The Budgetary Review and Recommendation Report of the Portfolio
Committee on Economic Development, dated 1 November 2011
1. Introduction
The Department of Economic Development
(hereinafter referred to as “the Department”) was established in 2009, with a mandate
to develop economic policy with a broad, cross-cutting focus so that macro and
micro-economic policy reinforce each other and are both aligned to the
electoral mandate. The Department is further responsible for economic
development planning and seeks to work collegially with other Departments to
ensure coordination around a programme that places decent work at the centre of
government’s economic policies in order to secure better employment outcomes.
The Department is central to
government efforts of reducing unemployment, income inequalities and poverty in
the country. The Department’s mandate is rooted in ensuring that the country
focuses on employment creation. The Department’s principal outputs are the New
Growth Path (NGP) and Outcome 4 of the Service Delivery Agreement. The NGP identifies key ‘jobs drivers’, with high
employment creation potential and the implementation of supporting policies to
take advantage of this potential. The key ‘jobs drivers’ include agriculture
and agro-processing, mining and beneficiation, manufacturing, the ‘green
economy’ as well as tourism. In terms of Outcome 4 of the Service
Delivery Agreement, the number of jobs created / reduction of unemployment is
one of the key outcome indicators for the Department’s performance. Other
outcome indicators are GDP growth, employment ratio or absorption rate,
distribution of earned income and household poverty
1.1
The
role of the Committee
Chapter 4 of the
Constitution of South Africa, Act 108 of 1996 sets out in detail the powers,
functions and procedures of Parliament. Parliament through Committees, such as the
Portfolio Committee on Economic Development, is tasked with the following
functions:
·
Making laws;
·
Maintaining oversight over national
executive authority and any organ of state; and
·
Facilitating public involvement in
the legislative and other processes of the Assembly and its Committees.
In terms of
making laws, the Committee is seized with the matter of the amendments to the
Competition Act which have not yet been made into law. However, the Committee did not or introduce
any new legislation or handle any amendments this year.
In respect
of exercising its oversight functions, the Committee scrutinised the strategic
plans, budgets, annual and quarterly reports of the Department and its
entities. The Committee also embarked on oversight visits to places such as Free
state and Gauteng, with the aim of ascertain the extent to which the work of
the state’s development finance institutions addresses the needs of the end
users on the ground.
The
Committee also conducted public hearing on SMME Access to Finance in the
country. These hearings took place in November 2010 and the Committee adopted
recommendations arising from the hearings.
Section 5 of
the Money Bills Amendment Procedure
and Related Matters Act empower the National Assembly, through its committees
to annually assess the performance of each national Department in order to
compile and submit an annual Budgetary Review and Recommendations Reports
(BRRR) for each national Department that falls under its oversight
responsibility. Such reports must be tabled in the National Assembly. In the compilation
of this report, the Portfolio Committee on Economic Development interacted and
engaged with the Economic Development Department and its entities by analysing
and processing the tabled annual reports, including first and second quarter
performance report briefings by the Department for the year under review.
1.2
The
Department
The aim of
the Department is to promote economic development through participatory,
coherent and coordinated economic policy and planning for the benefit of all
South Africans. In achieving its mandate, the Department will ensure that:
·
It co-ordinates the economic
development contributions of government Departments, state entities and civil
society;
·
Efforts that ensure coherence
between the economic policies and plans of the state and state entities on the
one hand, and the government’s political and economic objectives and mandate on
the other are supported; and
·
It promotes government’s ability to
achieve its goals of advancing economic development with decent work
opportunities.
2.
Department’s
Strategic Priorities and measurable objectives
2.1 Strategic priorities
The
following were highlighted as the key strategic priorities of the department as
emphasised in the department’s strategic plan:
·
Promotion of decent work through
meaningful economic transformation and inclusive growth;
·
Provision of participatory, coherent
and coordinated economic policy, planning and dialogue for the benefit of all
South Africans;
·
Maintenance of high levels of public
investment in infrastructure to support private and public job preservation and
creation;
·
Deployment of macroeconomic policies in
combination and aggressively, where required, to address the economic crisis;
·
Utilisation of industrial and trade
policies to rebuild local industrial capacity and avoid the erosion of the
country's manufacturing base; and
·
Utilisation of a combination of measures on
public employment, private sector initiatives, including training, to avoid
massive job loses scaling up social interventions to address the jobs challenge
and ensure social.
