DRAFT REPORT OF THE SELECT COMMITTEE ON ECONOMIC & FOREIGN AFFAIRS ON OVERSIGHT VISIT TO THE EASTERN CAPE IN SEPTEMBER 2005

A. BACKGOUND

The Committee on Economic and Foreign Affairs undertook the oversight visit to the Eastern Cape Province to investigate challenges of economic development, Black Economic Empowerment and job creation on 6 September 2005.

B. Terms of Reference

The visit was arranged so that the meeting would be secured with the relevant Standing Committee in order to strengthen the relationship between the two committees. Meetings were arranged with the Provincial Department of Economic & Environmental Affairs and Tourism (DEAET), the Eastern Cape Development Corporation (ECDC) and the Eastern Cape Industrial Development Zone (ECIDZ)

C. Delegation

The delegation consisted of the following persons:

Ms ND Ntwanambi (Chairperson)

Ms MP Themba

Mr DG Mkono

Ms K Sinclair

Mr DD Gamede

Ms P Mpoyiya (Committee Secretary)

Ms N Sihawu (Transcription Typist)

D. Findings

Contextual background

The Eastern Cape Province has a population of 6.43 million (15,2%), with a population growth of 5,3%. The province hosts of a Growth Development Product (GDP) of 8.2% and 48% of labour force. This is in contrast to 37% of unemployment, with 63% of the people residing in rural areas.

The Province has a competitive advantage in terms of climate, cost to entry, scope of opportunities, natural resources and educational facilities. These are however not effectively benefiting the province.

1. Report on meeting with Department of Economic and Environmental Affairs and Tourism (DEAET)

The Department gave a perspective on how government has planned to respond to economic development and job creation in the province.

Mr Tandi Gcilitshana, the Director in the Department, gave a broad overview of the role played by the department in promoting economic growth and development in the Province. This is done through the promotion of trade & investment promotions of the province, by facilitating business development and finance support, participation in tourism development and marketing; as well as in spatial development initiatives support and support to Industrial development zone.

The Department has set up strategic systems to realize economic development objectives. The Provincial Strategy Development, Provincial support networks, and promotion of Empowerment objective through public procurement are core programmes.

2. Report on meeting with Eastern Cape Development Corporation (ECDC)

Mr Kevin Wakeford, the CEO of ECDC gave a perspective on the role played by the Corporation in response to economic development and employment needs in the Province.

The ECDC plays an important role in providing support for project development, spatial and rural development, investment promotions, and enterprise development services as well as exports promotion. For the period between April and August 2005, ECDC has disbursed loans to contractors (0,6%), project development (7,6%), conventional loans (12,6%).

ECDC has benefited a number of projects and in turn jobs were created, across district municipalities as follows: Alfred Nzo District 4 685, Amatole district 5 843, Cacadu 6 088 and OR Tambo District 8 818.

Despite the noted job opportunities, the ECDC was not without challenges. There is concern that the procurement of these projects is not benefiting the Province. The tenders are most awarded to people from outside and they are involved in the projects. These are some of the noted projects: the Value gain gaps; Moribund Balance sheet; the Agrarian Reform; Spatial plan & resource allocation. There is also a serious shortage of skills for people to be employed because people have moved away from the Province. This is further impacted in the manner in which local government delivers its programmes. Another challenge is that the Province has enough resource to feed its population, but most of the production is not produced for local demand, but for export purposes. Further the unresolved land tenure problems impact on the success of some of the proposed projects.

3. Report on meeting with East London Industrial Development Zone (ELIDZ)

The Industrial Development Zone (IDZ) is a government initiative that is aimed at positioning South Africa within the global economy. It is aimed at encouraging economic growth through manufacturing industries, creating jobs while also generating sustainable local and foreign direct investment. The ELIDZ is a private company that is owned in collaboration by business and government. The company ownership structure is 74% ECDC and 26% Buffalo City Municipality (BCM). The IDZ is funded by the Department of Trade & Industry, DEAET and BCM.

Mr Simphiwe Kondio, the CEO of ELIDZ, gave a contextual analysis of how the Zone realizes its mandate of stimulating economic development and job creation in the Province. The vision of the zone is "to be a catalyst of sustainable economic growth and job creation through development and efficient management of a globally competitive Industrial Development Zone that attracts and retains selected export orientated industries".

Since it's beginning in May 2003, 19 projects were undertaken which are valued at R194 million. These have secured 1219 jobs through the bulk infrastructure development project, which was completed in August 2005. This project is currently at its final stages. The next phase of development is the construction of estate buildings, which will proceed until August 2006. It is expected that 500 jobs will be to be created for the duration of the project.

In terms of spatial development, about 434 ha of land has been developed into prime industrial land, to house 110 industrial sites already serviced. These carry the potential of 19 000 direct and indirect industry related jobs.

The ELIDZ is currently in a transition between the infrastructure development phase and the investment phase. There are three sectors for investment, these are: automotive, agro industries and pharmaceutical. To date, three investors (Seatek, Milltrans and Universe Safety Glass) have been successfully attracted with 380 job opportunities. It is also expected that another 40 potential investors are going to come to the Zone. These would be in the sectors: automotive, agro- industries, forestry & wood, logistics, pharmaceuticals & chemicals and textile.

There are a number of factors that impact on the IDZ realizing its mandate. The current and proposed revised IDZ programme falls short of addressing some of the fundamental problems experienced by the IDZ developers. These include: Legislative framework, competitive incentives for IDZs, which is a clear funding mechanism and institutional arrangements. The state of readiness of key government partners is central to the success of the Zone. The ELIDZ is at advanced negotiations with potential investors and the government still need to be ready in terms of the following: customs regulations and rules: Investment appraisal and approval processes (DTI & SARS) and government Expediting Window.

Another concern is about the government's financial commitments and the degree of national/provincial funding collaboration for the project. The National programmes have a clear funding model for the IDZ programme for the multi-year development funding provisions as well as funding of critical regional transportation infrastructure. The main concern is that the ELIDZ is not receiving full financial collaboration and this affects the further developments of its projects. .

4. Visit to Siyakholwa Project in Keiskamahoek (kuQoboqobo)

In addition to meeting with the respective stakeholders, the Committee had requested to visit some of the projects that are supported by the Department. In terms of planned the programme, three projects were identified. However due to time constraints the Committee was able to visit only one project.

The Committee visited the Siyakholwa project in Keiskamahoek. The project is aimed at assisting farmers with their produce and enabling them to earn income from their produce. It was founded 8 years ago by a South African couple that was previously based in Johannesburg.

This ECDC funded project, which is aimed at assisting farmers to improve their produce and their income. These are some of the projects that are available: Paprika project, Maize project, rabbit

farming and the essential oil project.

These are not met with out challenges and the following concerns were raised:

• The paprika project could not be extended due t lack of support from government

• Department of Science & Technology initially gave an undertaking to fund the essential oil project but this has not been forth coming.

• No support from local government within the district.

• The maize project has been extended to 9 other villages in the area.

• The rabbit project has started small but is not yet effective.

Other matters

In addition to the visits and secured meetings, the Select Committee had requested to meet with the Standing Committee: The meeting could not take place because of other commitments.

The Committee is satisfied with the progress made by the ECDC and ELIDZ, in improving the economic conditions in the province.

Committee Recommendations

The Committee recommends that government should address the noted challenges for effective implementation of Independent Development Zones throughout the country.

Report to be considered.