National Consumer Commission (NCC) 4 Quarter 2014/15 performance; IPAP – Metal Fabrication sector: Transnet, PRASA & Tooling Association of South Africa input

Meeting report

National Consumer Commission (NCC) Presentation

Ms Thezi Mabuza, Deputy Commissioner: NCC, in her presentation of achievements against planned targets, informed the Committee that 15 out of 18 targets had been fully achieved. Two targets had been partially met and one target had not been met at all. 1 582 complaints had been received and all had been registered and analysed within one working day of receipt. 85% of complaints received had been resolved in 12 working days.

Two research reports on funeral services and tow-truck services were still at the draft phase. A number of research reports had been completed and signed off by the executive committee and had been submitted to the Minister. Recommendations had been made for the appointment of a service provider. The process was still underway and had been deferred to the next financial year. The codes relating to the interpretation of rights contained in section 23 to 28 had been approved for publication.

The information communication technology (ICT) strategy of the NCC had been approved on 31 July 2014 and was being implemented. An external service provider had been appointed to assist with the implementation of the strategy and the development of related ICT policies.

92% of the 83 funded posts of the NCC were filled on 31 March 2015. Delays had been experienced with the recruitment process. Counter offers had been made to selected applicants and minor restructuring of the establishment had prevented the filling of all vacancies by 31 March 2015. All seven vacant posts had been advertised and were in the process of being filled.

With regard to communication and public awareness programmes, one internal newsletter had been developed and distributed. All media enquiries had been attended to within 48 hours from the time these were received. Ten newspaper articles had been published. The tone of the coverage had been positive in all instances. The NCC had participated in 19 radio interviews and three television interviews.

On stakeholder engagements, the NCC had participated in the planning for the Africa Dialogue Conference to be held in the next financial year, and had attended a conference in Zimbabwe when the country was launching consumer protection legislation. The entity had hosted one quarterly meeting with representatives of provincial consumer protection authorities in January 2015. The NCC had participated in the World Retail Conference. Other meetings had been held with ICASA, the Direct Marketers Association, the Department of Trade and Industry, and the Home Owners Association.

Key challenges were around skills shortages, irregular expenditure and vacancies. A skills audit conducted at the NCC had revealed that a major skills shortage existed within the entity. A proper skills-upgrade programme was not in place, due to a lack of funds. In the interim, internal training had been provided in relation to the consumer protection legislation. Training had also been provided to staff in computer literacy.

The bulk of irregular expenditure had arisen from the lease. The lease was going to expire within a year. The cost of cancellation and possible relocation was not feasible in the short term. On vacancies, a formal restructuring would be undertaken. It was envisaged that most of the unfunded posts would be abandoned.

Concerning finances, she said there had been full, open and transparent cooperation with the Auditor-General of South Africa. Genuine progress had been made against 86 findings out of 94. These findings were related to the absence of policies, and a revision of internal processes in supply chain management, finance, asset management, recruitment of personnel, travelling, and leave management. The progress on audit findings was monitored by the Audit and Risk Committee.

(Tables were shown to explain budget expenditure)

Discussion

Mr M Kalako (ANC) wanted to find out if the NCC had received cooperation from the private sector when it was doing its investigations.

Ms Mabuza said that the reaction they got from the corporations was very hostile, especially the retailers. They brought in attorneys and senior counsels. That was why the entity had set aside money for senior counsel to advise the NCC on affidavits. The NCC had four staff members who were legal practitioners who attended to these cases, but the rest of the staff did not have a legal background.

Mr G Hill-Lewis (DA) remarked that the set targets to be achieved were too ambitious. Progress had been made by the entity. He urged it to do a lot more, a lot faster. Consumers did not know they had to submit complaints to the NCC because no one knew about it. He advised the entity to set big targets and take on big complaints-- that was when the consumers would get to know the entity and have confidence in it.

Adv D Alberts (FF+) asked if the budget of the NCC was adequate for it to execute its work.

Ms Mabuza said the biggest challenge was around skills capacity. The training budget was not enough to deal with skills capacity. The budget related to the awareness campaign, ICT and legal counsels was also not enough.

Mr B Mkongi (ANC) wanted to know if the NCC had looked at and considered the recommendations and proposals that had come out of the research about the Consumer Protection Act.

