The main features of the 2004/5 budget are:

• The Department is allocated R2.848,4 million for the financial year 2004/5, while forward estimates anticipate it receiving R3.023,5 million and R3.312,5 million in the years 2005/6 and 2006/7 respectively. This compares to the R2.796,3 million voted in the Adjusted Appropriation for 2003/4. The Department’s budget for 2004/5 is broadly in line with last year’s forward estimate, as is the estimate for 2005/6. Overall expenditure increases by an average of 6,8% per year taking expenditure from R 2,2 billion in 2000/1 to R 3,2 billion in 2006/7. Over the next three years expenditure is envisaged as rising by 4,7% per year. This is largely due to the increased uptake of the Department’s incentives and offerings as a result of their improved design and marketing.

• The 2004/5 budget is divided into seven programmes. These are: Programme 1, Administration, (8,3 % of the total ), Programme 2, International Trade Development, (3,4%), Programme 3, Enterprise and Industry Development, (35,7%), Programme 4, Consumer and Corporate Regulation (4,6%), Programme 5, The Enterprise Organization (33,1%), Programme 6, Trade and Investment South Africa (12,2%), and Programme 7, Marketing (2,7%). The programmes correspond to the Department’s operational divisions.

• Programme 1 has expanded significantly since 2000/1, with the largest increase being in the Corporate Services sub-programme responsible functions like internal auditing, corporate governance and agency management.

• The budget for activities falling under Programme 2 is relatively stable over the MTEF period, although the average annual increase between 2000/1 and 2006/7 is estimated at 20,1%. This reflects the increasing workload of multi-lateral and bilateral trade negotiations for which ITED is responsible.

• The budget for Programme 3 is envisaged to grow by a relatively modest 5,3% between 2000/1 and 2006/7, with an annual increase of 4,1% over the current MTEF period. Programme 3 is the Department’s largest programme and includes mostly transfer payments to associated Council of Trade & Industry (COTI) institutions.

• Programme 4’s budget has fluctuated, but is envisaged as increasing by an annual average of 10,4% between 2000/1 and 2006/7. The majority of this budget is allocated to transfers to regulatory agencies set up under various laws.

• Programme 5’s budget has increased very significantly, by an annual average of 23,3% between 2000/1 and 2006/7. Over the MTEF period the rate of increase is estimated at 4,7% per annum. The increase is largely accounted for by anticipated better take up of improved incentives and other support programmes.

• The budget for programme 6 has seen a decline from R 605,1 million in 2000/1 to an estimated R 391,1 million in 2006/7. TISA’s budget has, in fact, fluctuated over the years, with uneven payments to the Export Credit Insurance Corporation and on overseas missions of the Department. Some customized sector programmes, outsourced to TISA in the past, have also been transferred back to other divisions

• Programme 7 is a new programme established in 2003/4. It is expected to grow at an annual rate of 10,6% over the MTEF. This programme is responsible for managing the dti brand and promoting its services.

• Transfer payments account for approximately 77% of the total budget. A significant part of these transfer payments are made to associated COTI institutions. There are at present 19 regulatory agencies, development finance institutions and specialist service providers that report to the Minister of Trade and Industry.

• The budget for 2004/5 can also be divided into the following functional categories:

• Staff costs R281 mn 9,9%
• Procurements of Goods & Services R357 mn 12,5%
• Transfers to Agencies R1.090 mn 38,5%
• Offerings to Enterprises R900 mn 31,6%
• Human Resources R290mn 12%
• Equipment R13,6mn 0,5%

• The Department reported that it had spent almost all (R 2.496 bn of the R 2.520 bn) allocated to it in the 2003/4 financial year. This compares with the position in 1999/2000 when nearly 1/3 of the funds allocated to the Department were unspent. Last year’s performance continues a trend observable over the past five years where through better planning and budgeting, as well as marketing of its offerings, there is a marked reduction in underspending by the DTI.

The Department provided the Committee with a report of highlights of key outputs delivered in the past financial year. These included:

• The construction of a new dti campus in Sunnyside in Tshwane;
• The development of key performance indicators to measure the impact of the DTI’s work on the economy;
• Leading South Africa’s participation in a range of multi-lateral and bi-lateral trade negotiations;
• Supporting a range of activities by COTI institutions;
• Completing major corporate, consumer and credit law reform projects;
• Increasing the rate of processing of complaints and merger approvals by the Competition authorities;
• Providing incentives through the Enterprise Organisation to 6.000 enterprises, thereby generating R 1,3 bn in investment, creating 19.700 new jobs and sustaining 44.500 others.
• Securing, through the work of TISA, investments valued at R 5,8 bn and facilitating 305 projects
• Reaching 10.000 new clients through outreach programmes;
• Improving the information flow to economic citizens through, inter alia, establishing a call center, an improved website and a range of publications.

