for the outsourcing of BPS, the incentive was revised with a recommendation to continue it beyond its current three-year duration. This has resulted in the new BPS incentive programme which was launched on 14 October 2014 by the Minister of Trade and Industry. B. Industrial Development Financial Assistance (Incentives) Capital Projects Feasibility Programme (CPFP) The Capital Projects Feasibility Programme (CPFP) is a cost-sharing grant that contributes to the cost of feasibility studies likely to lead to projects that will increase local exports and stimulate the market for South African capital goods and services. Aquaculture Development and Enhancement Programme (ADEP) The Aquaculture Development and Enhancement Programme (ADEP) is an incentive programme available Clothing and Textile Competitiveness Improvement Programme (CTCIP) The Clothing and Textile Competitiveness Improvement Programme (CTCIP) aims to build capacity Contact: http://www.dti.gov.za/about_dti/teo.jsp. 23 

14) among manufacturers and in other areas of the apparel value chain in South Africa, to enable them to effectively supply their customers and compete on a global scale. Such competitiveness encompasses issues of cost, quality, flexibility, reliability, adaptability and the capability to innovate. Critical Infrastructure Programme (CIP) The Critical Infrastructure Programme (CIP) is a cost sharing grant for projects designed to improve critical infrastructure in South Africa. The grant covers qualifying development costs from a minimum of 10% to a maximum of 30% towards the total development costs of qualifying infrastructure. It is made available to approved eligible enterprise upon the completion of the infrastructure project concerned. Medium and Heavy Commercial Vehicles Automotive Investment Scheme (MHCV-AIS) The dti has initiated the Medium and Heavy Commercial Vehicles Automotive Investment Scheme (MHCVAIS), a sub-component of the Automotive Investment Scheme (AIS), an incentive designed to grow and develop the automotive sector through investment in new and/or replacement models and components that will increase plant production volumes, sustain employment and/or strengthen the automotive value chain. People-carrier Automotive Investment Scheme (P-AIS) The People-carrier Automotive Incentive Scheme (P-AIS) is a sub-component of the Automotive Incentive Scheme (AIS) and provides a non-taxable cash grant of between 20% and 35% of the value of qualifying investment in productive assets approved by the dti. 24 Production Incentive (PI) The Production Incentive (PI) forms part of the overall Clothing and Textile Competitiveness Programme (CTCP) and flows from the implementation, by the Department of Trade and Industry (the dti), of customised sector programmes (CSPs) for the clothing, textiles, footwear, leather and leather goods industries. The PI Guidelines seek to enable companies to present their business cases to the CTCP Desk of the Industrial Development Corporation (IDC). They also provide a framework for the CTCP Desk to evaluate such cases. Sector Specific Assistance Scheme (SSAS) The Sector Specific Assistance Scheme (SSAS) is a reimbursable 80:20 cost-sharing grant offering financial support to export councils, joint action groups and industry associations. Seda Technology Programme (STP) Seda Technology Programme (STP) is a division of Seda (Small Enterprise Development Agency) focusing on technology business incubation, quality & standards and technology transfer services & support to small enterprises. Support Programme for Industrial Innovation (SPII) The Support Programme for Industrial Innovation (SPII) is designed to promote technology development in South Africa’s industry, through the provision of financial assistance for the development of innovative products and/or processes. SPII is focussed specifically on the development phase, which begins at the conclusion of basic research and ends at the point when a pre-production prototype has been produced. Technology and Human Resources for Industry Programme (THRIP) THRIP is one of three industry support instruments of the dti designed to enhance industry competitiveness and production capacity through the application of new technologies. The other two instruments are the Manufacturing Competitiveness Enhancement Programme and the Support Programme for Industrial Innovation. In recognition of the fact that Technology is embedded in people, the programme has as a core part of its design the training and production of Science, Engineering and Technology graduates, as well as the facilitation of flow of these graduates and of personnel between the collaborating research institutions and industry partners. While the programme has some overlaps with other instruments that provide support along the innovation value chain, it is sufficiently unique in certain aspects and complimentary to be seen as occupying a niche. C. Export Support And Promotion Trade and Investment South Africa (TISA) Trade and Investment South Africa (TISA) aims to increase export capacity and support direct investment flows via the implementation of strategies directed at targeted markets. Strategic Goals • In Increase the quality and quantum of foreign and domestic direct investment • Undertake effective investment recruitment campaigns • Provide an efficient facilitation and information service in order to retain and expand investment into South Africa and Africa, thereby serving as a one-stop shop initiative • Develop new and existing South African exporters’ capabilities, in order to grow exports globally (goods, services and capital) • Provide appropriate information, financial support and practical assistance to sustain organic growth in tradi- tional markets and penetrate new high growth markets • Effectively manage and administer the dti’s foreign office network. The Manufacturing Competitiveness Enhancement Programme (MCEP) The Manufacturing Competitiveness Enhancement Programme (MCEP) which is one of the key action programmes of the Industrial Policy Action Plan (IPAP) 2012/13 – 2014/15 and will provide enhanced manufacturing support aimed at encouraging manufacturers to upgrade their production facilities in a manner that sustains employment and maximises value-addition in the short to medium term. TISA comprises four business units: - Investment Promotion and Facilitation - Export Promotion and Marketing - Export Development and Support - Foreign Service Management Contact: http://www.thedti.gov.za/financial_assistance/ financial_incentives.jsp?subthemeid=25 Phone: 012 394 1534 • Government support for trade- and investment- related activities • General information on the domestic investment and domestic business climate • Identification, packaging and marketing of potential investment opportunities in South Africa • Identification of potential investors • Inward/outward trade missions • Dedicated aftercare services to investors Export Promotion and Marketing The unit is responsible for: Foreign Service Management The unit aims to render a full suite of corporate services to foreign economic offices to enhance the promotion of exports and investment in targeted countries. The dti has a network of 46 foreign economic offices abroad to facilitate business on behalf of South African companies. This network is spread over 36 countries and provides a substantial footprint for South African business to access markets globally. Contact: https://www.thedti.gov.za/about_dti/tisa.jsp Phone: 012 394 1032 • Developing and implementing regional export promotion strategies based on market research and identification of export opportunities • Reviewing the National Export Strategy by assimilating inputs from relevant stakeholders to ensure a targeted and focused approach. • Providing export support services - information and advice - as well as administering an incentive scheme (EMIA) that partially compensates exporters for costs incurred in marketing their products and services in foreign markets. Export Development and Support The unit’s mission is to help position South Africa as a reliable trade partner by expanding the country’s exporter base and creating an export culture focussed on global participation. It provides exporters with capacitybuilding services, export market intelligence and advice on expansion and diversification by at company, product and market levels. Investment Promotion and Facilitation The unit is responsible for attracting foreign direct investment, as well as developing and promoting local direct investment. It provides and facilitates: the dti | IPAP In Brief the dti | IPAP In Brief 25 

