Economic Development Department on its Annual Report 2011/12

Meeting report

The Chairperson welcomed the delegation from the Economic Development Department (EDD). He wished the newly appointed Director General (DG) well on her appointment. The Committee oversaw three Departments and did not get to meet with EDD often enough. He asked the members of the delegation to introduce themselves. He apologised on behalf of the Minister, who normally led the EDD delegation for such meetings.

Ms Jenny Schreiner, DG, EDD, mentioned the good relationship between the EDD and the Committee. She had only been in office for three days.

Presentation by Economic Development Department
Mr Saleem Mowzer, Special Advisor, EDD, had been the acting DG until Ms Schreiner's appointment. He had only been appointed as Acting DG for the last month of the financial year (FY) in question after former DG, Dr Richard Levin, had been appointed as Director General to the Public Service Commission.

Mr Mowzer said that the vision and mission of the EDD was unchanged. The EDD had as its success indicators targets under the New Growth Path (NGP) and Government Outcome 4. Employment creation was one of these targets. Some 300 000 new work opportunities had been created during the FY. This was more than the target, but a disproportionate amount was in the public sector. The economy had grown by 2.8%.

Mr Mowzer said that EDD was now three years old. It had now passed the stage of policy development. The focus was now on implementation of the National Infrastructure Plan (NIP), alignment within the state and implementation of accords. Programmes and internal systems were being consolidated. Six public entities had been transferred to the EDD. The NGP had been finalised. During the FY, the EDD had worked with other Departments and spheres of government to align economic policy to the NGP. The Industrial Development Corporation (IDC) had been refocused. Dialogue had been held to develop social accords. The NIP had been developed. Small business entities had been reformed.

Mr Mowzer listed the challenges. The continued global economic slump was first of these.
There was pressure on exports. Internally, persistent inequalities were leading to conflict both in and outside the workplace. There was a shortage of high-level personnel. The EDD had put mitigation strategies in place.

Mr Mowzer said that the EDD was focusing on the National Infrastructure Plan. EDD had supported the Secretariat to the Presidential Infrastructure Co-ordinating Committee (PICC). Implementation plans had been developed across the country with a focus on regional development.

Mr Mowzer said that the activities of the IDC had been aligned with the NGP. There had been a process of consolidating the activities of the IDC, leading to the establishment of the Small Enterprise Finance Agency (SEFA). This created opportunities for investment in small business. SEFA was establishing a footprint in every district in the country.

Mr Mowzer said that EDD was supporting investment and employment. It had been in negotiations regarding the proposed establishment of Wal-Mart in the country. Job guarantees had been created.

Mr Mowzer said that a major part of the work of EDD went around social accords. A number had been concluded in various areas. The National Skills Accord set targets for training and internships, and the Basic Education Accord pledged support for Sector Educational and Training Authorities (SETA) and Further Education and Training Colleges (FET). Poor schools would be supported. The Local Procurement Accord committed government and the private sector to the procurement of locally produced goods. A 75% local target had been set. The Green Economy Accord committed government to energy saving and efficiency programmes, such as solar water heaters. EDD was currently reviewing the implementation of the social accords, and would report on these later.

Mr K Sinclair (COPE, Northern Cape) suggested that the EDD delegation expedite their presentation to allow more time for interaction.

The Chairperson asked Mr Mowzer to highlight the key areas. Time was limited.

Mr Mowzer said a lot of work had been done on spatial development. An approach had been developed together with a training programme for officials at local and provincial government levels. An asset maintenance programme had been developed. A total of 262 000 solar water heaters had been rolled out. The EDD led various initiatives for a greener economy and job creation.

Mr Mowzer said that the targets in the Annual Performance Plan (APP) often did not reflect new challenges arising during the year. The formation of the PICC had not been anticipated, with a result that some achievements had been understated. The PICC was critical for the implementation of the NGP, but had only been established in the second half of 2011. It had therefore not been listed as a separate programme. Other key achievements were the work done on the NIP. An integrated needs assessment had been developed. The EDD had co-ordinated expertise available across the country. More than 150 projects had been documented. A scarce skills audit had been conducted.