A more comprehensive report on the Department’s performance against the output targets in the 2003/4 budget will be provided in the Department’s Annual Report, which the Ad Hoc Committee recommends be the subject of detailed engagement by its successor committee.

The Committee also received a report on output targets for 2004/5. These include a number of detailed targets aimed at increasing the contribution of small enterprises to the economy, advancing broad based Black Economic Empowerment, raising levels of investment, increasing market access opportunities for South African enterprises, building skills, technology and infrastructure and generally improving the performance and capacity of the DTI in all areas. A feature of output targets this year is the identification of "flagship projects", which we were told were "non-negotiables" that needed to be delivered on as identified before the end of the financial year. These included:

• Finalising the credit law reform process;
• Merging Ntsika and the National Manufacturing Advisory Centre (NAMAC) into a single enterprise development agency;
• Disbursing the first loans from the Apex fund targeted at micro-enterprises before the end of 2004;
• Implementing a cooperatives development strategy;
• Finalising a strategy to promote a more equitable geographic spead of sustainable economic activity;
• Implementing the broad based BEE strategy;
• Finalising a strategy to boost trade between African countries;
• Investigating options to improve delivery of services to persons in the "second economy"
• Introducing an Enterprise Development Bill.

The Committee also had an opportunity to engage on budgetary issues with four of the COTI institutions. Highlights of these discussions included:

The South African Bureau of Standards (SABS)

• SABS performs a range of regulatory, commercial testing and certification, and design promotion functions in the broad area of standards, quality assurance and trade metrology.
• It receives funds from both the Science and Technology and DTI budget votes as well as fees for services provided to clients on a commercial basis.
• SABS is seeking to extend its provision of services to SME and BEE clients as well as within the SADC region. It is, however, facing increasing competition for its commercial and revenue generating services from foreign standards institutions that have set up businesses in South Africa.
• In the current budget year, SABS will have to draw on its reserves to finance certain training costs. However, it expects that certain anticipated savings on pension fund obligations will bring its budget back into balance in later years.
• Committee members were concerned at the apparent lack of transformation in the make up of SABS’ senior management structures. We were told that the higher salaries on offer in the private sector were attracting many skilled persons who had undergone training in SABS, and that SABS was battling to retain them.

• Khula’s annual disbursement of funds to SMMEs has remained constant for the past three years at around R 200 million per annum, after growing quite strongly between 1998 and 2000. The Managing Director (MD) identified breaking through this barrier and growing the annual disbursement as a key challenge for the organization.
• Within this overall total, provision of guarantees on loans by banks have declined significantly since 2002, while provision to retail finance intermediaries (rfis), to joint ventures and the land reform enterprise fund have increased.
• Khula claims that its products have created or sustained 113.000 jobs, and that it has contributed significantly to BEE.
• The MD acknowledged, however, that Khula had failed in the provision of micro-finance. He said that different kinds of skills were required in this area. The Apex fund would acquire such skills and aim to provide funds on more of a grant basis in disbursements of R 10.000 or less. Khula will provide information and advice to the Apex fund but play no role in running it.
• The MD maintained that Khula had, nevertheless, an important role to play in meeting the challenge of serving people in the "second economy". There was a major "market failure" in providing quick dispersing finance of amounts between R 10.000 and around R 100.000 or up to R 250.000. Serving this segment would, inter alia, assist people who had been awarded tenders or wanting to start projects in rural communities. Khula believes it can play an important role in this regard.
• The MD acknowledged that Khula, like Ntsika, has a poor image in communities. In part this is seen to be due to the fact that both institutions are "wholesalers" and deal with clients through intermediaries rather than directly. Khula is undertaking a programme of roadshows with communities to identify problems and contribute to finding new solutions.
• Khula’s new vision involves identifying specific market segments and devising "a holistic product and service solution" for each segment. This is still "work in progress".
• Khula’s operating expenses have grown significantly faster than its operating income, with a ratio of expense to income growth of 150% compared to 40 – 60% for "benchmarks"

• Ntsika, like Khula, does not directly provide services to SMMEs. It operates through a network of Local Small Business Centres, Manufacturing Advisory Centres and Tendering Advice Centres, with Ntsika itself playing largely a coordinating role.
• It has four programmes – business development support, programme design and research, chamber support and trade and investment development.
• The activity report shows significant underperformance against targets in key areas of SMME advice and training e.g. the target for SMMEs to be "counseled/advised" in 2003 was 27.167 against an actual result of 10.213, while 5.555 entrepreneurs were reported to have been "trained/workshopped" compared to the target of 20.300. The report, however, claims that 15.343 jobs have been have created or sustained through Ntsika activities, more than the target of 13.333.
• Ntsika is due to merge with NAMAC to form a single enterprise development agency. The Chief Executive Officer (CEO) told the Committee that consultants had been appointed and that it was expected that the new agency would be established by the end of the financial year.
• The CEO expressed the view that the merger process would offer an opportunity for alignment of SMME support, a reduction of duplication and a more focused mandate. Committee members identified a need for an efficient and more widespread diagnostic service of the type offered by NAMAC as well as more effective mentoring. The CEO indicated that there had been extensive interactions with the Irish, Brazilian and Indian experiences as a basis for developing a model for the new agency. He said that the development of a package of financial and non-financial services would be an important step forward.
• In terms of reaching persons in the "second economy", the CEO expressed the view that it was better for agencies to deal with collectives rather than individual micro-entrepreneurs. Ntsika had, accordingly, through its chamber support programme sought to build relations with organizations like the African Chamber of Hawkers and Informal Business (ACHIB).

