Economic Development Department and its Agencies 3rd Quarter Performance; Millennium Development Goals briefing

Economic Development

10 March 2011
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Director General presented an overview of the Economic Development Department 3rd quarter performance. He looked at progress against the strategic plan for each of EED’s four Programmes. Areas that presented challenges were the under-spending of budgets, HR recruitment, space allocation for the department and its entities and employment equity for people with disabilties. The Committee raised a number of questions on training schemes, the fund allocation from the Pioneer Foods settlement, liaison with the Auditor General, the HR recruitment difficulties, contract work, and the under spending of the budget. The recruitment goals and plan were outlined for the department; the Director General confirmed that the Department had had internal audits and had been liaising with the Auditor General. The finances regarding the Pioneer Foods settlement and the surrendering of funds were addressed.

The Director General provided an evaluation of the operating and financial efficiency and social impact for each of EED’s entities: the Industrial Development Corporation (IDC); Khula; South African Micro-Finance Apex Fund (samaf),
International Trade Administration Commission of South Africa (ITAC); Competition Commission and Competition Tribunal. The Committee commended the evaluation tool. Questions about the turnaround time, social impact and the allocations of funds were raised by the Committee.

The Department’s plans for realising the Millennium Development Goals were also presented. , specifically how outcome 4 related to goals 1, 2, 3, 7 and 8. The. Questions raised by the Committee were about the impact of HIV on the labour workforce, information collated from StatsSA, BEE and equity. The Committee requested that the budget allocation for addressing these challenges should also be presented. A workshop would be arranged to look at the information in much greater detail, including the budget allocation.

Meeting report

Economic Development Department 3rd Quarter Performance
The Chairperson, Ms E Coleman (ANC) asked the Director General to consider the Millennium Development Goals (MDG) during the presentation as this was going to form part of the Committee’s responsibility. She noted that the 1st and 2nd quarter reports had been received but there might be outstanding questions.

Mr Richard Levin, Director General: Economic Development Department, introduced his delegation. He said his presentation would look at the 2012-2013 targets, financial performance, human equity and key operational issues in Programmes 1, 2, 3 and 4 as well as the Millennium Development Goals.

Programme 1
Support to Minister, Deputy Minister and Director General
The DG outlined the activities of the Minister, Deputy Minister and Director General over the 3rd quarter as well as the activities of Human Resource Management, IT as well as the Chief Financial Officer.

Programme 2
• New Growth Path (NGP)
NGP documents finalised for Cabinet and public release
- Preparations made for the January 2011 Cabinet Lekgotla
• Engagements with SOEs, provinces, local government and private sector regarding jobs numbers
• Numbers received from SOEs on training, youth internships, artisan development and investment
- Responded to various requests for presentations on the NGP
• Macro economic policy
- Regular analysis of employment, investment, earnings
and growth data as published by Statistics SA
• Micro economic policy
- Assisted expert panel on the Walmart/Massmart merger
- Participated in task team on the steel industry
- Provided inputs on employment trends
- Provided inputs to Lekgotla on regulatory framework, reducing red tape and cost drivers
- Provided briefing documents for the Minister
• Broad-based Black Economic Empowerment
- Participated in Presidential Advisory Council
• Second Economy
- Inputs received from national departments on programmes currently underway
- Current programmes reviewed for upscaling
- Further engagement with National Treasury and other departments on youth employment interventions
- Refinement of youth MTEF proposal
• Economic Development Institute and Research
- Engagement with experts including the Economic Advisory Panel

