Minister's briefing on Annual Report 2009/10, Departmental Performance Report for 1st & 2nd quarters 2010/11, Committee Oversight Report adoption

Economic Development

11 October 2010
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Minister of Economic Development briefed the Committee on the Annual Report of the Department of Economic Development for 2009/10. The Minister noted that this Report, because it focused on a time when the Department was being created, did not outline as many achievements or programmes as would be contained in subsequent reports, but that there had been a focus on developing a strategic plan and securing the interim budget of R29 million, recruiting staff and transferring agencies and aligning functions within government. The Department had responded to the recession by creating greater dialogue, and establishing new tools, including the National Job Fund, Fund for Companies in Distress and the Development Bond, and it had also managed the Training Layoff Scheme and the Industrial Development Corporation (IDC) Fund. The Minister set out and explained the New Growth Plan, provincial coordination, the role of Parliament, the international work and community outreach. He noted that the statement of accounts was included with that of the Department of Trade and Industry, since the Director General of that Department had acted as financial controller for the Department of Economic Development. He noted that all structures were now in place to move forward. Members asked how the cost of the development bond of R2 billion placed by the Industrial Development Corporation (IDC) with the Unemployment Insurance Fund (UIF) would be recovered, what the competitive exchange rate of the Rand should be, in view of its impact on economic development, and how South Africa should attract Foreign Direct Investment and become attractive to labour absorption. Members asked how much of the Industrial Development Corporation fund for distressed companies had been paid out, how much remained, and how it would be funded in future, as well as which companies had benefited. Members were interested in how the money put to the training layoff scheme equated to the number of jobs saved, and whether there had been value for money. Members also asked for the Department’s view on the acquisition of Massmart by Wallmart, about the future of black economic empowerment deals, and how small enterprises providing credit and employment were to be protected.

The Department then presented its performance reports for the 1st and 2nd quarter of 2010/11. Although Members allowed the information to be presented, they then commented that they had difficulty engaging with the Report, because it did not show alignment with the Strategic Plan, and it was difficult to assess whether the targets had been met. The Committee resolved to grant the Department the opportunity to rework the report in line with the Strategic Plan and present it again.

The Committee then considered and adopted its Report on the Oversight Visit to North West, and added various recommendations into the report. Members commented on the need for more uniformity when the municipalities used consultants, as they tended to use different consultants from those recommended by the provincial government. They identified a need for the Department and State owned entities to carry out more public awareness campaigns, to notify communities of their services, and that the three main institutions controlling 60% of agriculture production in the North-West must also empower their workers, through training, to start cooperatives. The Committee noted the need for better coordination between spheres of government in regard to implementation of legislation and policies on economic development, and the need to monitor and evaluate businesses after funding was approved by Development Finance Institutions. The Committee further recommended that the Competition Commission should investigate tender rigging at provincial and municipal level.

Meeting report

Department of Economic Development (EDD) Annual Report 2009/10: Minister’s and Department’s briefings
Hon Ebrahim Patel, Minister of Economic Development, introduced the new Deputy Director General for Economic Planning and Coordination, Mr Andile Mabizela. He tabled the 2009/10 Annual Report for the Department of Economic Development (EDD or the Department) noting that it covered the period from establishment of this Department up to 31 March 2010.

He noted that each of the ten chapters in the Annual Report contained a description of various workstreams undertaken. When the Department had been established, it was necessary to develop
a Strategic Plan, secure an interim budget (of R29 million), recruit staff and transfer agencies and align functions within government. The Department responded to the challenges of the recession by creating greater dialogue, and establishing new tools, which included the National Job Fund, a Fund for Companies in Distress and the Development Bonds. It had also managed the implementation of the Training Layoff Scheme and the Industrial Development Corporation (IDC) Fund.

The Minister also took Members through the chapters of the Report that concerned the
New Growth Plan, Provincial Coordination, Parliament, Policy Development and Coherence, International Work, Stakeholder Engagement and Community Outreach and Financial Management, summarising the main achievements under each heading (see attached presentation for details).