2.1.1 Strategic
priorities per programme
In
March 2011, the
Minister of the Department stated that the focus of the Department will be to
try to increase the staffing of those posts that deliver services. The Minister
indicated that the Department is working towards greater integration between
the Department and the agencies, reporting to it. The Minister further noted
that the inter-ministerial Committee has become a critical forum in which a
consensus on policy is forged and key issues identified. The Minister
acknowledged that the approach adopted by government is not where it is
supposed to be, but reiterated that government has made significant strides in
moving away from the “silo” approach of government Departments.
Four
critical programmes determine the work of the Department. Within each of the
programmes, the Department identified a number of strategic priorities, which
relate specifically to the purpose:
·
Programme
1: Administration
The purposes
of this programme are to co-ordinate and render an effective, efficient,
strategic support and administrative service to the Minister, Deputy Minister,
Director General, the Department and its agencies. The Department’s reported
organisational structure provides for 265 posts, but funding was available for
124 vacancies. Out of 124 funded posts for the year ending in March 2011, the
Department had 75 employees. Accordingly, as at 31 March 2011, there were 49
funded but vacant posts, representing a 39.5percent vacancy rate.
·
Programme
2: Economic Policy Development
The overall
functions of this programme are to:
o
Develop
o
Undertake work to ensure macro and
micro economic policies that are coherent and aligned to the broader economic
objectives;
o
Co-ordinate the economic development
programmes of government;
o
Draw the links between different
policy and programme areas and economic development objectives;
o
Engage with civil society and manage
their contributions to policies for economic development; and
o
Conduct economic policy research
that informs the formulation of appropriate economic policies.
·
Programme
3: Economic Planning and Coordination
The purpose
of this programme is to develop economic planning proposals for consideration
by cabinet and for submission to the National Planning Commission to be
incorporated in the wider national plan.
It will
contribute the above-mentioned by:
o
Contributing to the coordination and
coherence between macro and micro economic policies. This will be achieved
through the development of these plans for the consideration of the economic
sectors and employment cluster of cabinet;
o
Providing oversight and strategic
direction to certain development finance and related institutions and economic
regulatory bodies;
o
Contributing to the work of other Departments
that are participating in African and regional institutions, international
economic agencies and multilateral institutions; and
o
Building economic opportunities
including the job creation potential of green economic activities.
·
Programme
4: Economic Development and Dialogue
The purpose
of this programme is to promote social dialogue to foster economic development.
The Department envisage to:
o
Lead government in its dialogue with
the social partners on matters pertaining to economic development and attempt
to build consensus with, and acquire the active support of labour, business and
the community on government’s economic policies, plans, goals and growth path
for economic development
o
Represent government in the
discussions about the implementation of the framework agreement on
o
Develop the capacity of social
partners to engage in social dialogue, including at sectoral and workplace
level; and
o
Enhance productivity,
entrepreneurship and innovation.
2.2
Measurable Objectives of the Department
According to
the strategic plan, the following were highlighted as the Department’s key
indicators
·
Number of jobs created / reducing
unemployment
·
GDP growth
·
Employment ratio or absorption rate
·
Distribution of earned income
·
Households in poverty
2.2.1
Measurable objectives per programme
·
Administration
The number
of posts filled is expected to grow significantly as the Department begins to
have a proper recruitment strategy in place. The key activities from the
operational plan under this programme include;
o
Implementation of the recruitment
plan and ensuring that the adequate Staff is in place to render the support
service needed.
o
Ensuring that the Department has
enough accommodation, furniture and equipment.
o
Planning and reporting.
·
Economic
Development Policy
The key
activities from the operational plan under this programme include;
·
Economic
Development: Planning and Coordination
The key
activities from the operational plan under this sub-programme;
·
Economic
Development and Dialogue
The key
activities from the operational plan include;
3. Analysis
of the Department’s Prevailing Strategic and Operational Plan
3.1 New Growth path
The New
Growth Path (NGP) sets a target of creating 5 million new jobs by 2020. The
initiative directs that economic policy should be geared towards the attainment
of this target and the Department of economic development is tasked with
ensuring that it has measures to coordinate efforts to realise the goal of
delivering 5 million new jobs.
In order to
achieve this target, government will focus on unlocking employment potential in
six key sectors and activities. These are:
·
Infrastructure, through the massive
expansion of transport, energy, water, communications capacity and housing
sectors.
·
The agricultural value chain, with
focus on expanding farm-output and employment and increasing the
agro-processing sector.
·
The mining value chain, with a
particular emphasis on mineral beneficiation as well as on increasing the rate
of mineral extraction.
