Minister for Economic Development on Transfer & Repositioning of Six Entities from Department of Trade & Industry

Meeting report

Briefing by the Department of Economic Development
Minister for Economic Development, Mr Ebrahim Patel, stated that the Economic Development Department (EDD) was established following the announcement of the new Cabinet. This meant that there would be a realignment of responsibilities between departments. The Minister Patel and the Minister for Trade and Industry had identified six agencies that had to be transferred to the EDD. The agencies consisted of three Development Finance Institutions (DFIs), namely the Industrial Development Corporation (IDC), Khula Enterprise Finance Ltd, and the South African Micro-Finance Apex Fund (SAMAF). The other three agencies were the Economic Regulatory Bodies (ERBs) of the Competition Commission (CC), the Competition Tribunal (CT) and the International Trade Administration Commission (ITAC).

The transfer of legislation to the EDD was effected for each of these legal entities by means of a proclamation in terms of Section 97 of the Constitution. The proclamation transferred the administration of legislation and the powers and functions from the Minister of Trade and Industry to the Minister of Economic Development.

All agencies were required to table their strategic plans by March 2010. The Minister requested that the Speaker permit the postponement of the tabling of the strategic plans of these agencies until July. A high level evaluation of the draft strategic plans had commenced and initial engagements with the agencies had already been held.

The Minister discussed each DFI. The IDC was state-owned and established by the IDC Act of 1940. It was established to spearhead the development of domestic industrial capacity. Khula was established in 1996 as a public company to address the financing needs of small businesses. SAMAF was established as a trading entity in 2006. When the EDD performed oversight on the DFIs, it would look at their alignment to government’s strategic imperatives and growth plan, their efficiency, effectiveness and governance.

The Minister turned to the economic regulatory bodies. The Competition Commission was mandated to prosecute anti-competitive conduct, to control mergers to prevent market concentration and to advocate for pro-competitive legislation. The Competition Tribunal was established in 1999 to hear referrals from the CC, consumers, firms and trade unions. The International Trade Administration Commission was established in 2002 and its mandate was to establish an efficient system for the administration of effective data. The EDDs oversight criteria for the economic regulatory bodies consisted of ensuring their alignment to government’s strategic imperatives and growth plan, their efficiency and their effectiveness.

The Minister said that a new baseline of performance had to be developed, establishing the time taken to complete the decision-making process. They also needed to link agency priorities with government’s priorities, improve the funding levels available for industrial support, avoid duplication between agencies and improve coordination, and review industrial finance options. The Minister also wanted to create a task team that would investigate ways of shortening the competition litigation process.

The Minister confirmed that the legal handover of agencies had been completed. Engagements between the EDD and the agencies had been held and strategic issues raised. The next step was to focus on government’s priorities. The EDD would build on the positive initial engagements and would develop policy positions that would be shared with the Committee. 

Discussion
The Chairperson thanked the Minister for the detailed briefing. She noted that the Committee had met with five of the six entities. The only entity that they had not met with was ITAC. The Committee had engaged with the entities on their draft strategic plans, so Members had an indication of what was happening. The Committee looked forward to seeing the strategic plans tabled in Parliament in July 2010 so that they could formally engage with the documents.

Dr P Rabie (ANC) welcomed the idea that the IDC funding had to be reviewed. This matter was of grave concern to the Committee. Over the past ten years there had been economic growth; however, there was no job growth. Approximately 2.4 million people between the ages of 18 and 35 were unemployed in the country. He asked how the Minister thought this problem should be solved, as it threatened the well-being of society. The government had to provide these people with the necessary skills to allow them to participate in the growth of the economy.

The Minister answered that he fully agreed with the importance of youth employment. If one looked at numbers,  close to 75% of unemployed people were actually the youth. More that 50% of young people of working age were unemployed. Extraordinary measures were needed to deal with the challenge of youth employment. The government was asking the agencies what contribution they could make to fostering youth entrepreneurship. The Minister would also ask the IDC, in the financing of large projects, to work with recipient enterprises on ways of bringing young people into employment. In the past, one of the key roles that big parastatals had played was in the development of artisan skills through the apprenticeship system. This had declined significantly after 1994. As the DFIs work on projects, they had to find ways to resurrect the old apprenticeship system.

