The main features of the 2005/6 budget are:

• The Department is allocated R 3.076, 3 million for the financial year 2005/6, while forwarded estimates anticipated it receiving R 3.239,7 million and R 3.381,7 million in the year 2006/7 and 2007/8 respectively. This compared to the R 3.274,9 million voted in the Adjusted Appropriation for 2004/5. The Department’s budget for 2005/6 is broadly in line with last year’s forward estimate, as is the estimate for 2006/7. From 2001/02 to 2004/4 the annual average increase in the budget of the Dti is 13,7% (excluding PBMR(Pebble Bed Modular Reactor) and NEF capitalization). Over the medium term the expenditure has stabilized, increasing at an average annual rate of 1,1 percent. It was reported that as the department becomes more efficient, savings are being made from the operational budget and these are allocated to new programmes such as the Apex fund, the community PPP programmes and the film incentive.

• The 2005/6 budget is divided into seven programmes. These are: Programme 1, Administration (8.1%) ; Programme 2, International Trade and Economic Development (ITED) (3.3%); Programme 3, Enterprise and Industrial Development Division (EIDD) (38.4%); Programme 4, Consumer and Corporate Regulation Division (CCRD) (3.8%); Programme 5, The Enterprise Organisation Division (TEO) (32.1%); Programme 6, Trade and Investment South Africa Division (TISA) (11.6%); Programme 7, Marketing (2.6%).

• Programme 1 overall expenditure has increased significantly, from R14.8 million in 2001/2 to R278, 5 million in 2007/8, an average annual increase of 12 per cent. Expenditure on Corporate Services has also increased substantially, from R 102,8 million in 2001/2 to 194,1 million in 2007/8. This is for the establishment of the department’s learning centre and payments to the concessionaire for the provision of a new, fully serviced campus.

• The budget activities falling under Programme 2 is relatively stable over the MTEF period, with expenditure increases from R47, 7 million in 2001/2 to 112,2 million in 2007/8 and an average annual increase is estimated at 3,8%. The growth in expenditure between 2001/2 and 2004/5 was a result of the expansion in the trade negotiations agenda, the promotion of trade and investments links with other African countries, and support for NEPAD, as well as the establishment of the International Trade Administration Commission in 2003/4.

• The budget expenditure for Programme 3 is expected to increase at an annual average of 15,1 % over the medium term. Much of this increase goes to the Equity and Empowerment subprogramme, which increases from R182, 2 million in 2004/5 to R440, 0 million in 2007/8, an annual average increase of 34,2%. The increase is also due to the capitalization of the National Empowerment Fund, the strengthening of the community PPP programme, the implementation of the Co-operatives Development Bill and policy, and the development of incentive support measures targeted at women entrepreneurs, as part of the Department of Trade and Industry’s targeted interventions in the second economy. Programme 3 is the Department’s largest programme and includes mostly transfer payments to associated Council of Trade and Industry Institution (COTII). The programme will also host most of the projects driven by EU donor funding.

• Programme 4’s budget has increased from R93, 5 million in 2001/2 to R131, 2 million in 2007/8, an average annual increase of 5,8%. However, transfers and subsidies to departmental agencies and accounts have decreased substantially, from R104, 3 million in 2002.3 to R62, 8 million in 2007/8. The decrease is because the Companies and Intellectual Property Registration Office became a self-funding entity from June 2002 and thus received significantly smaller transfers from the department from 2003 /4.

• Programme 5’s budget has increased significantly, at an annual average of 12,9% between 2001/2 and 2007/8. This increase is due to the demand for incentives available under the small and medium enterprise development programme and the critical infrastructure programme.

• The budget for programme 6 has experienced significant fluctuations in expenditure, driven by uneven payments to the Export credit Insurance Corporation (ECIC) and the foreign mission offices. A major reduction in the allocation to the ECIC in the 2004/5 adjustment estimate process resulted in a decrease in expenditure from R377, 0 million in 2003/4 to R270, 2 million in 2004/5. Expenditure allocations of R19 million and R21 million in 2004/5 and 2005/6 are for South Africa’s participation in the 2005 world exposition in Aichi, Japan.

• Programme 7 was established in 2002/3 with expenditure of R56, 4 million, which then increased rapidly to reach a peak of 121,7 million in 2004/5, in part due to a once-off payment of R25 million to contribute to the 2010 soccer world cup bid. However, expenditure is expected to fall to R81, 3 million in 2005/6, reflecting in the level of marketing campaigns, and is then expected to increase slowly to reach R90, 5 million in 2007/8.

• Economic classification of the Dti budget was set-out as follows:

• Transfer to agencies – 41% (Substantial part of the transfer went to large enterprises)
• Private sector enterprises – 31%
• Personnel – 8.7% (a drop from 9.9% in 2004/5)
• Procurement – 12.1%

• The Department reported that the reallocation of the budget to support the medium-term strategy 2005-2008 was a gradual process, however the following strategic areas received an above average share of the budget:

• Investment – 22%
• Market access and export – 14.5%
• Building a competitive economy – 13.6%
• BEE (mainly on NEF) – 14.2%
• Access to redress – 3.8%
• African economic development – 0.6%

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

• Increasing the contribution of small enterprises to the economy through establishment of the Small Enterprise Development Agency; establishment of phase 1 of the Apex Fund; finalization of the Co-operatives legislation and development strategy
• Regulatory impact study has been completed
• R250 million rebates to the clothing industry through the Deputy Credit Certificate Scheme
• The approval of the consumer protection policy
• Establishment of the National Liquor Authority

A more comprehensive report on the Department’s performance against the output targets in the 2004/5 budget will be provided in the Department’s Annual Report, which will be a subject of detailed engagement, by Members.