·
The green economy, with programmes
in green energy, component manufacture and services.
·
Manufacturing sectors in the
Industrial Policy Plan 2 (IPAP2)
·
Tourism and certain high-level
services.
3.2 Findings from oversight
visits that impact on the Department
The Portfolio Committee undertook a
study tour to the
Some issues
that were raised are the following:
·
Dissatisfaction with government for allowing the importation
of products that can be produced and manufactured in the country.
·
Government failure to regulate the quantity and quality of
imported goods in the country.
·
The view that unemployment is partly due to the fact that
government allows foreign businesses to invest in the country and when profits
have been made, citizens are left abandoned.
·
Concerned that malls inhibit the SMME development in
townships.
·
The Department needs to assess the impact of on the SMME
development in the townships.
·
Complaints about cumbersome DFI processes.
·
The Department should ensure that the IDC, Khula, Samaf
merger is sufficiently equipped to create large cooperatives that are able to
alleviate poverty in a significant way.
Recommendations:
·
The Department should embark on road shows to establish the
state of cooperatives nationally and consider ways to overcome existing hurdles
to enable them to push back the frontiers of poverty in the country.
·
The Department and its entities undertake a follow up
community outreach programme in
·
The Department should work together with municipalities and
provinces and other relevant departments and formulate an integrated strategy
for restoring the small business parks in
·
The Department should engage the provincial departments on
strategies that could assist in unlocking the poverty and unemployment
bottlenecks in the provinces.
4. Analysis of Section 32
Expenditure Reports
The Department reported its first and
second quarter reports to the Committee. Among the key highlights was the fact
that the Department had managed to spend 45 percent of its total allocated
budget of R594.5 million. Spending was hampered by slow filling of posts which
was due to challenges of scarce skills in the economic sector.
The
Committee remarked that this reflected a modest spending trend by the Department.
Committee needed clarity as to what was the main priority of the Department as
far as the usage of funds was concerned, that is, conflict between spending to
create new jobs versus spending to save existing jobs. The Committee was not
convinced that the Department had placed emphasis in seeking to cater for
people living with disabilities. The committee strongly expressed its
dissatisfaction with slow progress in the filling of vacancies, more especially
those that are funded. The Department reported that there were challenges faced
with respect to finding the suitably skilled people to recruit especially
people who possessed financial skills as there was high demand for such
individuals in the private sector. The Department was further asked to put
emphasis on local content when implementing its procurement policy. Promoting green
economy activities must to be prioritised and reflected through the spending
patterns of the Department.
There is a
need to incorporate the Millennium Development Goals imperatives in the
department’s plans, especially those MDGs that are aimed at reducing poverty,
unemployment, through curbing indicators such as child mortality and gini coefficiency.
The Department was also urged to look at ways of reducing their dependence on
the Department of Trade and Industry on space issues as this was likely to be a
contributing factor to the department’s high attrition rate. A few entities had
raised the challenge of office space as a cause of concern during interactions
with the Portfolio Committee.
Table 1: Vote 28 Economic Development
Adapted from Treasury Estimates of
National Expenditure, 2011
·
Programme
Analysis
Programme
Analysis
The
department has four programmes, namely the Administration (9.25 per cent of the
total budget), The Economic Development Department received a total of R594.5
million in the 2011/12 financial year, an increase of R144 million or 32.17 per
cent in nominal terms compared to the previous year. This increase is also
reflected in real terms of 26.12 per cent (that is, from R R449.8 million to
R567.3 million). Of the total budget allocation (R594.5), 78.18 per cent (or
R464.8 million) is allocated to transfers and subsidies 20.72 per cent (R123.2
million) is billed to current payments and payments to capital assets received
1.1 per cent (R6.5 million).The 2011/12 allocation to the Department against
all national budget votes represents 0.12 per cent. This compares favourably to
the 0.09 per cent of the previous year’s budget. The slight increase might be
attributed to the Department’s expansion since its establishment in 2009
especially in the two of four programmes; Economic Planning and Coordination
Programme (nominal of 41.74 per cent) and Economic Development and Dialogue
Programme (33.45 per cent) and Economic Development and Dialogue (2.74 per
cent). In terms of economic classification, transfers and subsidies constitute
the largest allocation (78.18 per cent). These transfers are made to the
entities falling under the Department. The entities are divided into two bodies
namely the 3 Development Finance Institutions and Regulatory bodies. The
Development Finance Institutions include Khula (with a transfer of R128.9
million), Samaf (R90.5 million) and Industrial Development Corporation (R34.0
million). The regulatory bodies on the other hand consists of the Competition
Commission (R126.6 million), Competition Tribunal (R15.2 million) and the
International Trade Administration Commission (ITAC – R69.6 million) Over and
above the initial allocation to these entities, additional allocations are
expected over the medium term period.