Programme 3
• National Economic Planning
- Research on economic impact of SKA with DST
- Meeting with DOE on the regulatory framework for renewable energy
- Participated in Solar Park steering committee
• Spatial Economic Development Action Plans
- EDD hosted the 1st consultative Economic Spatial Planning Workshop on 27 October 2010
- Criteria for distressed areas drafted and consulted upon with departments and external experts
• Coherence of provincial and local plans & agencies
- MinMec held on 14 October 2010
• Inputs on Green Economy made by IDC, MECs and metro mayors
• Green Economy Fund agreed to in principle
- Provinces, metros and secondary cities requested to align their plans to the NGP
• Submissions were received, analysed and synthesised into a report
- Meetings held with Western Cape, North West and Gauteng officials on Green Economy
- EDD hosting a training programme for provincial economic development departments
• Sector Economic Development
- An assessment was done on trends in the clothing and textile sector
- Sector plan under development
• Development Finance Institutions
- Funding for Khula Direct approved by Cabinet
- The Minister addressed the IDC Board stratplan
- EDD engaged the National Treasury on the establishment of a Green Economy Fund
- Engagements with DEA and DFIs (IDC and DBSA) to draft a programme and a finance framework for the Green Economy
- Ongoing engagements with the IDC on the fund for companies in distress and UIF fund
• Investment and Development
- Prepared for a conference on mobilising savings for development
- Submission to the National Treasury on Regulation 28 of the Pension Act
• Economic Regulatory Bodies
- R1bn settlement was reached between the Competition Commission and Pioneer Foods
- The Competition Tribunal confirmed the settlement
- Cabinet approved a R250m Agro-processing Competitiveness Fund to be administered by the IDC
• Continental and International Interface
- SA-PRC Bi-National Commission held 16-17 November
- EDD participated in the Economy and Trade Committee and hosted a dinner for Chinese Ministers
- EDD collaborating with DIRCO and the dti on regional and continental development forums
• Budgeting, Financing and Procurement
- Monitoring the budget in relation to NGP imperatives
- IDC allocated R379m to 11 distressed companies, saving or creating 5249 jobs
- Preferential Procurement Regulations finalised
• Green Economy
- Meetings held with manufacturers and the dti on incentives and regulatory challenges
- Engagement with SABS on SWH standards
- Assessment of Solar CST and Solar PV underway

Programme 4
• Social Partnering and National Social Dialogue
- Engaged with HSRC on social cost of downturn
- Dialogue with Metals and Engineering Industry
- Dialogue with the Pharmaceutical Sector
- Nedlac held strategic planning session
• Implementation of Strategic Frameworks
- Monitored allocation of funding and jobs retained or saved through the fund for companies in distress and the Training Layoff Scheme
- 6375 workers were on the Training Layoff Scheme
• Sectoral and Workplace Social Dialogue
- Dialogue with the furniture industry, trade union and Bargaining Council
- Dialogue with the construction sector towards a framework agreement
• Capacity Building of Social Partners
- 3 workshops held with the IDC to popularise the fund for companies in distress
• Harnessing Economic Development Expertise
- Preparations for Economic Advisory Panel meeting (16 January 2011)
- Preparations for Annual Conference (March 2011)

Mr Levin outlined the Estimates of National Expenditure (ENE) targets for 2010/11
and achievements against these. Moving on to financial performance, he said expenditure was below the norm due to the high vacancy rate. Looking at human resources, he presented a breakdown of staff according to racial and gender profiles. Regarding employment equity, the staff complement at Dec 2010 was 56% female (senior management) and 58% female overall. Disability was under represented.

In conclusion, the Director General stressed that they were a new department. Currently, there were no budgetary constraints, accommodation was a restraint, and especially on the campus expectations had not been met. As they were in a high volume phase of recruitment. Their people were scattered around the campus whereas they would like to be a unit. The Competition Commission had constraints regarding space. Under spending was driven by slow recruitment. Economic skills had been at a premium, and the Department had not wanted merely to fill out the numbers but wanted to hunt for the best skills available. This had slowed the recruitment process. The organogram that was approved was for 265 positions however funding was available only for 98 posts. They were reviewing the organogram; otherwise it would look like they had a high vacancy rate - however this was actually due to lack of funding.

Discussion: 3rd Quarter Performance
Mr P Rabie (DA) asked for more clarity in the pharmaceutical sector regarding unfair competition by Clicks.