Mr Mowzer said that under the programme of Economic Policy Development a number of objectives under the APP had been measured.

Mr Mowzer said that economic trends and risks had been assessed together with the DTI. The NGP had been presented to Cabinet in July 2011, and various resolutions had been taken by Cabinet such as the establishment of the PICC. The role of the state in employment creation had been presented to Cabinet. EDD had looked into various industries and their challenges. Broad-Based Black Economic Empowerment (BBBEE) codes had been assessed from an NGP standpoint, and their impact of the BEE code on listed companies. A study of youth employment trends was continuing. Various stakeholders were considering proposals in this regard. An Economic Development Index was being developed.

Mr Mowzer said that guidelines had been developed for socio-economic impact assessments. He presented achievements in terms of co-operation with provincial and local government. Areas of work in both spheres were outlined.

Mr Mowzer said that the purpose of the economic planning and coordination branch was to develop economic planning proposals and the green economy, and to provide oversight over direct foreign investments (DFI). APP objectives and measures had been proposed. Action plans had been developed as well as strategy. A number of papers had been developed on procurement and expenditure. There had been engagements with regional and multi-national forums. A dedicated fund had been established to enhance competitiveness. A business hub had been established for small, medium and micro-enterprises (SMME). Work had been done on payment deadlines to SMMEs. EDD was now paying within fifteen days. This was a major issue for Cabinet. Quarterly meetings were held with entities. Approvals at IDC had increased to R18.8 billion, and disbursements to R8.5 billion. A total of 45 000 jobs had been created or saved through these interventions. Part of the plan for IDC was to spread its presence across the country. A jobs bond of R2 billion had been raised.

Mr Mowzer said that a lot of work had been done on spatial development. Priority projects had been developed in the poorest districts. Reviews had been conducted on various projects in the different provinces, and he mentioned a number of projects. EDD had been involved in the EDD and Department of Trade and Industry (DTI) MinMECs.

Mr Mowzer said that engagements of DTI and National Treasury (NT) had led to recommendations to support the call for local procurement. Meetings with the South African Bureau for Standards (SABS) had led to the development of technical standards. The efforts of Proudly South African would be strengthened.

Mr Mowzer said that solar water heaters were a major project in developing the green economy. A green jobs report had been published in November 2011. EDD had participated fully in COP 17. Comments had been made on catalytic exhausts.

Mr Mowzer said that the EDD had participated with various economic communities in the Southern African region. The presentation carried a report on interventions at provincial level.

Mr Mowzer said that in terms of APP objectives and measures, EDD had fulfilled various functions. It had been responsible for four social accords. Blockages had been addressed in addressing these accords. EDD had embarked on a major capacity building programme. Workshops had been held in most of the provinces. Knowledge networks had been established.

Mr Mowzer listed some achievements in terms of various industrial sectors. New jobs had been created while EDD's interventions had also saved many more, and in some cases small industries had been given access to cheaper raw materials. A number of sessions had been held on productivity and with organised business. He listed the engagements in which the dialogue branch had been involved, and the issues dealt with.

Mr Mowzer said that in terms of corporate governance, all reporting requirements had been met. Favourable audit reports had been achieved. Policies had been developed on various categories of expenditure.

Mr Molefe Matsomela, Chief Director: Human Resource Management, EDD, reported on the number of staff and new appointments. As of 31 March 2012 EDD employed 107 officials and another 8 had accepted offers. The vacancy rate was 13% Africans made up 77% of the staff. The number of women was 56%.

Mr Mowzer said that new risks had emerged nationally and locally. The work of the EDD contributed to the achievements of government. Efforts to address inequality would be increased.

