Economic Development Department Mid Year Performance Report 2010

Economic Development

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

The Department on Economic Development strategy had four main components:
▪ providing effective and efficient strategic support and administrative support to the Minister, the Deputy Minister and members of the Department;
▪ the Growth Path and the creation of decent work;
▪ spatial, sector and national economic planning; and
▪ social dialogue and strategic frameworks.

There had been good but uneven progress in the implementation of strategic plans, with the overriding challenge being the recruitment of staff.

During discussion, the Department answered questions on its employment targets and recruitment programme, its financial performance and key policy areas, disparities in the cost of creating and saving jobs, its role in the formulation of the Growth Path, its approach to the informal and “green” economies, the future of the Coega project, youth employment programmes and the role of Development Finance Institutions.

Meeting report

The Chairperson conveyed the apologies of the Minister of Economic Development, who had been detained in Pretoria following a special Cabinet meeting on the New Growth Policy. He had undertaken to liaise with the Chairperson to set an alternative date for their scheduled meeting.

Prof Richard Levin, Director-General of the Economic Development Department (EDD), introducing the report, said it should be borne in mind that the Department had been established as an entirely new entity in July 2009, without staff, infrastructure or resources. The report sketched the progress that had been made in establishing, staffing and resourcing the Department, which had started the period under review with three permanent staff and fewer than 20 employees in total.

The Department’s framework had been developed around the Government’s outcomes-based approach, which included “decent employment through inclusive economic growth” led by the economic cluster of departments of which the EDD was part.

The EDD strategy had four main components.

The first programme aimed at providing effective and efficient strategic support and administrative support to the Minister, the Deputy Minister and members of the Department. This support embraced a wide range of meetings with major economic stakeholders, both locally and abroad. These activities required increasing the staff complement, and a rigorous selection process had started for four Deputy Directors-General, four Chief Directors and three corporate managers, involving project assignments, interviews and an exam component.

The second programme dealt with the Growth Path and the creation of decent work. Much of the Department’s efforts had been focused on drafting policy papers ahead of yesterday’s Growth Path meeting with Cabinet. Macro and micro economic policy issues were being identified, analysed and discussed across a broad spectrum on a continual basis. This included policies to transform the second economy, the mapping of linkages between the first and second economies, and the preparation of a fact sheet on youth unemployment. However, substantive work on Broad-Based Black Economic Empowerment (BBBEE) had not yet begun.

The third programme dealt with spatial, sector and national economic planning, including projects such as the Coega Industrial Development Zone (IDZ), the Green Economy, developmental objectives of the IDC, the Khula Direct model, youth employment and cooperatives strategy, and job-saving and creation. Another aspect of the programme had been the revision of the Preferential Procurement Regulations to ensure that precedence was given to local producers.

The final component covered the national social dialogue and strategic frameworks. Numerous social dialogue engagements had been held with organisations such as the Human Sciences Research Council (HSRC), the International Monetary Fund (IMF), International Labour Organisation (ILO), and the Development Bank of South Africa (DBSA). The implementation of strategic frameworks had seen R1,265bn committed to 12 companies in distress, resulting in 3 715 jobs being created or saved at a cost of R340 000 per job. Since the commencement of the fund R2,922bn had been committed to 53 companies, creating or saving 17 883 jobs at a cost of R163 000 per job. Fifteen workshops had been held with the Industrial Development Corporation (IDC) to promote the Training Layoff Scheme and to support distressed companies.

Prof Levin tabled a list of the EDD’s performance indicators for the first six months against the full year Estimates of National Expenditure (ENE) targets, and indicated that its expenditure for the period was R171,003 million, or 40,9% of the main appropriation of R418 million for the year. Spending was marginally below the norm owing to the high vacancy rate associated with the start up and initiation of operations in the new department.

He said the Department currently had 52 employees, which would increase to about 90 by the end of the year. Of these, 63% were black, 17% coloured, 13% white and 6% Indian. No disabled people had been employed. Representativity would be closely monitored.

There had been good but uneven progress in the implementation of strategic plans, with the overriding challenge being the recruitment of staff.