Ms Mabuza said they offered universities topics for research around consumer matters and on what the entity did. For example, the Nelson Mandela Metropolitan University (NMMU) had a course on training the investigators of consumer complaints. The NCC was aware of the research that was being done.

Mr D Macpherson (DA) commented that the costs of the trips taken by the board members were very high. That money should rather be spent on big cases. He further asked the NCC to expand on the issue of the lease, and what the way forward would be if it expired.

Ms Mabuza explained that the lease was an irregular expenditure. The matter was with the commercial crimes court, and an investigator had been appointed to look at the matter. The lease was coming to an end in September 2016. If the lease was to be cancelled, the NCC would incur an expense of R4m, and that would be an irregular expenditure. That was why the NCC was buying time until it expired.

The Chairperson asked the NCC to put in writing how it planned to deal with the movement regarding the lease, an update on the court case, staff capacity, and research reports on the funeral services and tow-truck services.

National Tooling Initiative (NTI) Presentation

Mr Dirk van Dyk, Chief Executive Officer: NTI enlightened the Committee that the NTI focuses on the redevelopment and alignment of the manufacturing skills delivery capacity of SA with that of leading re-industrialising manufacturing economies globally. It also provides focused Enterprise Development support to small, medium and micro enterprises (SMMEs) in the tool, die and mouldmaking (TDM) sector through benchmarking and intervention support to stimulate competitiveness improvement, localisation of tooling and job placement of learners exiting the new skills delivery system.

The Deloitte Global manufacturing Competitiveness Research of 2013-2015 highlighted that more than 10 million manufacturing jobs were unfilled. The top ten manufacturing economies’ core focus was on talent driven innovation. South Africa was ranking 24th on the global manufacturing competitiveness and its position was expected to deteriorate.

There had been a decrease in the manufacturing’s contribution to gross domestic product (GDP). It had decreased from 22% to 11% over the last 10 years. This was due to an increase in the skills gap; lack of innovation capacity; technology stagnation; recapitalisation; and a lack of comparative market demand.

Regarding manufacturing and TDM sector growth and transformation barriers, he said there was low BBBEE investment and new business creation; an increase of 30% in investment in research and development and technology; higher labour and raw material costs; cost reduction pressure; a decrease of 10% in auto and fast-moving consumer goods (FMCG) production; and low profitability and low return on investment.

The advanced manufacturing and TDM sector skills pipeline of South Africa had suffered from two to three cycles with very little input and output from the existing educational system, contributing to the skills gap.

The TDM Sector Talent-driven Innovation System stated that for innovation and capacity to be created in the sector, there should be talent identification, a system of skills development, and deployment of talent and skills. The TDM was a critical sub-sector that enabled manufacturing. Radical changes in technology and customer needs called for new and innovative skills delivery systems. A solution in this sector demonstrated the approach required for a solution in the broader manufacturing sector.

Key customer requirements were:

• International standards and certification;
• Sector specific competencies;
• Articulation and career pathing;
• Modularity, flexibility and cross-sectorial application;
• Skills delivery capacity over the entire skills value chain;
• Lower drop out rates and higher qualification rates.

The Talent-driven Innovation Deployment focused on:

• Apprenticeship rotational placement system, on-the-job training;
• Company-student-college relationship building and management;
• Post-qualification placement;
• Student tracking and performance analysis;
• Talent warehouse and continuous development.

TDM sector qualifications were:

• Toolroom assistant: merSETA (SP 0627/11-17);
• Foundation programme certified by the industry body (TASA – Toolmaking Association of SA);
• NIMS certified machinist accredited by the National Institute for Metalworking Skills (NIMS);
• 17 modular part qualifications (NIMS);
• Toolmaker: South African Qualifications Authority (SAQA ID: 91796);
• Expert in Tooling: Aechener Werkzeugbauakademie (WBA);
• Master Toolmaker (SAQA registration in progress);
• Masters in Tooling Engineering (qualification development in progress).

Some of the training institutions the National Tooling Initiative Programme (NTIP) partnered with were Northlink TVET College, Wingfield; College of Cape Town TVET College; Coega Training Centre; Border Training Centre, East London; Umgungundlovu TVET College; and Coastal TVET College, Durban.

