IDC response to global economic crisis; Labour Lay-off Scheme & labour brokering: Labour Department input

Economic Development

12 October 2009
Chairperson: Ms M Coleman (ANC)
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Meeting Summary

The Chief Executive Officer of the Industrial Development Corporation (IDC) briefed the Committee on the IDC’s capacity to fulfill its mandate as agreed to in the “Framework for Government’s response to the international economic crisis”. The presentation covered the investment made in public infrastructure, the implementation of industrial and trade policy measures, the measures taken to retain jobs and create new jobs, the social partnerships developed in response to the economic crisis, the applications for funding approved, the conditions attached to the approvals, how constraints were addressed and an analysis of applications for funding that were currently under consideration.

Members asked questions about the availability of and duration of funding to companies in distress, the criteria applied in the decision to provide funding, how the IDC reached communities in rural areas, the filling of vacancies, the reasons for the low percentage of approved applications in the tourism, textile and footwear industries, the development initiatives in disadvantaged and rural communities, the implementation of the national policy on industrial development in the granting of funding, the involvement of other partners (e.g. the Development Bank of SA), the involvement of the IDC in the broader Southern African region and the relationship between the Department of Labour and the IDC.

The Executive Manager: Collective Bargaining of the Department of Labour briefed the Committee on the Training Lay-off Scheme. The presentation included information on how the scheme operated, which entities were involved in the scheme and which entities qualified for participation in the scheme.

Members asked questions about the requirements and qualifications of workers to participate in the scheme, the opportunities for retrenched persons, the nature of training provided and the role of the CCMA.

The Senior Executive Manager: Collective Bargaining of the Department of Labour briefed the Committee on the Department’s view on labour brokering and the planned legislative proposals to address the challenges.

Members commented on the need to find solutions to the problem of labour brokering that would benefit all the parties concerned.

Meeting report

Briefing by the Industrial Development Corporation (IDC)
Mr Geoffrey Qhena, Chief Executive Officer: IDC, briefed the Committee on the IDC’s capacity to fulfill its mandate as agreed to in the framework for Government’s response to the international economic crisis (see attached document).  The presentation included an analysis of the IDC’s funding activities.

Mr Qhena summarised the IDC’s role in implementing Government’s framework.  For the 2009/2010 financial year, an amount of R3.7 billion was allocated to public infrastructure projects and R11.4 billion was allocated to implement industrial and trade policy measures.  The IDC had participated in sector task teams in the automotive and capital equipment industries as well as in those in the textile industry, which were set up ahead of the economic crisis.  The overall budget for the current financial year was R11 billion but it was subsequently increased to R12, 6 billion, mainly as a result of additional demand for funding. An amount of R6, 1 billion was made available over a two-year period to specifically assist companies in distress as a result of the economic crisis. Employment measures included measures to save existing jobs and reaching the target of creating 38 000 new jobs.  Social partnerships formed included the creation of Distressed Sectors Task Teams.

The presentation included details of approvals of applications from distressed companies for funding per sector and per province.  In 2008/09, an amount of R485 million was approved to fund 14 distressed companies. From April to September 2009, an amount of R993 million was approved for 15 companies (including 1 approval outside South Africa). Approvals in the current financial year were expected to save approximately 5 400 jobs. 13 funding applications worth R305 million were rejected as there were no indications the companies were going to be sustainable in the long-term.  33 applications to the value of R2.3 billion were currently in the pipeline. The largest number of applications was from the automotive industry. A breakdown of the applications per sector was provided.  The conditions attached to approvals were listed.

In addressing constraints, the ability of IDC to raise funds was not adversely impacted by lower liquidity as expected at the beginning of the financial year. The IDC was able to raise funds from traditional sources (although at a higher cost than in previous years). Possible avenues for raising funds from non-traditional sources were being explored.  However, a reduction in profits was expected.  Human resource challenges addressed included filling vacancies, re-deploying people to units with higher demand when the need arose and investigating the utilisation of contractors on a part-time basis id demand increased.

Details of the funding activities of the IDC were provided.  The presentation included an analysis of approved applications for funding per sector and per province.

Briefing by the Department of Labour (DoL) on the Training Lay-off Scheme
Mr Ian Macun, Executive Manager: Collective Bargaining, DoL, briefed the Committee on the Training Lay-off Scheme (see attached document).

According to the NEDLAC Framework Document, lay-offs depended on the agreement between the employer and trade unions representing the workers.  During the lay-off period, the employee received training in order to equip him/her with alternative skills.  The aim of the scheme was employment retention, enhancing the skills of the workers and supporting companies.