·
Receipts
The
Department generates its revenue from dividends received from the Industrial
Development Finance (IDC) as well as fines and penalties imposed by the
Competition Tribunal for contraventions of competitive practices. Between the financial
years 2010/11 and 2011/12, the Departmental receipts increased by 6% the
Department from R230.0 million (2010/11) to R243.8 million (2011/12). Over the
medium term period, the revenue is expected to increase from R243.8
million in 2011/12 to R263.8 million in 2013/14. This represents an average
nominal increase of 8.2% the Department over the same period.
5. Analysis
of the Department’s Annual Report and Financial Statements
The
allocated budget for the Department for the 2010/11 financial year was R449 840
00. The expenditure for 2010/11 was R400 674 000, which translates to 89percent
of the voted budget. The major cost driver of the Department is in programme 3:
Economic Planning Coordination which includes transfers to Departmental
agencies with an expenditure of 95 per cent of the adjusted budget as well as
Programme 1: Administration, which has an expenditure of 78 per cent of the
adjusted budget.
Under-expenditure
occurred primarily in Programme 2: Economic Policy Development and Programme 4:
Economic Development and Dialogue. This is attributed to the rate in which
posts are filled as the Department is in its early years of operation. Overall
under-spending of R49 166 000 must be read in the context of the request for
rollovers, amounting to R35 050 000, pending approval by the National Treasury.
5.1
Analysis
of Annual Reports and Financial Statements of the State
Owned entities
5.1.1 Competition Commission
The Competition Commission is a
statutory body constituted in terms of the Competition Act, No 89 of 1998. In
terms of the Act, the Commission has powers to investigate, control and
evaluate restrictive business practices, abuse of dominance and powers to regulate
mergers and acquisitions in order to ensure a healthy competitive environment
in the South African economy.
For the year under review, the
Competition Commission was allocated R117.6 million. Its total revenue was R161
million. The authority reports that it spent 87percent of the total revenue.
The Commission under spent by 13percent which is above National Treasury norm
of at most 5percent under expenditure. A total R794 million was collected from
22 settlements reached in the year under review. The Commission reported a
worrying precedent which had been set by the appeal court which had led to a
number of its high profile cases being ruled against the Commission mainly
based on the procedure rather than the merits of the cases. The Commission had
since taken a decision to appeal some of those cases with the
5.1.6 Competition tribunal
The Competition Tribunal has jurisdiction throughout
·
Grant an exemption from a relevant provision of the Act.
·
Authorise a merger, with or without conditions or even
prohibit the merger altogether.
·
Adjudicate in relation to any conduct prohibited in terms of
the Act by determining whether prohibited conduct has occurred, and if so,
impose a remedy provided in the Act.
·
Grant an order for costs.
In terms of reporting, the tribunal indicated that a total
116 cases were heard in the year under review. The tribunal further reported
that it was proud to have managed an 86 percent of hearings in large merger
cases within 10 days of receipt of case. The reported administrative penalties
imposed by the tribunal exceeded R787 million, up from R292 million in 2009/10
financial year.
Observations:
·
There were seemingly high levels of staff leaving the
competition authorities, particularly the Competition Tribunal.
·
The reasons attributed to employees leaving the employ of
the competition authorities remained unknown.
·
The concerns about office space needed to be articulated clearly
as to what was needed and the plans of addressing such concerns already in
place.
5.1.2 Khula Enterprise Finance Limited
Khula
Enterprise Finance Limited (Khula) was established in 1996. Its vision is to be
the development finance partner of
first choice in Small Medium Enterprise (SME) development. The enterprise’s
mission is to provide finance,
mentorship services and small business premises to SMEs through a network of
partnerships and to encourage the sustainable development of SMEs whilst
ensuring that Khula remains financially viable.
Khula’s primary mandate is to
facilitate access to finance for SME development. The three key focus areas of
Khula’s mandate are;
·
Promote Access to finance through maximising financing for
SMEs.
·
Impact Development through jobs, Black Economic Empowerment
(BEE), rural development, women empowerment.
·
Ensure financial sustainability through inflationary rate of
return.
Khula’s target market includes the
following;
•
Primarily black-owned
& owner-managed formal SMEs.
