Minister and Departmental briefing on Department of Economic Development Annual Report 2009/10

NCOP Economic and Business Development

01 November 2010
Chairperson: Mr F Adams (ANC, Western Cape)
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Meeting Summary

The Minister for Economic Development, made a brief appearance at the start of the meeting to introduce the Committee to the new Deputy Minister, Mr Enoch Godongwana. He said the new Department had started from scratch, comprising only of himself and the previous Deputy Minister. The Annual Report contained stories of ordinary individuals struggling against poverty and unemployment. These stories served to act as the driving force for what the Department wanted to achieve such as the creation of decent jobs and a reduction in poverty.

The Director-General of the Department proceeded with briefing the Committee on its Annual Report for 2009/10. The report dealt with the staffing and the setting up of the Department’s infrastructure, the policy research it undertook, its focus on the creation of decent jobs and growth in the economy via the New Growth Path. The Annual Report was not in the normal format, containing no Financial Statements or the Auditor’s report, as this was the Department’s first year of operation. The Department had been allocated a budget of R29 million, administered by the Department of Trade and Industry, and had spent 61% of its budget. Staffing had been a major challenge and a major activity. By the end of January, 13 posts had been advertised and the Director General had assumed duty on 1 February 2010. The Department had been allocated R130 million in the Medium Term Expenditure Framework budget. A major feature had been the transfer of the Industrial Development Corporation, Khula, the South African Micro-finance Apex Fund the Competition Commission, the Competition Tribunal and the International Trade Administration Commission to the Department. Through these agencies it became the central department in the Government’s response to the impact of the international recession on the country. The Department, staffed by a small group, had created a framework for a response to the international economic crisis, had laid the groundwork for the New Growth Path, had laid the foundation for relations at provincial, parliamentary, business and international relations levels and had participated in Government’s outcomes monitoring programme, especially outcome four, which focussed on the creation of decent jobs and the growth of the economy.

Members said the Department’s achievements had been through its agencies and that subsequent Annual Reports would show its real achievements. Members questioned the rationale for having
the Department as it seemed as if the Department was there only to support agencies. Members said co-ordination between the spheres of government was crucial, as development in South Africa was uncoordinated and was lagging five years behind potential investors, what was needed was the political will to drive projects.

Members asked whether the Department could not have shared administrative functions with the Department of Trade and Industry and saved money. They also asked what kinds of skills were developed in the skills development layoff programme, how could the Department help people in rural areas, how many business start-ups had been assisted,
would the drive to promote local content be at the expense of efficiency and reliability and how could Government improve the way it did business?

Meeting report

Briefing on Department of Economic Development 2009/10 Annual Report
Mr Ebrahim Patel, Minister for Economic Development, introduced the Committee to the new Deputy Minister, Mr Enoch Godongwana. The Department had been created after the 2009 General Elections and had to start from scratch, comprising only of himself and the previous Deputy Minister. The Annual Report included stories of ordinary individuals struggling against poverty and unemployment. These stories served to act as the driving force for what the Department wanted to achieve- the creation of decent jobs and a reduction in poverty. He introduced the Director-General who would do the actual briefing as he had asked to be excused as he and his deputy had other meetings they had to attend.

Professor Richard Levin, Director-General, Department for Economic Development, briefed the Committee on the Department’s Annual Report for 2009/10. The Annual Report was not in the normal format as it contained no financial statements and no Auditor’s report as this was the Department’s first year of operation. The financial information had been incorporated in the Department of Trade and Industry’s (DT I’s) Financial Statements. Rather, it chronicled the establishment of the Department, its opportunities, its challenges and the range of activities of the Department. At the time of the establishment of the Department, the country had had a 4% growth rate yet there had been no change in its unemployment situation.

The Department had started in May 2009, in the midst of the international recession. This background had led to its central strategic objective, namely to create decent employment opportunities and to increase the growth of the economy. It had been formally proclaimed on 7 July 2009. It had been a challenge to put the infrastructure of the Department in place. The Department had been allocated a budget of R29 million with the Director-General of the DTI acting as the accounting officer. Staffing had been a major challenge and a major activity.  By 31 January 2010, 13 posts had been advertised and the DG had assumed duty on the 1 February 2010. The Department had adopted the DTI’s internal policies and systems and had received R130 Million in the Medium Term Expenditure Framework budget. A major feature had been the transfer of  the Industrial Development Corporation (IDC), Khula, the South African Micro-finance Apex Fund (Samaf), the Competition Commission, the Competition Tribunal and the International Trade Administration Commission (ITAC) to the Department.

The Department had become the central department in the Government’s responses to the impact of the international recession on the country. R2.4 billion had been allocated by Government in a national job creation scheme and the IDC had assisted companies in distress and agencies had assisted in debt mediation. Government procurement requirements had been leveraged to promote local production of goods. The training layoff scheme had assisted 2 100 people. The Department had investigated high food prices and Pioneer Foods had been found guilty of collusive practices while Sasol had been fined. It had held discussions with banks to facilitate the flow of credit. Child support had been extended to children under the age of 16. The Minister had been involved in discussions and dialogue with groups ranging from community outreach programs to provincial, parliamentary groups and at international levels. The Department had spent 61% of its budget.

Prof Levin added that the Department was staffed by a small group who had managed to contribute to create a framework in response to the international economic crisis. The groundwork had been laid for the New Growth Path. The foundation had been laid for relations at provincial, parliamentary, business and international relations levels. The Department had participated in Government’s outcomes monitoring programme, especially outcome four, which focused on the creation of decent jobs and the growth of the economy.