Mr X Mabaso (ANC) stated that his question dealt with the expectations South Africans had about what Economic Development should do for them and with them. This expectation linked with the poverty that the country was experiencing, the lack of skills and the challenge of job creation. He noted a contradiction between the expectations of the public and the budget that was supposed to address the needs of the people. The challenge that the government faced was to communicate with the public so that the government and the people could move as one. The public’s expectations should not be above what the EDD could deliver. The EDD’s relationship with the Department of Labour (DoL) and the Department of Higher Education and Training (DHET) should be a complementary one.

The Minister answered that he had suggested to the Minister for Higher Education and Training that some consideration should be given to convening a joint Portfolio Committee meeting with Higher Education and Economic Development. Skills development was at the heart of economic development and therefore, skills targets should be set. The joint meeting could be a very helpful brainstorming session.

Dr S Huang (ANC) pointed out that the Committee had asked SAMAF for an organisational breakdown two months ago. The Committee had not received anything from SAMAF; however, the Members noted that the Minister had included a breakdown of SAMAF in his presentation. He stated that the Committee and the Minister should discuss IDC funding. He needed more commitment from the Minister and the EDD as to how they would perform oversight over the IDC.

The Minister replied that they would talk to SAMAF and ensure that they provide a better breakdown. In a recent meeting with SAMAF, they were asked to elaborate on the beneficiaries that received their support over the last couple of years. They told the Minister there had been 35 400 beneficiaries. The Minister asked SAMAF to count the number of “unique” beneficiaries that there were, not the amount of times that they benefited from SAMAF. The numbers had to be credible, even if there were not a large amount of beneficiaries.

The Minister noted that the IDC was the largest of the three DFIs. Its asset base amounted to approximately R75 billion. The Minister and the EDD were working on a set of targets and outcomes to which the IDC could be held accountable. The outcomes would include their impact on jobs and industrialisation. 

Mr Z Ntuli (ANC) asked the Minister for his thoughts on the Small Enterprise Development Agency (SEDA). Why was the SEDA not transferred as well? In 2007, Cabinet approved the establishment of Khula Direct, which would lend money. The Committee did not know if progress had been made with Khula Direct. He knew that the Cabinet was assisting with the functions of the DFIs. The Committee had not received any feedback on what had transpired from Cabinet’s assessment of the DFIs. He hoped the Committee would be taken into confidence on this matter.

The Minister replied that SEDA was one of the agencies that the government was looking at. The focus was on how they could coordinate SEDA’s functions with Khula and SAMAF. Years ago, when the old model was developed, the government decided to separate the business support functions from the financing guarantee system. One of the reflections that were made was that there were too many small business development agencies each with their own unique bureaucracies and the costs that were associated with that. The government had to find a model that brought about better coherence. Part of this was to consider what could be combined nationally; however, not everything was national. There were also competing institutions. The question was whether the government could build a model that brought everybody on board that had the support of all the provinces and metros. Small business needed a one-stop shop that addressed all their needs and concerns, and could give them the support that was required.

The Minister commented that the key for Khula Direct was to get the “sign off” on its business case. The business plan for Khula Direct looked at how to bring down the costs of setting up their system and to ensure that the bulk of their funds from Parliament reached their beneficiaries.

Mr N Singh (IFP) addressed the issue of State Owned Enterprises (SOEs) and the role they played in economic development. To what extent had the EDD been asked to make submissions on the roles of the SOEs? He was pleased that the Minister spoke of silos. Moving away from the silo mentality was really going to help the country. To what extent was there thinking that one could consolidate the functions of Khula, IDC and SAMAF, and de-concentrate the administration? If one looked at the number of people employed in each entity, it seemed “top heavy”. He had not seen if there were any amendments made to the IDC legislation. This was an Act that was established in 1940. He asked if there was a need for any amendments to the legislation to make it more user-friendly. He addressed the topic of cooperatives and asked if the Minister was aware that there were a number of co-operatives that had been established. He referred to the Co-operative Banks Act. To what extent was the EDD going to help the co-operatives to become established within their own communities?  