•
SMEs requiring financial solutions between R10 000 and
R3 million, with special emphasis on the underserved market segment of loans
below R250 000.
•
Start-up and expansions of early stage businesses.
•
Focus on underserved provinces, rural areas and “urban
poor” communities
•
Focus on women-owned enterprises.
Observations
·
Questions remained as to what impact the pending merger
between Khula and Samaf was having on staff morale and productivity.
·
It was not clear as to whether Khula used private equity
funds to target key sectors such as those identified by the department of Trade
and Industry.
·
Concerns that a large segment of the population was unaware
of assistance provided under Khula
·
The total number of resignations in 2010 seemed to be high
and the committee was keen to know what may have led to such.
·
There was lack of clarity regarding break-down of
beneficiaries in terms of race, gender and location
·
Whether Khula had any plans of reviving and targeting
factories that were operational during the apartheid era but which had since
been neglected.
·
It was concerning to realise that the provincial offices of
Khula were located in Central Business Areas (CBD) rather that in the
townships.
5.1.3 South African Micro-Finance Apex Fund
The
South African Micro-Finance Apex Fund (Samaf) has been in operational since
2006. It was created to provide wholesale funding and capacity building support
to on-lending financial intermediaries for the provision of affordable
financial services to the enterprising poor in
·
For the first time, Samaf did manage to provide an elaborate
and well structured presentation on their annual report.
·
It was noted that similar institutions to Samaf in other
African countries had done well in terms of impact of the support given to
emerging entrepreneurs.
·
The Committee needed an explanation as to why the Department
director general had condoned two incidents of irregular spending.
·
The Committee was eager to learn what punitive or corrective
measures had been taken against individuals who were responsible for such
irregular spending practices
·
The people living in rural areas were unaware of how they
could benefit from funding provided by Samaf. A specific request was made to Samaf
to devise a strategy of reaching out to the poor and the marginalised.
·
It was however amazing to realise that
·
After reporting that Samaf often outsourced an external
auditing unit to scrutinise it books, the committee questioned the wisdom
around that practice as opposed to appointing an internal auditing team.
Observations
·
There were concerns about inconsistencies from Financial
Services Co-operatives in different provinces that were charging end-users
exorbitant interests which as a result discouraged many from utilising the
opportunities provided by Samaf
·
Samaf was urged to investigate the concern of high interests
charged by FSCs and if possible encourage the use of the model used in the
·
The funding model implemented in the
·
There was a plea for more visibility of the entity
particularly in provinces such as the
5.1.4 International Trade Administration
Commission of
The International Trade Administration Commission of
South Africa (ITAC) comprises three core business units, namely tariff
investigations, trade remedy investigations and import and export control.
During the year under review, ITAC reported that it investigated and considered
eight applications for tariff increases, of which six were favorably considered.
Other highlights of ITAC investigations included
anti-dumping investigations as well as six sunset reviews of existing
anti-dumping duties. A further investigation was initiated against Indian
manufacturers and exporters but that investigation was terminated without
imposing any anti-dumping measures.
Observations
·
The enormous increase in the issuing of export
certificates, particularly for copper waste was deemed as a cause of concern as
this practice had led to high levels of stolen copper being exported, causing
harm to the economy.
·
The Committee was concerned that
dumping was still continuing in
·
A challenge existed wherein
prohibited products from countries such as
5.1.5 Industrial Development Corporation
The
Industrial Development Corporation (IDC) is a self-financing, national
development finance institution. Its mandate extends to the rest of the African
continent and the institution operates in a broad spectrum of industries and
can offer financial assistance to a wide variety of individuals.
For the year under review the IDC
states that it achieved the following;
·
Net funding approvals for South African (SA)
based-development of R8.4 billion.
·
Improved impact on SA job creation with approvals during the
year expected to create 19 650 full-time jobs and save an additional 11650,
thus impacting 31 300 jobs in total. An additional 8100 jobs are expected
to be created through direct linkages to activities in the informal economy.
·
Alignment of the operations with the New Growth Path and the
establishment of Green Industries Business Unit.
·
Success with sourcing alternative funding which entails;
o
R1.5 billion approved to companies through R2 billion UIF
fund, creating and saving 17 000 jobs of the 31 300 mentioned
earlier.
o
Low cost funding secured for the promotion of energy
efficiency-initiatives
o
Successful interventions in manufacturing to sustain and
increase job creation and in this regard,
o
R539 million approved for businesses in the clothing and
textiles industry to curb job losses and increase competitiveness.
o
R648 million approved for schemes managed on behalf of the
Department of Trade and Industry (Dti)
o
R1.7 billion approved investment in the motor vehicle
industry covering areas which were in distress among others.