Discussion
Mr A Lees (DA, KwaZulu Natal) remarked that most of the Department’s achievements had been through its agencies and that the next Annual report would show its real achievements. He wanted to know, with reference to the organisational structure of the Department, how many of its staff had been transfers from the DTI and of those transferred, how many had been in an administrative function. Could the Department not have shared administrative functions with the DTI and saved money?

Mr B Mnguni (ANC, Free State) asked how South Africa, as a consumer driven society, could be changed to a production based economy. What were the lending criteria of the IDC? How many jobs and companies were saved?

Mr K Sinclair (COPE, Northern Cape) said he struggled to see the necessity for the Department. What was the key purpose of the Department? It seemed as if it was only there to support agencies whereas in his opinion it needed to respond much quicker. What was it doing to help distressed companies survive? What was the position regarding the New Growth Path plan? He had heard that it had been accepted by Cabinet. How could the 100 million euros of development funding, sourced by the economic cluster, be accessed?

Ms E Van Lingen (DA, Eastern Cape) asked if the report on the conference held in the Eastern Cape by the Department was available and whether she could get a copy.

The Chairperson asked how the IDC funding of R6.1 billion had helped job creation. Considering that the growth rate had decreased, how could it be said that jobs had been saved or created.

Prof Levin acknowledged that there were “gaps’ in Government structures. The question of the necessity of a new institution (i.e. the Department) was debatable. The Department was there to co-ordinate the work of Government and it had not reached that point in its development yet. It was accepted that the key economic challenges were poverty and unemployment. There was no institution which co-ordinated policy around these issues and micro economic policy was scattered across a number of departments. These were the motivations for the establishment of the Department. Once the decision had been taken to establish the Department it had raised other challenges such as the reality of departments trying to protect their turf.  Another challenge was the extent to which the Department could have a lean and knowledgeable organisational base to develop and apply policy. The Department had not relied on outside consultants but had worked hard and done the work itself. 50 people had been employed to date although the Department’s organisational structure allowed for over 200.

Prof Levin stated that R418 million of the budget were independent transfers to its agencies. The policies that the Department had developed would be reflected in its programmes and would be reported on in this manner in future annual reports. There was a need to unbundle Government to create more flexible institutions and this motivated the establishment of a number of agencies. It would be a real achievement if the Department could get achievements through its agencies rather than through the government bureaucracy.

Mr D Gamede (ANC, KwaZulu Natal) said that as the document was a public document it had to reflect that it was not only for Parliament but also for the National Council of Provinces (NCOP), as the NCOP represented the provinces.  He asked what kinds of skills were developed in the skills development layoff programme. How many women and people with disabilities participated and from which sectors of the economy did they come from. What could the Department do to assist people in rural areas? How many business start-ups had been assisted and how many of these start ups had failed?

Mr Sinclair said co-ordination between the spheres of government was crucial, as development in South Africa was uncoordinated.  If the Department really wanted to fulfil its role it should keep the Committee of Ministers and Members of Executive Councils (MinMec) and the South African Local Government Association (SALGA) fully informed because what happened at local government level was very important.  He expressed concern that the Department was developing a top heavy structure. Did the Department really need five Deputy Director Generals and eight Chief Directors as this did not reflect a lean and mean structure. The Committee was currently debating the recapitalisation of the IDC. He had been in Upington for a solar power conference recently. This was for a “green” economy initiative and had attracted 400 investors however it appeared to him that the Government was about five years behind the investors on many levels. The investors had asked for a time frame from the Department of Energy which could not give them an answer. Similarly the investors had asked what incentives were being offered. The Department had to engage with the Department of Energy as there was a potential R150 billion at stake.  The conference was in agreement that only 20% of that investment was feasible at this point and that what was needed was the political will to drive projects.  He reiterated that job creation could be increased by a commitment to make smaller centres more prosperous rather than concentrating only on the big industrial centres of the country.

Mr Lees wanted a reassurance that efficiency and reliability would not be compromised in the process of promoting local content.

Prof Levin
replied that he would provide a formal written submission on the training layoff scheme figures asked for by Mr Gamede. The sectors involved were the clothing, chemicals, textiles and motor vehicle industries. On what the Department did for local communities, he said there was a “big tension” as when one engaged with local level, legitimate requests were raised yet the National Department worked through agency instruments like Samaf and Khula and so co-ordination was a critical area.

Prof Levin said there was a gap in the spatial economic development planning and the Department had sought investment partners to access finance for a “green” economy, however there were real tensions to balance the “green” economy with the demand to keep prices down while switching to renewable energy. These were major challenges as just increasing the costs was not going to solve the problems.

Prof Levin informed Members that there was space for the recapitalisation of the IDC to take place. He appreciated Mr Lees’ comment on a lager mentality and said that, similarly, promoting local content could lead to an increase in prices. He used by way of example the production of the Joule  electric car which faced the challenge of either going on its own in terms of production or partnering with a Japanese manufacturer which meant losing its brand identity but still achieving its objective.



Mr Sinclair asked if Government could improve the way it carried out its business.

Professor Levin
replied that the Department was in the process of developing a dashboard of indicators to monitor the performances of agencies and regulatory bodies to reduce red tape and reduce turnaround times. The question was also to what extent public servants did what they were supposed to do. There was need to change the work culture within Government and reduce corruption.

Other Matters
The Chairperson thanked the Director General for his input and moved on to Committee matters. There was discussion on the accuracy of the scheduled Committee meeting programme. The Chairperson said clarity would be gained as he would be attending a meeting the following day where the amended programme would be discussed.

Mr Sinclair noted that the Department of Energy would be meeting the Committee. She therefore requested that the Department brief the Committee on the “green” projects in Upington.

Ms Van Lingen asked about the proposed oversight visits to Coega and the motor industries in the Eastern Cape

Mr M Maine (ANC, North West) replied that it appeared unlikely that it would occur in this term.

The meeting was adjourned.



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