The Committee also received a report on output targets for 2005/6. 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 general 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 the Committee was told to be "non-negotiables" that needed to be delivered on as identified before the end of the financial year and these include:

• Implementing the Integrated Small Enterprise Strategy,
• Implementing the cooperatives development agency,
• Rolling-out of SEDA to provincial offices,
• Rolling-out out of phase two of the Apex fund,
• Implementing a women’s economic empowerment strategy,
• Implementing a targeted investment promoting strategy,
• Conducting a review and impact assessment of competition policy,
• Implementing Customized Sector Programmes in priority sectors,
• Complete the consumer protection legislation,
• Implement an African economic development strategy, and
• Setting up an e-commerce system for all dti transactions including incentives

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

• The IDC is a self-financing, state owned development institution that provides risks capital to a range of industrial projects in South Africa and other countries in Africa. One of its mission statements 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 R83, 5 billion by the end of the decade 2000-2010.
• In 2003/4 IDC’s investment approvals amounted to R 4.8 billion involving 259 deals and investments as a percentage of private sector investment activity amounted to 3% in 2003/4.
• It further reported that in the last 10 years IDC approvals created about 164400 new job opportunities and a total export earning potential worth R 41.2 billion.
• In 2003/4 financial year, 64% of the R2.6 billion approvals were BEE deals and more than R2, 6 billion was invested in poorer regions such as the Eastern Cape, the Northern Cape and Limpopo.
• IDC’s estimated targets for the next financial year and beyond amounted to R4.6 billion to R5.4 billion worth of approvals. Strategies to achieve such targets include:

• Active identification and development of investment opportunities in targeted areas,
• Sectoral development strategies,
• Focused service delivery,
• Expanding IDC’s reach and/or presence, and
• Supporting expansionary and broad-based Black Economic Empowerment

• The National Empowerment Fund Act of 1998 established the National Empowerment Fund for the purposes of promoting and facilitating economic equality and transformation.
• NEF reported that disbursements on transaction approved, following launch of new products have commenced since November 2004.
• Further disbursements in the IT, wine making and transport business sectors took place between November 2004 and January 2005.
• R150 million has been earmarked for investment capital to the NEF for the current financial year, which has partly been received following the successful signing of the Shareholder Performance Agreement.
• The Acting CEO reported that as of to date NEF has cash reserves to the amount R152 million to fund its operations and investment activities and will be essentially fully invested through its current funding work in progress which currently stands at R 129 million.
• The first tranche of the R2 billion allocated is expected in the first quarter of the next financial year.
• Chief among the transaction highlights provided with 5 year medium loans from the previous financial year include:

• MUKS Business Enterprise CC,
• Kula Tissue Products CC,
• Benra Furniture Manufactures CC, and
• Wax Works (Pty) Ltd

• Transfer payments to Khula increased from R25, 0 million in 2003/4 to R29, 5 million 2007/8.
• Khula reported that its annual disbursement of funds to SMMEs has remained constant for the past three years.
• At least 60% of loan/equity facilities were directed to the following underserved provinces: Free State, Eastern Cape, Northwest, Mpumalanga, Northern Cape & Limpopo.
• Khula has made a significant progress in meeting key deliverables presented last year such as the start-up fund.
• Credit guarantee scheme has been revised to increase access to underserved markets.
• As such Khula’s operational performance in the current financial year are on track to exceed last period’s achievements.

• The National Gambling Board fulfils its mandate by promoting uniform norms and standards generally throughout South Africa and bringing about uniformity in the legislation relating to gambling in force in the various provinces.
• In the current budget year the National Gambling Board projected the following cost component changes:

• Staff employment – 39%
• Subsistence & Travel – 14.57%
• Maintenance – -8.06%
• Professional fees – 27.51%
• Communication – 54.54%
• Board members’ fees – 6.99%
• Miscellaneous – -1%
• Administration – 24.78%

• Members acknowledged that gambling regulatory system was extremely complex and a challenge, as such the Committee requested the National Gambling Board to furnish the Committee with its report on how it was regulating provinces.

The Committee is pleased to report continued progress in the 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. The Department’s programmes are also closely aligned to its major activities and financial control and reporting systems seem to be functioning effectively. In addition, the Committee has received 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. The Committee was told that such a report will only be provided later in the year. Monitoring this is one of the key oversight activities, which have been flagged by the Committee for later this year for a detailed engagement.

While the Committee found that in general there was improved delivery in 2004/5 on the output targets identified, a few matters of concerns were identified. These include:

• That the Dti’s Medium Strategic Plan was silent on the Department’s intentions to address economic development at local government level.
• Duplication of functions between the NEF, IDC and Khula and the separate existence of the NEF.

The Committee notes that Khula's indicators are positive.

The challenge of responding to the needs of persons in the "second economy" by creating new opportunities for high quality sustainable livehoods, has been identified by the President and Government as priorities. Many of the structures we interrogated have at least tacitly and/or expressly acknowledged that many of their existing products and services are poised to respond to the challenges of transforming the "second economy". As such, the Committee notes that identifying options to improve service delivery to persons in the "second economy" is one of the "flagships", non-negotiable output targets for the 2004/5 financial year. 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.

The Committee acknowledges the contribution made by Dr. A. Ruiters during his term as Director General for the Department of Trade and Industry.