Mr Mowzer said that expenditure increased by 44% to R577 million, which was 97% of the adjusted appropriation. The 2011/12 FY was the second year of the Department's operation as a separate vote, and it had been difficult to fill vacancies.

Mr Mowzer said that an unqualified report had been made by the Auditor-General (AG). The only matter raised was a material matter. One item had been recorded in the wrong place, and this had been corrected. In the previous year there had been six non-compliance issues. The AG had found no signs of unauthorized, fruitless or wasteful expenditure. Commitments had been made to improve the internal audit environment. The AG met with the Internal Audit on several occasions. A steering committee had been set up. The AG also pronounced on three areas of concern, and progress had been made in all of these.

Mr Mowzer said that EDD had never been called to appear before the Standing Committee on Public Accounts (SCOPA), and that SCOPA had not issued any written guidelines.

Mr Zweli Mometa, EDD Chief Financial Officer, said that the year had started with a strategic session. The Minister had addressed the Department and had tabulated his political imperatives. EDD had looked at historical spending trends in order to develop its budget. An Estimate of National Expenditure (ENE) chapter had been drafted for inclusion in the budget. The total budget was R590 million. The initial appropriation amount was R595 million, and after additional adjustment this increased to R598 million. Spending was R577 million, which amounted to 97%, but if the funds allocated which were transferred to entities were excluded, this figure dropped to 81%.

Mr Mometa presented the figures for the individual programmes. Programme 1 spent 88% of its allocation. The reason for under-spending was mainly vacancies. In Programme 2 the spending was 77%. In Programme 3, which revolved around transferring entities spending was almost 100%. Programme 4 saw spending of 62%. A total of R468 million was transferred the entities under EDD, and amounted to 100% of the budget.

Mr Mometa said that EDD generated revenue from penalties imposed by the Competition Commission, and from dividends paid by IDC. More had been collected that was budgeted. R593 million was collected, but this was transferred directly to the National Revenue Fund.

Mr Mometa said that suppliers had been paid within fifteen days on average as opposed to a NT guideline of thirty. The amount of accruals had reduced to 88%. EDD continued to use state resources in acquiring goods and services in an efficient and equitable manner.

Mr Mowzer said that the EDD was committed to clean administration. The new DG had met with the AG and gone through he commitments made. A process for an interim audit, to commence in November, had been agreed upon. The AG was complimentary on the way EDD had managed its work. For this reason, it was felt that it would be appropriate to conduct an interim audit to lessen the work required at the end of the FY.

Ms Schreiner also emphasised the commitments made. The mid-year planning process would commence within a week or so, and the lessons taken from the AG report would be taken into account.

Discussion
Mr A Nyambi (ANC, Mpumalanga) congratulated EDD on its unqualified report. Members of this Committee represented their provinces as much as their parties. The EDD report was specific about what it was doing in the provinces in some areas. He would have liked to have seen a list of what work had been done in which province. He asked if there was a need for any new programmes, or if the established ones could deal with the new challenges. The capacity building course at the University of the Witwatersrand could be dealt with in more detail. He found it strange to say that only one person with disability could reflect a 1% employment rate. On internal audit, he asked for clarification on what was meant in the report. The prompter payments deserved special mention.

Mr D Gamede (ANC, KwaZulu-Natal) was looking forward to the 2012/13 Annual Report. He noted that EDD did send some officials with the Committee on oversight visits. He would have like to have heard how many jobs had been created by the EDD. The President had called on all Departments and entities to create jobs. He asked if there was a difference between solar water heaters and geysers. He asked if the programmes launched by EDD were in response to what the people needed in his constituency. Proudly South African had promised a list of local products, but he had not seen this yet. A decision had been made on levels of origin. The other issue was engagement with provincial and local government. There was no alignment at these levels with national government. He asked what would cause staff debt, such as over-payment of salaries. In terms of SMME support he could find no alignment. It seemed only the chartered accountants were being targeted. He asked how far SEFA had gone in assisting rural SMMEs. He asked what contribution EDD was making to the 23 areas in distress. There was a mention of support to industry in KZN. A garment factory had been mentioned near to his residence. He asked where the meetings in KZN had been held. He asked why posts were still not being filled despite the number of graduates. There were few staff members in Programme 4. He asked what skills were lacking, as this did not seem to be a specialist programme.