The Minister said that most SOEs reported to the Department of Public Enterprises (DPE) and their Minister. In some cases, SOEs reported to a line Minister. For example, the SABC reported to the Minister for Communications. He used Eskom as an example to show how links were being drawn within the government. The Ministers of Public Enterprises, Energy, Finance and Economic Development sat down to discuss Eskom’s future plans and how it impacted on all of their mandates. The sum of all the mandates constituted the government’s mandate. Eskom extended its power supply capacity through its build programme. The Ministers wondered how they could use this to foster local industry. This would mean that the Ministers would have to sit down with Eskom who would give them a broad mandate to say that they required the building of, for example, turbines and other inputs that went into a power station that would be locally sourced.

The Minister noted the question on pruning the administration costs of the different agencies. It was a big question to ask - if there were merits to having different agencies for development finance. Members would have seen that the presentation asked the same question. It said that one of the big challenges was going to be cost effectiveness and coordination. He asked the Committee for time to complete those discussions with the EDD. He assured the Committee that this was a big question that was being put to the six agencies.

In terms of amendments to the IDC Act, the Minister replied that the Act had been amended after 1940. However, since 1950, the finance model underlying the IDC had not reflected well on the government. Therefore, the funding model was being reviewed.

The Minister addressed the question on co-operatives. The agency with a mandate that intersected with co-operatives was SAMAF. SAMAF targeted two groups of providers in the economy. The first group was the commercial money lending function that micro-lenders provided. SAMAF was also there to strengthen financial co-ops and stokvels. SAMAF helped to register them, give them grants, help them set up proper infrastructure and help them comply with registration requirements. The Minister thought that the government should put more focus on this area of work. He had asked SAMAF how much of their funds actually reached informal co-operative structures. SAMAF had to play a more active role in the community. He asked the Committee for an opportunity to report on the successes experienced in this regard.

Ms H Line (ANC) stated that she was worried about the Competition Commission. The Minister made it clear that there was a problem with the amount of time that the Commission was taking to complete cases. Also it seemed that bread prices were still the same even after it was found that companies colluded on the price. She asked if the Minister could come up with a solution to resolve the problem.

The Minister replied that the Competition Commission did not regulate outcomes or prices of products; it regulated the conduct of parties with the intention that competitive conduct ought to lead to lower prices, better quality and a healthier economy. This was the model that the country’s system was mostly built on. The government wanted the Competition Commission to draw a clearer connection between the decisions that the competition authorities make and the position of the consumers. These discussions were still ongoing and the Minister was unable to elaborate further. The Minister was asking the Competition Commission and the Competition Tribunal to look at areas where there had been anti-competitive conduct. The Minister had asked the Competition Commission and the Tribunal to advise him on whether any changes should be made to their powers to better connect their investigations and remedies, with the need to improve the impact on the lives of consumers. The Minister would then have to talk to Parliament. The government was looking at “beefing up” the capacity of the Competition Commission so that it was able to make a finding, to follow up on it, and ensure that conduct changed. The government also wanted to bring civil claims against companies that engaged in anti-competitive behaviour. This would help to recover money that was improperly obtained as a result of price fixing and tender rigging.

The Chairperson wondered if the Minister would be dealing with issues concerning lines of accountability for each of the six agencies, as it was quite a crucial matter. She asked to whom the parastatals would report. Would they report to their board, the Committee or the Minister? The Committee awaited the individual submissions from the six entities in July which were crucial. The Committee had complained that they had not received a letter of reference from the Speaker. It had been tabled in the ATC in April that the Minister requested the postponement for tabling the submissions. She noted that there were a few issues that needed clarification. She stated that comparative figures for the past three years were needed to see what the year-on-year growth was in terms of financial support. The Committee needed this information in order to make a comparative analysis on the six institutions that were being transferred. She noted that the Minister spoke of the new approach of the transfer of staff from the DTI to the EDD versus the current approach. The Minister stated, in his concluding remarks that he would be dealing with issues of cost effectiveness, and bringing his oversight criteria to reality. There were also issues around the staff. Who was brought in with the transfer and who was left behind?