Observations
·
The efforts to encourage people with disabilities to utilise
funding from the IDC to finance their businesses were not yielding any positive
results.
·
The Committee requested an update from the IDC regarding
their feasibility studies with regards to the financing of green economy
activities.
·
The Committee observed that the IDC did not mention any
working relations with the Higher Education Department and the Science and
Technology Department, particularly with regards to aligning and coordinating
cross-cutting activities.
·
The project of funding green economy
activities had not been fully addressed by the Industrial Development
Corporation and yet this was one of the activities in which the Committee took
keen interest.
·
The Industrial Development
Corporation was praised for its successes in implementing its mandate.
Specifically with regards to the rollout of Solar Water Heaters, the Committee
felt the project could have a major impact if it was evenly distributed.
·
The Committee was keen to learn of the measures which had
been taken by the Industrial Development Corporation to ensure that funds
allocated from its distress fund were utilised for the actual purpose intended.
·
The Committee, after noting that the
Industrial Development Corporation had made huge investments outside the
borders of
6.
Consideration
of Other Sources of Information SUMMARY OF AUDITOR GENERAL'S FINDINGS |
||||
|
|
|
|
|
ENTITY |
STATUS |
MATTERS OF EMPHASIS |
|
|
Economic Development |
Unqualified |
HR planning did not adhere to Public Service Regulations |
|
|
|
Non-compliance with Treasury regulations on payroll report |
|
|
|
Lack of evidence regarding 30 day payment to creditors |
|
|
||
Instances of non-disclosure by senior managers |
|
|
||
Financials statements not prepared according to recognised accounting
principles |
|
|
||
Insufficient procedures for completion of accurate and complete
financials |
|
|
||
Competition Commission |
Unqualified |
Error discovered in the financial statements |
|
|
|
Financials not prepared according to generally recognised accounting
practice |
|
|
|
Deviation from National Treasury practice - no reasons were recorded
and approved by accounting authority |
|
|
||
Payments were made to suppliers who did not submit disclosure forms
(non-disclosure) |
|
|
||
Accounting authority's failure to take adequate steps to prevent
irregular expenditure |
|
|
||
Accounting authority's failure to exercise effective oversight in
ensuring compliance with relevant legislation |
|
|
||
|
|
|
||
Competition Tribunal |
Unqualified |
Non-compliance with procurement regulations regarding transactions
with value between R10 000-R500 000 (no reasons provided) |
|
|
|
Accounting authority did not take appropriate steps to prevent
irregular expenditure |
|
|
|
Non compliance could have been prevented if monitoring controls were
in place |
|
|
||
|
|
|
||
ITAC |
Unqualified |
Deficiencies in relation to inconsistent reporting of objectives,
indicators - not well defined and verifiable and targets |
|
|
|
Non-compliance with procurement regulations in relation to R97 104 and
no reasons provided for deviation |
|
|
|
Awards made to service providers who did not submit relevant
procurement forms |
|
|
||
Failure to take effective steps to prevent irregular expenditure of
R97 104 |
|
|
||
Lack of sufficient monitoring controls to ensure proper planning,
implementation and reporting of performance |
|
|
||
|
|
|
||
IDC |
Unqualified |
No material findings identified by KPMG and Sizwe Ntsaluba VSP |
|
|
|
|
|
|
|
Khula |
Unqualified |
No deficiencies identified by Sizwe Ntsaluba VSP, AB Mthimunye |
|
|
|
|
|
|
|
Department |
Unqualified |
Errors discovered in 2010 financial statements |
|
|
|
Uncertainty in relation to going concern |
|
|
|
Material losses of R 1.04 million |
|
|
||
Material impairments of R4.79 million |
|
|
||
Deficiencies in relation to usefulness of information - inaccuracy in
reported figures and incomplete performance information |
|
|
||
50percent of indicators were inaccurate |
|
|
||
Misstatements with regards to grants, interest income, accruals, loan impairments
and expenditure were corrected |
|
|
||
Non-compliance with procurement procedure for transactions worth
between R10 000 and R500 000 |
|
|
||
Leadership failed to ensure that reporting framework was complied with
regarding financial reporting |
|
|
||
Leadership did not ensure that predetermined objectives were well
defined, accurate and complete |
|
|
||
Lack of adequate controls for ensuring accuracy, completeness and
proper adoption of financials |
|
|
||
Inadequate controls for IT high
risk areas |
|
|
Source: Adapted
from Auditor-General’s Presentation to the Portfolio Committee
7. Committee’s Observations
Having
received the presentations and engaged the Department and its entities, the
Committee made the following observations;
·
The Committee was concerned with
slow pace of filling vacant posts within the Department of Economic Development.