Mr S Marais (DA) asked for a commitment from the EDD to its employment targets, and that it accepted the 2% target for disabled people.

Prof Levin said that with his length of service in the public service, he understood that the challenge of starting a department from scratch was immense. There were no initial systems in place, and many new employees had no public service experience and had had to learn on the job. The human resource function was fundamental to the start-up process. There were organisations who could assist with the recruitment of people with disabilities, and this would be tackled in the third quarter.

Mr Marais said that it was difficult to evaluate the Department’s financial performance, as quarterly figures were being compared with full year budgets.

The DG replied that the Department was tracking performance on a monthly basis, in compliance with Treasury requirements. A cash flow plan had been put together for each of the EDD’s projects, so that the spending plan could be achieved. Expenditure would be closely monitored. Currently, the EDD was not on track and was heading for a major underspend situation unless certain interventions, such as moving funds between programmes, took place.

Mr Marais said that the report indicated the EDD was involved in an enormous amount of discussion, and it created the impression that it was a “lobby group” or “talk shop.” He asked what aspects of Government policy the EDD was actually driving.

The DG said the Department was involved in meetings, workshops and processes because it was a policy and knowledge management type of organisation. He acknowledged that there needed to be a balance between the amount of discussion on the one hand, and tangible results in the form of a policy that could be translated into an implementation plan, on the other. The Growth Path, for instance, had required a lot of talk, but this would now result in a great deal of concrete action. The Department had been a central “driver” in the formulation of the Growth Path, and would be involved in its implementation. It was also a “driver” in key policy areas such as the youth employment strategy, the cooperative strategy, the second economy and the green economy. However, because of its current capacity constraints, it was struggling to implement the role it had agreed to take on. This made its recruitment programme critical to its success.

Dr S Huang (ANC) said the report had described the Department’s achievements against its ENE targets, but he also wanted to know what was still outstanding.

Prof Levin said that now that a Cabinet decision had been made on the Growth Path, a lot of work would follow. This would involve working with other government departments and sectors, and the formulation of a high-level implementation plan.

Dr Huang asked why there were such significant variances in the costs quoted for saving or creating jobs at distressed companies. These ranged from R142 000 to R340 000 per job.

Prof Levin suggested that the fact that a number of small businesses were assisted during the first two quarters might have distorted the figures, as there were lower costs associated with large companies. He proposed compiling a written submission, in association with the IDC, to straighten the matter out. He assured the Chairperson that close liaison with the IDC would ensure no conflicting figures would be put out in future.

Dr Huang asked for more details on the recruitment programme, with its homework and testing components.

The DG said this process was intended to ensure the Department attracted top quality candidates. In response to a question from the Chairperson, he said the process took between three and four months, and conceded that this length of time might necessitate a cost-benefit analysis to see if it added to the quality of the recruitment.

Mr Z Ntuli (ANC) asked if the EDD had established working relationships with MECs at provincial level.

The DG replied that relationships in the provinces were developing positively, following work on the green economy.

Mr Ntuli said that during the Committee’s oversight visits, it had found that companies which did not have organised labour were not aware of the training lay-off scheme. He asked whether the EDD had any mechanism for informing these companies about the scheme.

Prof Levin said the Department had been proactive and 13 workshops had been held with the IDC to popularise the scheme.

Mr Ntuli referred to the country’s unemployment problem, and asked whether the EDD had any targets for creating employment.

Prof Levin said the preliminary targets were included in the Growth Path. National Treasury had indicated that if 5,5 million jobs were to be created over the next ten years, the economy would need to grow at an average of 7% a year. These targets would be refined over time, covering the green economy, agriculture and agro-processing, rural development, creation of livelihoods, and smallholder farming. Targets were being set for all of these areas.

Mr S Ngonyama (ANC) asked what the strategy behind the agricultural value chain was, as there was serious poverty in rural communities, and this was an area which had been neglected.

The DG said one could ask why rural communities bought food from central depots in urban areas, when they could buy the same products on their own doorsteps. There were people who were capable of changing the situation, but they lacked an incentive. State procurement could be used to benefit local companies, but if one looked at the second economy, there was a need to turn around the agricultural sector. Viable small farming models should be developed as an alternative to large-scale commercial farming. Agro-processing at a local level also held great potential, and was a key plank in the Growth Path policy.