Ms B Abrahams (ANC, Gauteng) congratulated the new DG, and was confident that the Department would be well led by a women. There were many unexplained abbreviations in the presentation. She asked what support was going to the co-operatives and what leadership was being provided. She asked why there was an emphasis on the term 'African' as she was a proud African, but classifications were done in terms of White, African, Coloured and Asian.

Ms E van Lingen (DA, Eastern Cape) asked if the presentation was exactly the same as had been made to the National Assembly. She could also not see what was happening in the provinces. It was absolutely impossible to investigate the Department properly given the fact that the reports had only been provided at late notice. While there was a clean audit, the AG had made three significant findings. She was worried about procurement turnaround time. She asked if the desired results were being achieved. The CFO had reported underspending due to staff shortages. This was worrying, and also the problem of attracting qualified staff. There were surely enough such people available in the country. The report was a register of what had been done. Three years into the new Department, she asked what was being achieved on the ground. While Members believed EDD was working hard, she had a feeling that something was being hidden in the report. Members did a lot of oversight work on the ground, and Members would be empowered better in their oversight role if they were informed about what was happening in their parts of the country. More information was needed on some aspects. She was interested by the statement made on the MinMEC.

Mr Sinclair was more convinced that there was no need for the EDD. He had been consistent in this viewpoint. There were many instances where EDD was masquerading on behalf of other Departments, such as Energy and Agriculture. Value for money was lacking. Many of the tasks assigned to EDD should be conducted by other departments. He agreed on the presentation, and quoted one page which incorrectly referred to the Portfolio Committee. This Committee had a different mandate. He asked what the Constitutional Court had ruled on the issues quoted regarding competition. There were issues in his province. He felt that these commissions sometimes interfered in matters beyond their mandate. He noted that one member of the audit committee had only attended a single meeting. He expected better discipline. On donor funding, he was concerned with the R39 million award to the planning for the alternate energy programme. This seemed to be a lot of money given the basic work that they had been tasked to do. His greatest concern was the Rise Up Bakery. The employment creation fund was based on international donations. R1.3 billion was available in this fund. According to the Minister, R700 million was still available. EDD was now boasting about Rise-Up, which was a bakery on the West Coast. The project had been approved more than fifteen months previously, but was still batting to get the funds promised to it. The DG of the DTI had indicated that this fund would be transferred to the control of the DTI. If EDD was to play a co-ordination role, then it was failing. Resolution was needed on this issue. On the IDC, many references had been made. The critical question was if it was necessary for IDC to be recapitalised in order to fulfil its development agenda. Renosterkop was one of the poorest areas in the country, and was bedevilled by management issues. This was an example of where a district approach was needed more than a municipality.

Ms van Lingen said that Renosterkop had been listed under spatial development. As an Integrated Development Plan project it should be under the normal budget. There were some spelling errors in the report.

Mr Gamede had one more question. He asked for a list of beneficiaries from the job fund by province, highlighting projects in KwaZulu-Natal.

Mr B Mnguni (ANC, Free State) quoted the late Steve Tshwete. One should not praise a fish for swimming. A Department should not be congratulated for merely doing its job. He agreed that there had not been enough time for Members to read the report properly. One of the key issues of the NDP was that the economy was still in the former colonial structure. This was why sufficient jobs were not being created. He asked what the strategy was regarding the National Development Plan (NDP) in order to create more jobs. The 23 poorest areas were in former homeland areas. These had been the worst areas for development. These municipalities should be brought into the economic mainstream. Agriculture and mining were the biggest industries. On the International Trade Administration Committee (ITAC), the DTI had an almost identical entity. The work was being duplicated. The DTI had shifted 24% of its funds to the International Trade and Economic Development Division (ITED). He asked if structures were formulated in order to comply with national and long-standing agreements. On dialogue, nine dialogues had been targeted but fourteen were achieved. He asked if these dialogues were producing tangible results, or were just empty meetings.