1 610 learners were expected to benefit from the 2010-2017 NTIP programme. 98% came from the previously disadvantaged communities. 75% were blacks and 2% were white. 20% were from rural community environments. 30% were female. There was a more than 80% retention rate, and a more than 85% permanent job placement rate. There were 200 companies that were participating actively.

The NTIP had formed a strategic partnership with the WBA Institute, the world authority on tool making technology and competitiveness. This provided insight into industry trends, research and a proven industry consulting approach.

Its transformation strategy was on securing Industrial Development Corporation (IDC) funding support for NTI Programme entrepreneurs and investment into new and existing TDM business, coupled to localisation opportunities from Strategic Infrastructure Project

(SIP) Programmes.

Up to now, this was how capacity building and project growth in company participation looked:

• 26 companies (2011)
• 29 companies (2012)
• 46 companies (2013)
• 67 companies (2014)

To date, the success of the NTI Pilot Programme had prompted several other key sectors of advanced manufacturing – foundry, welding, precision machining, and fabrication and boiler-making. To start lobbying for expansion of the TDM sector solutions to these sub-sectors would require substantially expanded funding support.

Transnet Presentation

Mr Edward Thomas, Group Chief Procurement Officer: Transnet, said that localisation through supplier development at Transnet had come about from the policies the government had developed in order to address the challenges faced by South Africa.

The Department of Trade and Industry (dti) had identified sectors in which it was strategic for South Africa to gain capabilities and set minimum local content thresholds for components within those sectors. Through this approach, Transnet aimed to facilitate and influence established suppliers to engage with local emerging suppliers to enable downstream supplier development.

In order to drive localisation, Transnet supported driving three different key localisation drivers which were key pillars to suppler development. In order to localise manufacturing, skills were a pre-requisite to capability. Skills had to be transferred from existing market players to local suppliers. A key driver for local manufacturing capability was investment in plant and machinery. This would support the use of skills and technology. In order to be able to efficiently and sustainably manufacture locally, best practice and technology transfer needed to take place.

The rail sector spend was significant enough to drive industrialisation through pragmatic procurement events. Transnet had recognised four key areas of opportunity that could be leveraged in order to develop the local supplier base. These were:

• System/sub-system manufacture and assembly;
• Component manufacture / upgrade capabilities;
• Maintenance and repair capabilities;
• Targeted skills development;

An all encompassing strategic approach had been set in motion, covering both direct and indirect aspects of Enterprise and Supplier Development (ESD). Understanding the common technologies in rolling stock allowed Transnet to prioritise its initial focus to achieve industrialisation around rolling stock. Transnet, through the supplier development requirement, encouraged localisation in the capacity and capability pillar, targeted to creating local assembly capability and investment in plant, transfer of technology and Internet Protocol (IP), and skills development pillars.

The establishment of two locomotive production facilities would have a positive impact on Gauteng and KwaZulu-Natal. This would enable the development of industry clusters around production facilities, with the following potential benefits:

• Job creation;
• Local economic development;
• Rolling stock specific skills development;
• Technical skills development;
• Transfer of technology relating to locomotive component manufacturing and assembly.

Transnet had had success in the implementation of supplier development across major transactions. A significant Competitive Supplier Development Programme (CSDP) initiative had been the EMD SD50 locomotives, which had 66% of their components sourced locally. Recent contract prices compared to benchmarks indicated that no price premiums had been applied, despite the supplier development being realised.

Significant benefits to the local industry had also been created through the procurement process. Transnet would drive local industry development through the recent procurement of locomotives. There were other significant successes that had been achieved in driving supplier development through the procurement process:

• Transnet had finalised a fuel transaction. The contract had been awarded to nine black-owned businesses which were 100% black-owned. The tender was valued at R17 billion.
• Transnet had appointed a consortium led by a home-grown professional services firm, SekelaXabiso, to run Transnet’s internal audit function for the next five years.
• Transnet had also appointed SizweNtsalubaGobodo, a home-grown firm, as its external auditors.

Many suppliers had been successfully developed into sustainable entities through the Transnet Engineering supplier development programmes. 88% of these incubated companies were black-owned. 25% had some level of black woman ownership. 81% were level 3 contributors.