Mr Ngonyama asked if the EDD could advise whether there was a new IDZ policy, and what was happening in respect of Coega and the proposed Wild Coast N2 toll road.

Prof Levin said there were major governance issues that needed to be addressed. The issue of Coega pointed to the need for a national spacial perspective. Uneven development had to be addressed, as there were massive disparities between different regions, so there needed to be a move away from narrow provincialism. The Wild Coast road was a prime example – the N2 was a national road, but its progress was being inhibited by issues between provinces about the cost implications if it was tolled, although there were no substantial economic or environmental rationales for the objections being put forward. He said Coega was currently praying that Project Mthombo -- a PetroSA initiative to build a world-class crude refinery – would go ahead. However, the Department was working on an alternative plan in case the project fell through, such as what cluster of companies and projects, and what incentive packages, could be put together.

Ms D Tsotetsi (ANC) asked for further information about skills training to address youth unemployment.

The DG said the EDD had made specific recommendations. The wage subsidy from National Treasury was well known, while the Department’s approach was more along the lines of a youth brigade, where there would be a stipend over a one-year period, training, community service and job placement. These proposals were being put forward for implementation in the areas of agriculture and health.

Ms Tstsedi said it was important for timeframes to be attached to rural development projects, as movement to urban areas was taking place at a rapid pace, and implementation could end up being too late.

Prof Levin said the EDD was taking its lead from the Department of Rural Development and Land Reform, and had strong views that job creation efforts had to be directed at the second economy. Countries that had succeeded in achieving high rates of job creation had done so through the informal economy. Simply focussing on the first economy could set the country up for failure.

Ms P Benghu (ANC) asked whether the EDD had any mechanisms in place to monitor the Development Finance Institutions (DFIs).

The DG replied that the Department was looking at inputs, outputs and outcomes. Inputs would be budgets and staff, while outputs would be financial and operational efficiency, such as turnaround times in handling loan applications. Outcomes would look at the impact on job creation, empowerment, BBBEE and geographic spread. This was the monitoring and evaluation “dashboard” that the EDD was developing.

Mr X Mabasa (ANC) asked what lessons the EDD had learned as a result of having only recently been established.

The DG replied that although it was still early days, there were advantages in getting started at the same time as the new administration, particularly in respect of institution-building. In addition, despite a shortage of staff, the EDD was achieving a lot, which indicated that it need not become a bloated institution, with too many people doing too little.

Mr Mabasa queried the use of outside agencies, and wanted to know whether the human resource component within the EDD could not handle some of the work that was contracted out.

Prof Levin said that while the Department was not using consultants, it was hiring workers at all levels to handle specific pieces of work, in accordance with Public Service regulations.

The Chairperson asked whether the Department had launched its website.

The DG replied that initial work on the web site was carried out by people who did not have public service experience, and this had resulted in the need to start again from scratch. An agreement had been reached with the South African Micro-finance Apex Fund (SAMAF) to share IT resources and help in the development of the web site.

The Chairperson said she was not satisfied with the information around integration of the second economy into the economic mainstream. Research work had been done, but what had been the focus of this research to assist in strategy development?

Prof Levin said it was appropriate for the EDD and the Committee to discuss how micro-finance could be used to promote the second economy. A key question was whether it was considered necessary to adopt a formal approach to financing, and try to avoid losses. He believed that losses were acceptable, provided in the long term they produced livelihoods that could be reproduced over time. This approach had proved successful in other countries, so a different kind of loan approach for SAMAF and Khula needed to be adopted. This should be accompanied by the lessons from abroad, where communities were activated by peer pressure. This was the focus of the EDD, and although not much progress had been made so far, it was very much on the agenda. As far as the green economy was concerned, and its implications for the poorest of the poor, the main area of focus was waste recycling, because of its labour intensive nature.

The Chairperson asked the DG to elaborate further on Khula Direct at a future meeting.

The meeting was adjourned.


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