·
Priority on creating Jobs and
opportunities in former homelands had not been thoroughly given adequate attention
by the Department and its entities.
·
Clarity on the future role of
bio-fuels and funding of such activities remained unclear
·
It remained unclear as to why the
Department had lost some of its employees since there was no exit form that
leaving employees completed.
·
For such an important and strategic
Department, there was no departmental website to provide the public and
stakeholders with information about critical activities of the Department.
·
Merger implications of Samaf and
KHULA on staff morale needed to be addressed lest they affect service delivery
8. Key Issues for
Consideration by Parliament
Since 2011 has been declared a year
of job creation through meaningful economic transformation and inclusive
growth, it is imperative that the Parliament of the
·
Number of jobs
created/reducing unemployment – Parliament should ensure that the New Growth Path guides
the work of the relevant Departments in achieving the set goals and work within
the premise that the creation of decent work is at the centre of the country’s
economic policies. In addition, Parliament should urge every sector (including
both public and private and economic sectors regardless of size and location in
order to focus on job creation.
·
GDP growth –despite
·
Employment ratio or absorption rate – this
indicator for employment cuts across various sectors. Education may be used as
an indicator for measuring skills. However, it is not a sufficient indicator by
itself. Parliament in this regard should also take into consideration other
facets to skills development such as on the job training; the quality of
education received and the Recognition of Prior Learning (RPL) in addressing
high unemployment levels. The recent
amendments to the labour Act should not be neglected in this regard. The skills
accord must be implemented without failure if we are to see skills gaps being
closed.
·
Distribution of earned income – the
country’s creation of wealth will depend, to an extent, on its economic
structure or system, history, ongoing or past wars, and differences in
individuals' abilities to create wealth. The apartheid era contributed
adversely to the inequality that
·
Households in poverty – there are
quite a number of people in
9. Recommendations
The recommendations
made by the Portfolio Committee on Economic Development have been divided into those
that are directed to the work of the Department of Economic Development, its
entities and those directed to the National Treasury.
9.1 The Department of Economic
Development
The Department
of Economic Development should:
·
Play an active role in the
co-ordination of the Department’s activities and that of its entities in order
to ensure that the vision of job creation and vacancy closure is realised;
·
Consider finding ways of gathering
information as to what led to employee resignations. This could be done through
for example an exit form that every leaving employee completes.
·
Ensure that its website is fully
operational and efficient so that Parliament and the public could be kept
abreast with activities of the Department;
·
Ensure that the revival of the
clothing and textile sector needed is given priority, including cotton farming;
·
Consider setting up Business Assessment Centres (BACs) or
multi-purpose centres on a public-private partnership basis;
·
Develop a monitoring and evaluation tool to ensure growth
and sustainability.
·
Focus strongly on institutional sustainability and put
emphasis on quick turnaround times;
·
Consider conducting workshops for communities on how to
complete the prescribed National Treasury forms in order to be registered in
the database;
·
Provide Small, Medium and Micro-sized Enterprises with
research and development support, and technical advice to mitigate lending risk
– similar to Taiwan which regards research and development as important to
understanding the needs of International Trade Administration Commission of
South Africa;
·
Ensure that the State
partners with the private sector (including banks) to reach small businesses
through innovative methods and the structure of financing needs to be
simplified;
·
Consider establishing a centre of excellence, which would
create a forum for the country’s best thinkers, together with stakeholders from
the public and private sector, and International Trade Administration
Commission of South Africa themselves, to engage on best practices;
·
Consider the need to reform the legal and regulatory
framework which impacts negatively on International Trade Administration
Commission of South Africa development;
·
Ensure that its recruitment policy caters for people with
disabilities in order to improve the existing situation with regard to
employees with disabilities;
·
Play a leading role in coordinating efforts by different
government departments in the green economy initiatives that are aimed at
contributing to job creation.
·
Certify that all employees on the payroll report are
entitled to payments in accordance with National Treasury Regulations to avoid
payments to ghost employees; and
·
Ensure that payments are made within 30 days after the
presentation of an invoice by service providers.