• The IDC is a self-financing, state owned development financing institution that provides risk capital to a range of industrial projects in South Africa and other countries in Africa. One of the goals of its mission statement is to identify and support "opportunities not yet addressed by the market".
• The IDC reported that it envisaged the total value of its financing approvals reaching R 83,5 billion by the end of the decade 2000-2010.
• Between July 1998 and June 2003, the Corporation made "investment approvals" amounting to R 6,2 billion and involving 345 deals. Between July 1994 and June 2003, it made 787 "BEE approvals" with a total value of R 7,2 bn and 3.029 "SME approvals" worth R 11,7 bn.
• Finance to empowerment companies now represents 46% of total approvals or 33% of the total value of approvals, while SME approvals represent 25%. The Corporation, however, indicated that there had been some reduction in the value of its transactions more recently. It attributed this to the stronger Rand and the impact this was having of export-orientated companies.
• In addition to its activities in South Africa, the IDC is also involved in 74 projects, under implementation or consideration, in 20 other African countries. The value of projects approved in other African countries is around US $ 1,2 bn.
• The Corporation claims its programmes assisted in creating 17.500 job opportunities in the 2002/3 financial year.
• The IDC reports that it remains financially sound, with R787 mn net attributable income in 2002/3 and a Baa2 grade rating from Moody’s rating agency.
• Although the IDC does not provide resources to very small or micro-enterprises, it argues that its activities are still relevant to the challenge of transforming the lives of people in the "second economy". It is involved in infrastructure programmes and rural development projects. The overall impact of these is to create numerous possibilities for persons in local communities to develop complementary activities.

The Committee is pleased to report continued progress in the management, presentation, and reporting on the DTI’s budget. A Department once known for its significant underspending and large roll overs, is now a Department that spends almost all of the funds allocated to it by Parliament on the activities approved by Parliament. The Department’s Programmes are also now closely aligned to its major activities and financial control and reporting systems seem to be functioning effectively. In addition, the Committee received a report indicating that the Department had delivered on a number of key output targets identified in the 2003/4 budget. However, as indicated above, the Committee did not receive a full, comprehensive report on its performance against last year’s output targets. That we are told will be provided in the Department’s annual report due out later in the year. Monitoring this will be one of the key oversight activities, which we recommend should become a matter of routine for the Committee that succeeds this Ad Hoc Committee.

As also indicated above, the Department reported that it was in the process of finalizing a mechanism to measure the impact of its programmes on the economy – in other words to measure the extent to which its outputs contribute to the achievement of its outcome targets. This, too, needs to be interrogated and engaged with as an important tool of Parliamentary oversight.

While the Committee found that in general there was improved delivery in 2003/4 on the output targets identified, a few matters of concern were identified. These include:

• The underperformance by Ntsika in programmes directly aimed at providing couselling and training services to SMMEs.
• Khula’s indication that it was having difficulties in breaking through the R 200 mn celing for annual disbursements, coupled with its report that the value of funds channeled through banks by way of its guarantee facility had declined.

It is our earnest hope that the merger of Ntsika and NAMAC (whose programmes while limited in scope have often been relatively effective) will provide the basis for a more effective diagnostic and mentoring/incubation service for small business. The Ad Hoc Committee recommends that this is an issue that its successor needs to remain seized of.

The Committee notes that the fall of in the value of Khula guarantees through the banks contrasts with commitments made by the banks at the Financial Sector Summit to increase funding of SMMEs. Again this is an issue that needs to be followed up.

The challenge of responding to the needs of persons in the "second economy" by creating new opportunities for higher quality sustainable livelihoods, has been identified by the President and Government as priorities. Many of the structures we interrogated have at least tacitly acknowledged that many of their existing products and services are not adequately structured to respond to the challenges of transforming the "second economy". The Committee notes that identifying options to improve service delivery to persons in the "second economy" is one of the "flagship", non-negotiable output targets for the 2004/5 financial year. We note, too, that several other "flagship" commitments, including making the first disbursements from the Apex fund and implementing a cooperatives development strategy, are also targeted at persons in the "second economy". The Committee welcomes these new focuses, as well as the commitment to begin to implement the broad based BEE strategy, and believes that engaging with these issues will need to guide much of the work of Parliamentary oversight in the years ahead.