Transnet had invested in and supported numerous enterprise development initiatives. Three enterprise development hubs had been launched and two hubs were to be launched soon to drive SMME participation. The Transnet enterprise development hubs had been developed with the goal of promoting SMME participation; to encourage and nurture a culture of entrepreneurship in SA; and to transform Transnet’s supply chain in order to ensure active economic participation of SMMEs. The Transnet Carlton Centre ED Hub offered SMMEs and other designated groups a number of support services.

PRASA Presentation

Mr Piet Sebola, Group Executive: PRASA, informed the Committee that PRASA was looking to invest approximately R172 billion in order to transform and modernise passenger railways in SA because it needed a complete overhaul.

The investment outlook by PRASA encompassed the acquisition of rolling stock, station improvements, network improvements, signalling system upgrades, communication and marketing, and renewal of the Metrorail brand.

A detailed feasibility study of the commuter/suburban rail service had been undertaken in 2011. It had focused on market engagement, needs analysis, due diligence, value assessment, economic valuation, and procurement strategy and plan. The results of the study had been submitted to the Minister of Transport, National Treasury and tabled before the Cabinet in November 2011. The funding commitment had been confirmed by the Minister of Finance in February 2012.

The results of the study indicated, among other things, that PRASA wanted to migrate from 1950’s technology to a modern fleet which was up to world standards. The study had revealed that 65 000 direct and indirect jobs would be created, and the focus would be on industrialisation through long-term procurement, aiming for above 65% of the value of a coach to be produced locally.

The study had examined three scenarios of localisation: 60%, 65%, and 70%. Because PRASA was aligned to Industrial Policy Action Plan (IPAP) 2 and the designated sector report from the Department of Trade and Industry (dti), PRASA had chosen the 65% scenario. Approximately R65.9 billion was anticipated to be returned to the government in the form of indirect taxes, direct taxes and personal taxes.

PRASA had undertaken a market engagement in 2011 to test the appeal of the project to the market; establish the level of demand to achieve localisation targets; the Broad-based Black Economic Empowerment (BBBEE) structure in the transaction; the ability of the manufacturer to supply the quantities of rolling stock required to specifications that suited local requirements; and financiers’ ability to provide long-term funding for the programme. The outcomes had pointed out that financiers had sufficient capacity to finance the project and the expected cost of capital was accepted on a lower risk premium. Based on responses to a survey of South African component manufacturers, a local content target of 70%-80% could be achieved. 43 local companies had provided PRASA with their profiles. Outcomes had envisaged the involvement of BBBEE entities for components supply, skills transfer, maintenance, and partnerships with original equipment manufacturers (OEMs).

The strategy for procurement would focus on high localisation, latest technology, competitive pricing, and sustainable industry. On 14 October 2013, PRASA and Gibela had signed the Manufacture and Supply Agreement (MSA) and the Technical Support and Spares Supply Agreement (TSSSA).

The MSA had been contracted on the following terms:

• Contract Value: R51 billion
• Number of vehicles: 600 new trains (3 600) vehicles
• Duration: 10 years

The TSSSA was the agreement governing the maintenance of the new trains. The scope of the TSSSA would ensure that Gibela would perform at least one overhaul on each new train. It was estimated that the TSSSA would have a duration of 18 years.

It was envisaged that the Rolling Stock Fleet Renewal Programme would spend R35.8 billion on empowered entities, R53 billion would be spent on SMMEs and R1,7 billion would be spent on women-owned entities. 19 500 individuals would be skilled in engineering, artisan work, production, and technology. R892 million would be spent on the development of enterprises in the rail sector. R323 million would be spent on socio-economic development. 580 new trains would be manufactured. 288 hectares would be allocated for an industrial park and local factory at Dunnottar Park in Ekurhuleni.

PRASA and Gibela had established a Product Evolution Facility (PEF) that was going to be used as an on going design authority in respect of the new trains, a research facility for the purposes of the design and implementation of modifications and enhancements to the existing design of the new trains, and a Centre of Excellence on modifications and enhancements to systems, sub-systems, and components.

The manufacturing of the first set of trains was on track and the first train was expected to be delivered in November. The target was to achieve 95% South African employee participation through the supply chain by combining a concerted recruitment effort, skills development, and learnerships.