The Chairperson had some questions which he would send in writing.

Ms Schreiner had heard the concerns on the lack of detail on the work in the provinces and would ensure that more detailed information would be provided in future. It was important that the budget structure needed to be linked to organisational structure. This was being remedied. It was clear that responsibilities had been added to the mandate during the FY. On the filling of vacancies, the applicant's qualification was one aspect. Experience was another. A particular recruitment and retention strategy was needed in a department which was targeted at co-ordination.

Mr Mowzer echoed the DG's view of noting the Committee's concerns. Future presentation would highlight the work being done in the provinces and with local government. He understood that the Annual Report had been submitted to Parliament already, but would ensure that documentation be provided earlier in future.

Ms Neva Makgetla, Deputy DG: Policy, EDD, said that a follow-up report could be sent with a regional breakdown. On jobs, some things were not quantifiable. The IDC had saved or created 45 000 formal jobs. The same impact had not yet been achieved by SEFA. There had been a change in local government regarding local procurement. On the NIP there would be a big impact on employment creation, particularly in the construction sector. The plan had been tailored to achieve this. There were some catalytic projects, such as a R2 billion investment in a refinery for biofuels in the Eastern Cape. This was not listed in the annual report, as EDD was only providing a supporting role. Training programmes would evolve into jobs. If the economy was to be transferred to empower people then government had to play a rule. Decisions must be made on where funds would be invested. There were several projects trying to address problems. The 23 regions were actually those with the poorest infrastructure, but they were in the former homelands areas. People needed greater access to livelihoods. The PICC was supported in a number of ways. A regional planning process was being developed which would be integrated into the core economy of the country. This needed to be done on a case-by-case basis. There were challenges. Capacity and funding were problems to be addressed. The PICC should play a leading role there.

Mr Saul Levin, Chief Director: Development Finance Institutions, EDD, said the scheme involving the chartered accountants was to train and place unemployed graduates. The plan was to train 100 such persons who would then be employed to assist small business either directly or in the form of a business hub. This hub would provide business support services. Fifty persons were currently in training, and attendees were being evaluated. The hub would start its work in January 2013, when the next group of fifty would start their training. Accredited financial packages were being used. A lot of detail on rural developments had been provided by IDC. The IDC's rural support in the last FY had gross approvals of almost R8.5 billion. Almost all the former South African Micro-Finance Apex Fund (samaf) allocations were in rural areas. R52 million had been disbursed, almost all into rural areas. He did not have the rural breakdown of Khula funding. More detail could be provided at the meeting the following day.

Mr Levin said that from the Pioneer Foods settlement, an agro processing fund of R200 million had been created to assist smaller enterprises. The first tranche of R34 million had been paid into the fund, and results could be seen already. Approvals of about R17 million had been made already. It was not necessary to recapitalise the IDC. It was performing successfully on the market. The balance sheet was not being utilised fully. It could borrow up to 100% of its capital base, and was nowhere near to being extended to that degree yet. A projected amount of R102 billion would grow in time as investments were repaid. The Rise-Up Bakery was being supported by EDD to get them going. EDD was playing a co-ordinating role. There had been a long delay, but the issues were now being resolved. He expected to see progress before the end of 2012. He agreed that the delay had created problems within the community. Part of the approach was a mix of co-operatives and sole proprietorships. On Phyto-energy, funds had been allocated from the Employment Creation Fund (ECF). He expected to see R1 billion in investment through t his project. The capacity training hosted by Wits University was to train persons in specific municipalities. Detail could be provided in writing. He would ask the IDC to submit an answer on the jobs fund.