The Minister advised that the Director General of the Department of Trade and Industry (dti) acted as financial controller and that the statement of accounts was contained in the dti audit. He confirmed that all structures were now in place.


Discussion
Dr P Rabie (ANC) asked what the competitive exchange rate of the Rand should be, noting that the EDD had indicated that it was evaluating the impact of the exchange rate on economic development.

The Minister replied that the International Monetary Fund report on South Africa, in Article 4, had indicated that the currency was overvalued between 5% and 15%. The real strength of a currency was determined by the level of exports and the capacity to compete with imports on the domestic market. The work of the Department focussed on assessing how a sensible exchange rate would be promoted.

Mr S Marais (DA) asked how South Africa would attract Foreign Direct Investment (FDI) and become attractive to labour absorption.

The Minister replied that there was need for cross-cutting policy measures, such as industrial development, skills development, entrepreneur and competition policy. Considerable work had been done in each of these areas, through the New Growth Path, and this would address labour absorption. FDI was important because it was a source of capital and technological investment. South Africa needed to increase FDI as opposed to portfolio flows.

Mr Marais asked how the cost of the development bond of R2 billion placed by the Industrial Development Corporation (IDC) with the Unemployment Insurance Fund (UIF) would be recovered.

The Minister replied that the price of debt was determined by the risk profile and return. The risk profile of the UIF had been reduced. UIF was a public fund that was directed at ameliorating short and long term unemployment. The money was accessed below prime, and enterprises needed to show that there was a job dividend to the economy.

Mr Marais asked how much of IDC’s R2.874 billion Fund, intended to assist distressed companies, had been paid out, and how much was remaining. He also asked where the IDC would obtain further funding in future.

The Minister replied that the Department had replied previously on what proportion of the Fund had been paid out but would do so again if necessary. The Fund was not a grant, so there was a continuous flow of money through repayments and interest.

Mr Z Ntuli (ANC) asked whether the money put to the training lay-off scheme equated to the jobs saved, and if an assessment had been done as to whether value for money was achieved.

The Minister replied that the cost was measured as a cost per job. The return for government was measured as a function of whether people were improving their skills, and also against the number of retrenchments avoided as a result of the programme. The Department was also developing a methodology to try to measure the cost per job created, so that an assessment could be done how many jobs were created for every million rands invested.

Mr Marais asked the Minister for the view of the Department in regard to the acquisition of Massmart by Wallmart.

The Minister replied that the Department would soon be issuing a statement on the matter, and he would therefore discuss this matter with the Committee at a later stage.

Mr Marais asked the Department’s view was on the Kumba/ASMA Black Economic Empowerment (BEE) deal, in view of the importance that the Department attached to the BEE Council and Broad Based Black Economic Empowerment (BBBEE).

The Minister replied that there was a view to rework the way in which BEE functioned. The BEE framework should be realigned with the New Growth Path.

Dr Rabie asked if there were plans in place to protect the small enterprises that provided credit and employment to the people.

The Minister replied that the Competition Commission was one of the ways in which government would respond to how small businesses were treated. The Department recognised the challenges and would be dealing with this matter.

Ms H Line (ANC) asked which industries and companies had benefited from the IDC fund.

The Minister replied that information would be provided to the Committee.

The Chairperson commended the Department for the work that had been done, especially in view of the fact that it had been operating with minimal resources.

The Minister said that the Department had taken note of the comments made by the Committee. He reiterated that this Annual Report covered the establishment of the Department, so the numbers of programmes implemented would increase in the following financial years, and the next Annual Report would contain significantly more detail on service delivery.

Department of Economic Development Performance reports for First and Second Quarter 20010/11
Mr Richard Lenin, Director General, Department of Economic Development, presented the Department’s performance reports for the 1st and 2nd quarters of 2010/11. He outlined what those reports contained (see attached presentation for detail). The engagements by the Minister, Deputy Minister and Director General were listed.