Ms D Tsotetsi (ANC) asked how many trainees were trained, in which provinces and whether this training was available in rural areas. Referring to the zero for employment of people with disabilities, did this not mean they do not meet the requirement.

Mr X Mabaso (ANC) pointed out that outcomes addressed more “what had taken place” rather than “the fruits thereof”, and the Department and Committee needed to strive for the fruits of everything they do. His second question was on engineering. The country was not producing enough black engineers and apartheid was still playing its games when it came to the product of engineers. Although this was not EDD’s area of focus, if this was not addressed it might be of detriment to us all. Mr Mabaso also asked for the meaning of SKA. Mr Mabaso advised that the Auditor General should be moving in parallel with the department. The worst thing would be to do good work yet the Auditor General made bad statements about the Department’s failings. Tthe Department should check to see the typical faults that the Auditor General finds in departments and ensure that these did not happen in the EED. Regarding the organogram vs. vacancy rate, the high vacancy rates would give problems regarding the high unemployment in the country. So when a solution was worked out, it should be in consultation with the Office of the Auditor General so that there was no heat them. He also asked if much of EED’s work was outsourced.

Mr S Marais (DA) said that employment equity was poor as there were no disability representatives. He asked what their commitment to people with disabilities was, not just a strategy but a commitment. Given the funding for 98 posts, and a problem filling those posts, with more funding would the department not have even more vacancy problems? He asked what the department’s action plan to create jobs was. He also asked if there were an increase in jobs, would there be an increase in GDP. If the increase in the fuel price would have a negative impact on GDP and thus jobs, how might the department plan to counter that.

Mr S Ngonyama (COPE) asked how much of the R1 billion settlement from Pioneer Foods would go to EED and how that money might be spent. If the Department had any interest and initiatives on food price, food security and food sufficiency and if there had been any outcomes on that. He also expressed a desire for the opportunity to have a briefing or meet with high profile figures such as Stiglitz.

Mr Z Ntuli (ANC) commended the Department on their presentation. He asked what the content of the training programme for provincial economic departments was and whether they aligned them with the national programme. He asked if money was allocated to distressed companies, whether this was a new allocation or the remnants of what was given before. When the Committee visited KwaZulu Natal there were companies with no organised labour force. He asked if the companies with organised labour did better than those without and if the companies without organised labour were aware of the training schemes?

Mr X Mabaso (ANC), asked for greater detail and a sense for what attempts were made to narrow the gap between the haves and the have nots. He asked if the presentation could better explain the outcomes of the Department. In reference to the companies that did get assistance, did the small companies benefit, such as in the industrial parks and not just the companies that made thousands every month.

Ms D Tsotetsi (ANC) asked what the duration of a staff contract in the Department was.

The Chairperson stated that she would address her questions slide by slide and asked if there was a reason to appoint workers on contract since of the 52 employees, 26 were permanent and 26 contract. She asked what the challenges to recruitment were. She requested a summary of the challenges in the department, such as the financial performance of the department and why the Department did not utilise the opportunity to surrender funds to other needy departments, when that would have reduced the under-spending. Why the IT department had not been developed and what the challenges for getting offices were and why the Department was not procuring their own space. She asked for a broader perspective on the Department’s outlook on the economic development of the country, so that the Committee could put into perspective what it was seeing and how it relates to the macro issues. She suggested a glossary of acronyms for future presentations. She asked if there was a formal concept paper on the green economy that could be given to the Committee. Greater clarity was required about the amendment of Regulation 28 of the Pension Act. She requested clear terms of reference for the agro-processing fund so that the Committee could follow up on the work of the IDC. She also asked who was responsible for inviting the Committee to Metlab and what the expectation for attendance from the Committee was. How many companies were represented in the training layoff scheme and what were the reasons for dialoguing with the furniture industry? To conclude, the Chairperson asked how the Department was planning to fill the gaps in the Department vacancies.