Mr Mometa replied on the issue of staff debtors. Staff had been transferred from the Department of Public Enterprises when EDD had been established. Both DGs had signed a memorandum of understanding. Incorrect amounts had been paid in salaries erroneously, and this money was now being recovered from the persons concerned. On procurement, he could really confirm that turnarounds were very quick, including procurement issues. There were systems that sought to improve service delivery in a bureaucratic environment. There was an implication that although the head of internal audit was an employee, more assistance was needed. The services of two companies were brought in. An internal audit had been carried out. EDD had moved on and was improving its capacity. Governance was now being improved.

Mr Levin said that the agro processing fund had approved a number of projects in six provinces in the dairy, fruit packaging, confectionery projects, pasta, beverage and mushroom sectors and a workers’ trust. There were pipeline deals of R131 million. The fund was being utilised well.

The Chairperson asked for the details to be sent to the Committee in writing.

Mr Matsomela said that EDD was in the process of implementing its final structure. There was a slow pace in filling positions, especially at high levels of management and specialist functions. When the positions were advertised, a suitable response was not forthcoming resulting in EDD having to do some head-hunting.

Mr Gamede called for honesty. The DG has said that staff were being lost to other Departments and the private sector. He asked where people with skills would be found if there was such competition. He asked how EDD could assist graduates with qualifications but no experience.

Ms Makgetla said that the vacancies tended to be at Chief Director level. There were applications but not the candidates were good enough. EDD was having to use people with outside experience. At junior level EDD could boast the services of many excellent people, but it broke down at the higher levels.

Mr Mowzer said that EDD was looking at the problem.

Ms Makgetla said that ITAC dealt with regulatory issues. It had to be an independent body. It dealt more with imports while ITED dealt more with export issues.

Mr Mowzer had another seventeen issues to deal with.

The Chairperson allowed EDD another five minutes.

Mr Mowzer said that the staff member responsible for the Wits programme had passed away. A successor would be appointed. On internal audit, two staff members would join the internal division. EDD was working closely with internal audit on capacity. People used the terms solar water heater and geyser interchangeably. Buying local, especially in this industry, was a major challenge. DTI was looking at the next round of designations. This would be one of the targeted areas. EDD would provide a list of Proudly South African products. The outstanding workshops had been held in the current FY. A list of acronyms would be sent to Members. It was important that the AG highlighted areas of concern, and remedial action would be taken where needed. EDD would submit reports on assistance to local government. The audit member who had only attended one meeting had been inconvenienced by a change of dates to scheduled meetings, and her apologies had been accepted. On Renosterkop, the comment that a district approach would be considered by the relevant team at EDD. It sounded like a good idea. Both SEFA and the IDC would present to the Committee the following day. On targets, at the end of the day as government, it must be possible to measure how the lives of people were being improved. This was constantly on the agenda.

Ms Schreiner agreed that all were Africans, but equity issues necessitated a racial breakdown The nature of EDD was that there was scope to exceed targets on persons of disability. Given the size of the EDD staff, one such person did represent about 1% of the staff complement. The way in which the work was presented would be reviewed. It was fortuitous that the Committee was focussing EDD's attention on the impact on the ground. She appreciated the support given by the Committee.

Mr Sinclair said that many issues would roll over to the meeting the following day. The questions on the job fund and Rise Up still needed more attention. The numbers quoted did not correspond with his information, and the time frame was vague.

Ms van Lingen was glad to hear that the EDD was training accountants to help SMMEs. There were 32 municipalities in the Northern Cape. Ten CFOs in that province had no more than a matric qualification. This was a crisis situation.

The Chairperson looked forward to the written responses. More interaction was needed with EDD. This had been neglected due to the cluster approach adopted by the National Council of Provinces. He wished the Department well for their planning session.

The meeting was adjourned.