He noted that a total of 23 staff appointments were made in the second quarter. In respect of the New Growth Path, discussion papers on key themes had been developed and presentations were made to the Director Generals’ Cluster, the Economic Ministerial Cluster, MinMEC and the July Cabinet Lekgotla. The New Growth Path would be finalised at Cabinet level
. The Committee was informed that Outcome 4 focussed on “Decent employment through Inclusive Growth” and that the Economic Sector and Employment clusters would act as the implementation forum for Outcome 4. A delivery agreement and plan of action for Outcome 4 has been drafted and the economic development MinMEC would coordinate implementation across all spheres of government.

In respect of the Training Layoff programme, the Committee was informed that 5 532 workers had been assisted. Of these,  1 182 workers had completed training, 4 350 were still training and 855 applications were in process. This had involved 21 companies. He noted that the information was provided up to 30 September 2010.

Mr Lenin highlighted that successful staff recruitment would be key to the Department’s progress,
but that compliance with regulations was time-consuming.

Discussion
The Chairperson observed that it would be difficult to engage with the Department, as the first and second quarter performance reports were not aligned with the strategic plans, which meant that it was difficult to assess whether targets had been met.

Mr Marais proposed that the reports should be aligned to the strategic plans.

Mr S Huang (ANC) proposed that the Committee could engage with the Department in order to seek clarity on some of the issues.

Ms D Tsotetsi (ANC) said that it would be clumsy to engage with the report without ensuring that the targets met were in line with strategic plans.

Mr Lenin said that if the Committee wished him to do so, he could redraft his report so that it was in line with the strategic plans.

The Chairperson ruled that the Department should be given the opportunity to correct and resubmit the performance report.

Consideration and Adoption of the Committee’s Report on the Oversight Visit to the North-West Province
The Chairperson noted that the draft Committee Report on the Oversight Visit to North West (the Report) had been circulated, and suggested that Members should raise any proposed amendments page by page. She added that some recommendations needed to be added to the Report before it was concluded.

Dr P Rabie (DA) said that there was a need for more uniformity when the municipalities used consultants, as they tended to use different consultants from those recommended by the provincial government.

The Chairperson said that the cost for some of the consultants was exorbitant, and the consultants seemed to move from one sphere of government to another, after failing to perform.

Mr Ntuli said that the municipalities needed to adopt a community based consultation approach rather than depending so heavily on consultants.

Dr Rabie observed that there was lack of dialogue between municipalities and provinces.

Ms Tsotetsi said that there was a need for some of the State owned entities to carry out more public services, so that communities would learn how best to access some of their services.

The Chairperson said that it was difficult to see and assess what education and awareness campaigns were being done by the Department and State owned entities.

Ms Line pointed out that some of the observations contained in the report needed to be turned into recommendations.

Ms Tsotetsi said that the three main institutions that controlled 60% of agricultural production in the North-West needed to train their workers so that they would be empowered to start their own co-operatives.

Dr M Oriani-Abrosini (IFP) said that provinces were not accountable to national government because of the manner in which the Constitution was written.

The Chairperson said that the province needed to follow up on the implementation of the Provincial Growth and Development Strategies (PGDS).

Dr Rabie suggested that municipalities needed to do more with regard to local economic development in their area of jurisdiction.

Ms Line added that there was need for better co-ordination between the three spheres of government relating to the implementation of legislation and policies on economic development.

The Chairperson commented that there was no monitoring and evaluation of business after funding had been approved by the Development Finance Institutions (DFIs).

Ms Tsotetsi noted that access to funding was difficult and came at too high a cost, which prevented people from benefiting.

The Chairperson said that there was a need for the Competition Commission to investigate tender rigging at provincial and municipal level.

The Chairperson proposed, and Members agreed that the Committee should adopt the report, with inclusion of the recommendations made by Members.

The meeting was adjourned.

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