The Director General said he would respond to many of the questions but would also invite other people from the Department to respond. He asked that a written submission be made in response to some of the questions such as on the green economy. This would be sent through the following week.

The Director General said that Mr Mabaso had raised an important question on the nature of the report writing. He thought that the Committee and Department should work jointly to decide on some indicators that should be used in the report writing so that we were could report on outcome and impact. Suggestions for these indicators would be made in writing.

The Director General said that there were difficulties reporting on the Walmart situation as he had signed an affidavit with the Tribunal that precluded him from too much comment, however he did have the concern of the country in hand. On the pharmaceutical sector, the focus was on local manufacturing and the possible relocation of the factory plants to South Africa. The focus was to create a sector wide, or companywide agreement on this. The focus on the furniture industry was on a fabric rebate, illegal imports and the question of labour costs, local procurement and compliance in the sector, and the suitability of government incentives. The Director General invited Ms S Mchale from the Policy Branch of the Economic Development Department to elaborate on these issues. The focus on the furniture industry was due to it being the most labour intensive area. Construction also played a huge role in second economy and this had not been stable regarding employment. This was a place for training layoff. The Director General referred the question on initiatives for training artisans to Ms Mchale.

The Director General emphasised that the Department had shown upfront that they had not made progress regarding disability; however they had done well with gender equity. To address the contract issue, the reason for the Department using contracts was that it allowed the Department to bring in people on contract or for temporary work, and then fast track them into the system so that people would then apply for available positions. The Director General stressed that the Department was new. What was unique was that this Department started from scratch, whereas other departments start by splitting from other departments. The organogram was drawn up prior to the budget allocation, and so the organogram drawn up was much larger than what provisions were made for, that was why it was suggested that the organogram be redesigned with the budget allocation in mind. SKA was Square Kilometre Array and future presentations would contain a glossary. The Department was engaged in ongoing processes with the Auditor General and they were aware of the general risks such as compliance issues, the management of assets and were taking internal audits, however the Department was aware of being at risk.

On outsourcing, the Department was doing everything it could with the staff at hand and in collaboration with other departments and would continue to do very little outsourcing and take the approach of not flooding the department with contractors. The Director General said that he could not comment on the New Growth Path as he did not have the figures with him, however what the Department had been trying to do with the new growth job path was to increase labour. The labour intensivity of the growth would have an impact on the GDP. A lot of investment and growth in the sector did not create jobs. If there was an increase in the labour intensive sectors, there would be more jobs.

On the Pioneer Foods settlement,
to emphasise, there was a 1 billion rand settlement, it included R659 million in penalties. There was a commitment by Pioneer to the reduction in the net selling price of products and that amounted to 169 million rand and a commitment to increase capital expenditure. The Director General referred the questions on the banking sector to Mr Saul Levin, EED Chief Director: Development.

The Director General said he would make a note to invite the Committee to engage with figures such as Stiglitz. The real focus on training was on implementation at the provincial and local level. This meant working with staff and sensitising them to this. Most contracts at the Department had been for one year, although not strictly stipulated. The Department had used these contracts and part-time contracts to limit out sourcing.

The Director General referred the questions of management of finances to Mr Momeka, the EED Chief Financial Officer. He added the Department was very active in monitoring finances and they had decided not to give up the extra funds as they were planning to use the savings on economic activity. The Department was also under the impression that they could use some funds for the Competition Commission, but ultimately were not able to, as the funds should have been surrendered.

The involvement in the BBBEE Council was taking place at the ministerial level and so it would be appropriate to engage the Minister on this. The Department had been working on a green economy strategy for Cabinet. The Department would later be in a place to provide the Committee with more details on the green economy including a database of companies. The Department suggested submitting this information with the written submission. The written submission would also handle the distress fund. Regulation 28 looked at pension funds and increasing the limit on
types of investment and the Department hoped that this would be favourably passed.