Gibela would be responsible for the development of the local factory for the manufacture and assembly of the new trains. At the end of the programme, PRASA would retain the local factory and the tools and equipment. PRASA would develop the remaining site over the course of the programme to support the development of a local rail industry. At the end of the programme, PRASA would be the owner of the factory site, including all developments.

Discussion

Mr Mkongi asked PRASA if its communication strategy was about communicating with the government or commuters, and what the plan was regarding its property that was vandalised every day. He further enquired if there were plans to take the rail to the rural areas. What was the transformation profile of Transnet’s suppliers?

Mr Nathi Khena, Acting Chief Executive Officer: PRASA, referring to the communication strategy, said a communication campaign had been done when the approval for the new trains was made, but it had not been sustained. There was a need to improve on the communication strategy. Regarding the vandalised property, he indicated that this was a serious concern for PRASA. There were technologies that could be looked into, but funding became the problem. Some things needed to be viewed as serious criminal and economic cases, and should carry a heavy sentence. Vandalism was costing PRASA a lot of money. Concerning taking the rail to the rural areas, he said PRASA criss-crossed the country with its long-distance service. The challenge was in the numbers -- numbers were very important when transporting people.

Mr Thomas, with regard to the transformation profile of Transnet suppliers, indicated that 51% was spent with black-owned organisations, 10% with black women-owned organisations, and 2,3% was spent with companies owned by the disabled.

Mr J Esterhuizen (IFP) remarked that both PRASA and Transnet were a liability to the South African taxpayer.

Adv Alberts wanted to find out how Transnet made sure there was no conflict of interest between suppliers and employees. He asked the NTI if any studies were done to indicate the number of people needed in the SA tooling industry.

Mr Thomas, pertaining to the issue of conflict of interest, maintained that internal staff signed declaration of interest forms and suppliers were asked to identify areas of conflict of interest.

Mr Van Dyk, regarding studies done on the number of people needed in the tooling SA industry, said 6 000 people were currently employed in the tooling sector. There was a need to sustain those who were at the entry level. More and more qualified young people were needed.

Mr Kalako asked if Transnet had a monitoring mechanism in place to make sure compliance was maintained. Secondly, he wanted the opinion of Transnet about the view that it was expensive to produce items locally and it was better to buy them from China and other countries. Thirdly, he asked how far the NTI had gone in talking with the Departments of Higher and Basic Education in order to introduce this field to the young. Fourthly, he wanted to find out why did PRASA had bought trains that did not meet the standards of SA. Lastly, he wanted to establish why PRASA had not been able to detect a fake engineer in its employ.

Mr Thomas, on the monitoring mechanism, explained that such an issue was looked at by the Department of Trade and Industry and the SA Bureau of Standards (SABS). Also, suppliers were required to submit monitoring reports on a regular basis, and delivery measures were stated in their contracts. Concerning imports versus local costs, he said it all depended on the volumes required. If volumes were high, it was cheaper to produce locally. But if they were low, it was cheaper to import.

Mr Dirk van Dyk, pertaining to talks with the Departments of Higher and Basic Education, informed Members that they had had discussions with these departments around the methodology for mainstreaming the tooling programme and funding support.

Mr Sebola, on trains not meeting SA standards, said the issue was very technical. Currently, both PRASA and Transnet were engaging on this issue and they would be concluding their findings, which would then be shared with the Committee and public. Concerning the fake engineer, he said that PRASA was currently doing a qualifications audit process, which it had started in February. It was a resolution of the Board. This process had not been started by the issue of the fake engineer. The engineer had submitted some sort of paper to the entity for promotion, but verification had never been done.

Mr A Williams (ANC) wanted to know from both PRASA and Transnet to what degree they looked at what was local content.

Mr Sebola said they measured what was local in the true sense.

Mr Thomas said that suppliers were required to state specific items.

The Chairperson asked PRASA to reply in writing to the Committee on measures in place to make sure people with genuine qualifications were appointed, and provide clarity on the suggestion that the Spanish trains were correct, but the local upper rail lines were sagging. Clarity was also needed on the issue of brakes. What did PRASA mean by being locally sustainable yet globally competitive? To which countries were the trainees sent?

The meeting was adjourned.