·
Give a briefing on the utilisation
of revenues by various entities such as the Industrial Development Cooperation,
the International Trade Administration Commission of South Africa and South African
Micro-Finance Apex Fund. This in light of the fact that other entities were
allowed by the National Treasury to utilise the revenue they generated while
could not. The processes around the declaration of revenue
generated needed to be explained to the committee.
10.2 Development Finance
Institutions
The Department
of Economic Development should ensure that the Development Finance Institutions
(DFIs), which include the Industrial Development Corporation, South African Micro-Finance Apex Fund,
Khula Enterprise Finance Limited and the International Trade Administration
Commission of South Africa do the following:
·
Accelerate initiatives to make Development Finance
Institutions more accessible.
·
The Industrial Development Corporation was urged to
encourage and support agro-processing businesses and particularly promote rural
industrialisation.
·
Ensure that Development Finance Institutions are more
flexible in allocating appropriate start-up capital;
·
Establish a Small, Medium and Micro-sized Enterprises
database which would be useful for promoting Small, Medium and Micro-sized
Enterprises business opportunities and facilitating interaction between Development
Finance Institutions and Small, Medium and Micro-sized Enterprises;
·
Create networking platforms and provide Small, Medium and
Micro-sized Enterprises with working capital, as well as start-up finance;
·
Align incentives for Small, Medium and Micro-sized
Enterprises financing with other policy objectives e.g. youth employment
initiatives.
·
Establish one stop centres with Small, Medium and
Micro-sized Enterprises specialists who will empower business people with the
required skills.
·
Ensure that Khula consider the usage of private equity funds
which target key sectors such as those that have been identified by the
Department of Trade and Industry;
·
Consider educating business owners about generally
acceptable business practices.
·
Device a plan for aggressive marketing to focus on small
business development and ensure less red tape when these businesses need
assistance to register or seek advice.
·
Place strong emphasis on credit risk management, close
monitoring of client default data and ease of access by Small, Medium and
Micro-sized Enterprises through an extensive network of branches.
·
Ensure that adequacy of staff resources, staff knowledge and
ongoing training feature prominently in Small, Medium and Micro-sized
Enterprises institutions.
·
Ensure that law enforcement agencies work
together (rather than leaving it for the International Trade Administration
Commission) in order to tackle the challenge of fraudulent and
illegal imports into the country.
·
The International Trade
Administration Commission should devise a sound communication
strategy as most people were not informed about what International
Trade Administration Commission of South Africa can offer
to the South African consumers.
·
Address remuneration challenges of
the commissioner’s and deputy commissioner’s posts.
10.3 The Competition Commission
The
Department of Economic Development should ensure that the Competition
Commission:
·
Make proposals and submissions on
how Parliament could intervene in terms of strengthening laws or closing the
gaps which hindered progress in terms of the work of the Commission;
·
Provide demographic details of their
staff compliment, namely race, gender, skill and position held;
·
Furnish the Committee with a progress
report on the issue of inadequate office space; and
·
Find means of reducing staff
turnover.
10.4
The
Competition Tribunal
The
Department of Economic Development should ensure that the Competition Tribunal:
·
Find means of partnering with
universities in order to recruit more talent that will remain within the employ
of the Tribunal for a long period of time.
·
The Competition Tribunal provide the
Committee, at a later stage, with a break down of its staff component in terms
of race, gender etc.
·
Engage with the Competition
tribunals to ascertain if there is a need to secure additional space for the
Tribunal to do its work.
·
Ensure adequate measures to correct
the 19 per cent reported under-expenditure which is more than the 5 per cent
recommended by the National Treasury
10.5
National
Treasury
The National
treasury should:
·
Consider reviewing tendering processes to, among other
things, exclude politicians from being awarded government tenders;
·
Consider allocating additional funding towards the work of
the Competition Commission; and
·
Ensure that people who do business with government are not
be black-listed by the National Treasury
·
Create conditions that are conducive for venture capital
development, and consider using tax incentives to encourage risk taking;
11. Conclusion
The Portfolio Committee
on Economic Development is of the view that the Department of Economic
Development, working together with its entities, has a massive role to play in
the government’s target of creating 5 million jobs by 2020. The Department is
strongly urged to review its recruitment strategy in order to lead by example
in as far as filling of government vacancies is concerned. The Industrial
Development Corporation in particular was singled out as one of the
institutions that have the potential, through its programmes, to make a very
meaningful contribution to job creation.
Regarding financial
matters, the Committee was pleased with the manner in which the Department and
its entities had reported on its financial matters which resulted in the
Auditor-General not having any adverse findings against either the Department
or its entities.
The Portfolio Committee
table the report to be considered.