15) TECHNICAL SUPPORT INSTITUTIONS KEY PARTNER INSTITUTIONS National Metrology Institute of South Africa (NMISA) Overseas and controls use of the measurements units of the International System of Units to maintain primary scientific standards of physical quantities in South Africa. Dr Wynand Louw Director Research and Technology Development Tel: +27 12 841 4227 Email: wlouw@nmisa.org Web: www.nmisa.org The National Regulator for Compulsory Specifications (NRCS) Protects human health & safety and the environment: develops, administers and enforces compulsory minimum specifications for the safety and performance of products and services; supports fair trade practices. Dr Zen Fourie Tel: +27 12 482 8734 Email: zen.fourie@nrcs.org.za Web: www.nrcs.org.za 26 Industrial Development Corporation The IDC is a national development finance institution. Its core function is to provide industrial financing support, much of which flows to key IPAP/NGP sectors. Head Office: +27 11 269 3000 Call Centre: +27 860 693 888 Web: www.idc.co.za South African National Accreditation System (SANAS) Provides formal recognition of the competency of Laboratories, Certification & Inspection Bodies, Proficiency Testing Scheme Providers and Good Laboratory Practice (GLP) Test Facilities. Dr Elsabe Steyn Senior Manager: Strategy and Development Tel: +27 12 394 5024 Email: elsabes@sanas.co.za Web: home.sanas.co.za the dti | IPAP In Brief Export Credit Insurance Corporation of South Africa Provides insurance cover on risks associated with investments and loan finance for capital goods and services projects in foreign countries. Head Office: + 27 12 471 3800 Web: www.ecic.co.za Competition Commission South Africa Investigates, controls and evaluates restrictive business practices, abuse of dominant positions and mergers. Head Office: + 27 12 394 3200/3320 Web: www.compcom.co.za The South African Bureau of Standards (SABS) Develops, promotes and maintains SA National Standards of quality in commodities, products and services; provides conformity assessment services (testing and certifications). Dr Sadhvir Bissoon Executive Standards Division Tel: +27 12 428 6130 Email: sadhvir.bissoon@sabs.co.za Web: www.sabs.co.za Council for Scientific & Industrial Research Undertakes and supports research across diverse areas of science and technological innovation to enhance industrial and scientific development. Head Office: + 27 12 841 2911 Web: www.csir.co.za National Empowerment Fund The NEF’s role is to support BBBEE. It focusses on preferential procurement, broadening the reach of equity ownership, transformation of staffing and management and prevents the dilution of black shareholding. Head Office: +27 11 305 8000 Web: www.nefcorp.co.za the dti | IPAP In Brief International Trade Administration Commission Works with the dti to create an enabling environment for fair trade through sound technical advice and effective administration of its trade instruments. Head Office: + 27 12 394 3688 Web: www.itac.org.za 27 

16) CONTACT THE DTI Campus 77 Meintjies Street, Sunnyside, Pretoria 0002 Postal Address Private Bag X84, Pretoria 0001 Customer Contact Centre 0861 843 384 CONFIDENTIAL HOTLINE ON ABUSE OF PUBLIC PROCUREMENT 012 394 1435 Ruben Reddy Architects Website www.thedti.gov.za 28 the dti | IPAP In Brief 

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