Ms Setepane Mchale commented that the sectors chosen for engagement were chosen based on a sense of crisis and labour absorption. On the question why they were not targeting more sectors for job growth, the number of sectors chosen was due to the setting of a baseline, in targeting 5 million new jobs by 2020. The Department wanted to know what would happen without substantial intervention. There was substantial work underway in skills development such as the new national skills development framework and through a partnership with University of Johannesburg, there had been a particular emphasis on youth and women.

Mr Levin commented on the retrenchments in the banking sector. Standard Bank had the most retrenchments and the government had absorbed some of those retrenchments. With the New Year, some of those retrenchments have been re-employed by the Bank. However this was an area of concern as this was a key area for economic growth. The issue on saving was incredibly important. If the country did not have domestic savings, SA would have to rely on international support. The biggest area of savings was in pensions and the Department was looking at how those funds could be better employed.

Mr Molefe Matsomela, EED Chief Director: Human Resources Management, said that the Department had been looking at HR plan including disability and gender equity. In this 4th quarter, the Department already had one person on board with a disability. The slow recruitment had been a problem and the hope was that with a re-look at the organogram, the Department would might meet its aim and reduce the number of staff on contracts.

Zweli Momeka, EED Chief Financial Director, spoke on the issue of the Auditor General. The Department had been submitting interim reports and had developed an expenditure plan. However, there have been no trends to base this plan on as it was the Department’s first year.

Mr Mabaso asked for the opinion of the other departments about the Economic Development Department. Had there been rivalries? Did the other departments welcome working with the EED? Were the Department’s views in line with the other departments?

Mr Ngonyama noted that the Department had not responded to his question on food pricing and sufficiency.

The Director General apologised and said that agriculture was a core aspect in the New Growth Path and that this would be properly addressed in the MDG presentation. The crises in North Africa may have a great impact on the global and SA economy, specifically on SA’s reliance on imported oil. On the question of the EDD and its relations with other departments, there was a difficulty in a new department coming onto other people’s “turf”. The EDD had worked closely with National Treasury and DTI as it was necessitated, whether or not there had been a feeling in those departments that the EDD had been appropriating their turf. The New Growth Path had allowed the EDD to work together with the other departments as the targets set were formulated by the EDD and those departments. This allowed for the departments to play a coordinated role.

Overview of the agencies’ performance
The Director General introduced a tool to evaluate the entities: IDC; Khula; samaf; ITAC; Competition Commission; and the Competition Tribunal. The transfers of the budget to the entities were presented as well as further budget adjustments. The Competition Commission had been central to the New Growth Path and had thus had been under the most strain to perform. The transfers had been made on a quarterly basis to allow for the measuring of productivity each quarter. The dashboard of indicators had been done in consultation with each agency. The inputs, operating efficiency, financial efficiency, social impact were evaluated for each entity.

It did not appear that samaf would be able spend its budget but would be able to give this money to micro economies, and micro-lending opportunities. ITAC, the Competition Commission and the Competition Tribunal were measured differently as the time taken to complete investigations was different. The Competition Commission had staff and space difficulties but the ratio of investigative to support staff was better than ITAC. Kula and Samaf had governance and performance challenges. The budget shortfall of the Competition Commission was revised with the adjusted budget. However, its space shortages needed addressing.
Discussion: Overview of the agencies’ performance
Mr S Ngonyama (COPE) said the instrument used seemed very effective and asked if this could be applied across departments.

Dr P Rabie (DA) said that the turnaround time was not acceptable and that this needed to be addressed as three month was not acceptable. He urged the EDD to set a goal of three weeks not three months.

Ms D Tsotetsi (ANC) asked if there were steps being taken for the bad debts and which areas were covered in the geographic spread.

Mr X Mabaso (ANC) asked where there had been BEE, why there had not been triple BEE and if this applied to people with disabilities as well.

Mr Z Ntuli (ANC) asked if the allocation of funds were for performance or needs.

The Chairperson asked for greater information on social impact and, if more time was needed to report on that, how much extra time would be needed.