The main aspects of the scheme were to retain the employment contract, made provision for the payment of a training allowance to the affected worker and allowed for the temporary suspension of work for training.  The employer carried the costs of a basic package of social benefits, provided training that was flexible but which was linked to the skills needs of the company.

Participation in the scheme was by agreement and subject to approval by the DoL. Employees remained employed during the training lay-off period but forewent their normal wages for a training allowance. The training period can be three months or less. Employers paid the full contributions to a basic social security package.

The point of entry was via the Council for Conciliation, Mediation and Arbitration (CCMA). If appropriate, the CCMA recommended participation in the scheme. The Skills, Education and Training Authorities (SETA’s) facilitated the provision of training courses. The DoL committee considered the CCMA recommendations and employers paid the training allowance to the affected workers. The training lay-off scheme can be used by employers, trade unions, groups of workers or individual workers. Workers earning up to R180 000 per year was considered. The scheme was limited to employers facing economic distress and considering the retrenchment of workers. Employers must be in a position to benefit from the short-term relief provided by the scheme, be able to re-absorb workers when the training lay-off period was completed and be compliant with statutory obligations. The National Jobs Fund provided funding for the scheme. The CCMA facilitated the training lay-off.  Participation in the training lay-off involved the workers, trade unions, the DoL, SETAs, the employer and any social development and implementation partners.

Briefing by the Department of Labour on labour brokering
Thembinkosi Mkalipi, Senior Executive Manager: Collective Bargaining, DoL, briefed the Committee on labour brokering. The Department’s position was that labour brokers undermined the provisions of the law dealing with minimum wages and collective agreements, health and safety provisions, the right of workers to freedom of association and the job security of workers.

In addressing these challenges, the law considered the application of Section 23 of the Constitution which stated that “Every person shall have a right to fair labour practices”. The responsibility would revert back to the main employer and possible amendments would include definitions of the employer, the workplace and provisions concerning discrimination and organisational rights.  On matters concerning sub-contracting and outsourcing, legislation would spell out clearly how a client employer would be considered to be a joint employer in cases where a substantial degree of control over outsourcing arrangements were exercised.

The Chairperson asked the IDC for details of the companies that received funding, in order for the Committee to ascertain that the funds provided by Government were properly utilised.

Mr Qhena replied that the publication of the names of the companies that were assisted by the IDC might have unintended consequences regarding a company’s creditors and employees. The IDC was prepared to provide the details to the Committee but the information must remain absolutely confidential as provided for in the agreement between the IDC and the companies concerned.

Mr Nimrod Zalk, Deputy Director-General: Department of Trade and Industry, suggested that a legal and appropriate way of sharing information with the Committee was found.

Mr C Ntuli (ANC) asked if the filling of vacancies referred to in the presentation was applicable to the vacancies in the IDC or to companies in distress.  He asked if work was outsourced to contractors that could have been done in-house.

Mr Qhena replied that the vacancies referred to were within the IDC.  The IDC did not have many vacancies.  The IDC did not fill vacancies at companies in distress. To date, no use had been made of contractors and the IDC did not outsource work that could be done in-house.

Dr P Rabie (DA) wanted to know why less than 5% of applications received from the tourism, textile and footwear sectors were approved as these sectors were labour-intensive.

Mr Shakeel Meer, Divisional Executive: Industrial Sectors, IDC, explained that companies in these sectors were under stress because of competition.  These sectors were not as capital-intensive as the mining sector. The IDC had a business unit that focused on this sector. The IDC had introduced a scheme for companies in distress to modernise their operations by implementing technological advances and by investing in best practices in order to compete more effectively.

Mr N Singh (IFP) asked for what period the IDC had budgeted for to assist companies in distress.

Mr Christo Van Zyl, Senior Strategist: IDC, replied that the long-term sustainability of the company concerned depended on the sector and the products of the company. The period varied from company to company and sector to sector. In certain cases, it might take up to five years and in others, up to fifteen years for a company make a profit and become sustainable.  The IDC had sufficient resources to provide financial assistance to companies in distress for this year and the following year.

Mr X Mabasa (ANC) wanted to know if the IDC played a role in the development of industrial parks in disadvantaged communities.  He asked what role was played in cooperatives and what criteria were applied in assisting companies in distress.

Mr Meer explained that the IDC targeted certain areas for investment and development, including the integrated sustainable rural development programmes, industrial parks in industrial zones and other developments in previously disadvantaged communities. Government had launched a programme, which focused on cooperatives and the IDC was currently considering where the Corporation could play a role.  The IDC had funded workers’ trusts to enable workers to acquire a stake in the business.  The IDC encouraged communities to get involved in the businesses in their areas and provided assistance to communities to purchase shares in those businesses.  To date, the IDC had received few proposals to establish cooperatives. Since 2008, the Corporation had been focusing on growing this area.