The Minister addressed the question concerning lines of accountability. The lines of accountability were all prescribed in legislation. However, there was a challenge that the government was going to face. The government was the sole shareholder of each of the six agencies. The shareholder would need to make its intentions clear. There were sufficient tools that were currently available to ensure that agencies gave effect to the broad goals of government. The government had to be clear about what it wanted, and had to measure these goals clearly and effectively. The government also had to be able to hold agencies to account should they fail to deliver. The lines of accountability were critical and he did not wish to hide behind the idea that there were no tools for accountability. There were tools and they needed to be used more actively by government.

The Minister noted that he would ask the agencies to provide the Committee with the information that it required.

The Minister stated that most of the staff that performed work for the agencies was employed by the agencies. The DTI had an agency oversight unit, a relatively small unit, which was responsible for an excess of fifteen agencies that reported to the DTI. Most of these agencies remained with the DTI; only six had been transferred to the EDD. Given this, a different model of accountability that would be more hands-on was being built.

He added that the EDD hoped to have a “dashboard” of data that the EDD could regularly monitor to see how the agencies were performing according to those indicators that had been developed. The indicators for finance and client service would be made public, while some indicators would be kept internally. Accountability had to be the key factor throughout the entire system. This was part of the new ‘performance agreement’ culture that the government was trying to instill.

The Chairperson informed the Minister that there were other Portfolio Committees that were asking about the review report on DFIs. They were concerned that the DFIs would continue to work as usual, irrespective of the fact that the report on the review of DFIs was still outstanding. Khula told the Committee that the report was still with the Minister of Finance.

The Minister replied that the release of the report was matter that he could not deal with at the meeting. The report sought to ensure that there was greater coherence between the agencies. It looked at whether their mandates aligned with what was required today and in the future, whether they gave the country value for its money, and whether they met the objectives that government had set. The government wanted to make quite a big change to the effectiveness of the agencies.

The Chairperson noted that the report had been conducted in the previous terms and that the Committee was not yet privy to what was contained in the report. The Committee would engage with the report once it was released to the public.

Mr Mabaso stated that the budget for DFIs should proportionally relate to the needs of the public. If there was a complete mismatch between the budget and the expectations of the constituency, and the constituency did not understand the mismatch, then they would be frustrated at the end of the day. Poverty was the key issue that had to be addressed. The EDD was seen as a department that had to save the entire nation.

The Minister replied that he agreed with the Member. The extent of unemployment, inequality and poverty was very large. The government had to ensure that the DFIs were a lot more effective. The agencies would be able to do so much more if they had bigger budgets and resources. There were a few different directions that the agencies were pursuing. The first was to look at the budget envelope of the agencies going forward. A discussion on budgets was needed. The second was to look how money could be “freed up” so that the existing budget could reach the beneficiaries. The agencies would need to cut the costs of duplication and infrastructure so that resources could reach beneficiaries. The third option was to look at how the agencies would be able to leverage more resources such as non-budgetary resources for the DFIs. 

Mr K Manamela noted that youth enterprise development by DFIs were critical for the country because it created a large number of jobs. The Committee had to support the notion of youth development.

The Minister stated that most times employment creation was not measured. He wanted agencies to measure the number of jobs they created. The EDD would then check the reliability of the data.

The Chairperson thanked the Minister for the presentation and level of preparedness he showed the Committee.

Adoption of Minutes
The Committee adopted the minutes of 16 February 2010, 9 March 2010, 11 March 2010, 19 March 2010 and 24 March 2010 with minor amendments. The minutes of 23 February and 23 March 2010 required substantial changes and were not adopted.

The meeting was adjourned.