In response to Mr Mabasa’s question on the criteria applied, Mr T Makhuvha, Head: Post Investment Monitoring, IDC, explained that companies had to comply with applicable legislation and produce all the required documentation.

Mr L Greyling (ID) asked if there was a link between Government’s industrial policy objectives and the approval of applications for funding.

Mr Zalk replied that there had been closer cooperation between the IDC and the Department of Trade and Industry (DTI) over the last eighteen months. He confirmed that the IDC had increased its efforts to align its activities with the national industrial policy objectives. It was important to contextualise the role the IDC could play in responding to the economic crisis.  There were certain aspects that the IDC was not able to address.  A broad range of factors were applicable to the different sectors of the economy.  The IDC focused on the supply-side of companies, for example by providing working capital, restructuring loans etc. The role of the IDC had to be viewed holistically in terms of the overall response of Government to the current crisis.

Mr S Ngonyama (COPE) wanted to know if the IDC combined efforts with partners like the Development Bank of South Africa when it embarked on projects in rural areas. He asked what the policy was regarding regional participation.

Mr Qhena replied that the IDC was very sensitive to rural development and the regional offices responded to projects and issues in the rural areas of the different provinces.

Mr Zalk said that when it came to regional integration, the IDC supported regional projects. In respect of regional participation, the IDC took into account whether the companies concerned would procure materials from South Africa or their own countries.

Ms Tsotetsi (ANC) asked what role the IDC played in start-up companies.  She wanted to know which factors were taken into consideration in the establishment of a private hospital in Limpopo province.

Mr Qhena explained that the IDC provided funding for start-up companies as well as existing companies in distress.  In the case of start-up companies, other factors were taken into consideration.  Concerning the private hospital, the IDC was not driven by profit but took into account the ability of the community to afford private hospital care.

Dr Rabie enquired what the age and gender restrictions were for workers participating in the Training Lay-off Scheme.

Mr T Mkalipi, Senior Executive Manager: Collective Bargaining, DoL replied that there were no age or gender restrictions.  The only requirement was that the person was employed and earned less than R180 000 per annum. The Employment Equity Act and the Constitution prohibited discrimination on the basis of age or gender.

Ms Tsotetsi remarked that the duration of the current economic recession could not be determined.  He said that the age of workers qualifying for re-training was a factor as it was not wise to train a 62 year old. She suggested that a skills development strategy was developed.

Mr Singh asked what opportunities were available to people who had been retrenched.

Mr Mkalipi replied that the scheme applied only to employees who were at risk of being retrenched. During the retraining period, companies were required to pay a training allowance and contribute to basic benefits. The difficulty with persons who had been retrenched was who was going to pay them. The priority of the scheme was to save jobs.

Mr Ngonyama asked how flexible the training was.

Mr Mkalipi replied that companies had to identify the kind of training required for their workers, which could be put to good use after the training was completed or when the recession came to an end.

Mr Ngonyama commented that there was a general need to train people.  He felt that a strategy should be developed to take training to a higher level, not horizontally.

Mr Mabasa asked who was responsible for the training.  He asked how the DoL ensured that the information on the scheme reached the rural areas.

Mr Macun replied that training was the responsibility of the SETA’s. The appropriate SETA advised employers about the kind of training that was needed. Both parties signed the agreement and took responsibility for training. The DoL was responsible for providing information on the scheme, through the provincial Departments of Lacour.

Mr Mabasa commented that the Committee needed to assess the effectiveness of training programmes as a tool to combat unemployment.

The Chairperson enquired about the relationship between the DoL and the IDC.  She asked if the CCMA was the only body responsible for mediation during the training period or were involved in cases where the agreement had not been implemented.

Mr Mkalipi explained that the CCMA did not necessarily facilitate all agreements. The agreement stipulated how the disputes would be resolved in cases where there was a problem regarding the implementation of the agreement. Communication between the DoL and IDC was important in order to prioritise funding and to avoid double-dealing by companies in distress.

Mr Rabie stated that labour brokers were a source of employment for many people. It was a complex issue that needed a thorough review to find a solution that would benefit all the role players.

Mr Ngonyama commented that the responsibility of Parliament was the protection of the Constitution and the country. The labour brokering issue must be dealt with.  International trends regarding this issue needed to be taken into consideration as well.

The meeting was adjourned.


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