The Director General responded that this was indeed a very useful tool. The geographic spread of Khula would need to be looked at over time, not all information could be put into these tables and it would take some time but this information could be gathered. This kind of tool would be used to improve turnaround time. There had been a growing recognition of the important role of the Competition Commission in practice and that was why their request for funds was granted so this was granted on both needs and performance. The social impact of Samaf was being addressed through a model but the numbers were questionable.

Mr S Levin, the Chief Director of Development confirmed that the tool was very useful. Regarding disabilities, it had been difficult to do this retrospectively and would need to be done up front in future. On the IDC bad debts, these were very high when compared to a normal bank. However, it was not a normal bank as it was looking at development. They were allowing for slightly higher bad debts than normal but a line would have to be drawn at some stage.

The Chairperson asked if he could clarify this.

Mr Levin responded that he was cautious about giving a number to this as he could only base it on normal banks and would prefer to base this on Chilean or Brazilian numbers for development banks. On funding for Khula, it would take some months to get this right.

The Chairperson thanked the EDD for their responses but she would like to see that money was not spent on more bureaucracy. She also asked that there be uniformity throughout the entities. The Chairperson also asked for assistance regarding the EDD’s expectations of what they expected from the Committee in responding to the IDC. These expectations could be addressed at a later stage in a workshop.

The Chairperson asked the Director General to comment on legislation for this year.

The Director General responded that only the Competition legislation would be addressed. Regarding the ITAC legislation, he was not sure so would defer to ITAC and get back to the Committee in writing. The suggestion of a green paper on the growth path would be forwarded to the Minister.

Millennium Development Goals
The Director General commenced by listing the 8 Goals. The 12 Outcomes and their link to the MDGs were outlined. The EDD was primarily concerned with Outcome 4 (Decent Employment through inclusive economic growth), but all Outcomes were important and relevant. Of the MDG linked to Outcome 4, Goals 1, 2, 3, 7, and 8 were of importance. The Director General outlined how each of these Goals was to be addressed.

The Director General pointed out the poverty gap and there huge discrimination between black and white wealth with only 17% of black people being in the 10th decile in contrast to 72.7% of white.

The Chairperson asked how recent this data was.

Ms Mchale responded that this was the most recent data from Stats SA, published last year.

The Director General showed that there was a decline in consumption and income between 2000 and 2006.

The Chairperson asked what this meant in essence.

Ms Mchale responded that this showed that there were still difficulties regarding redistribution following Apartheid. More radical measures needed to be put in place, especially as the time between 2000 and 2006 was a stage of relative growth in South Africa.

The Director General also presented a graph representing the employment to population ratio, which showed a high risk of poverty amongst females.

Mr Levin said that this also emphasised the need to create employment at the lower level.

The Director General said that labour absorption was to be used in the New Growth Path to alleviate this. In conclusion the Director General summarised that absolute poverty had declined and a five-fold increase in people benefiting from social grants had been found. The Director General then listed the challenges and the departments’ recommendations.

On Goal 2 of achieving universal primary education, the net enrolment in primary education and proportion of pupils starting Grade 1 and completing Grade 7 were used as indicators. The focus had shifted from access to quality of education, such as making mathematics mandatory, providing transport and nutrition. However further work was needed to support girls, improve sanitation and maintenance of schools.

On Goal 3 of promoting gender equality and empowering women, the Director General said that women experienced higher unemployment despite higher educational attainment rates for women. Interventions for gender-based violence needed to be strengthened. More equitable division of labour also needed to be addressed.

On Goal 7 to ensure environmental sustainability, the climate change challenge should be used as an opportunity for job creation.

On Goal 8 of the development of a global partnership for development, the Director General stressed that one did not want growth and development without job creation. Foreign direct investment as well as domestic investment was required.

The Director General concluded that there were areas of achievement, however there were other areas of underachievement, particularly social inequality. There were opportunities surrounding the climate change challenge that would allow the country to grow the green economy and grow jobs.
Discussion: Millennium Development Goals
Dr P Rabie (DA) asked how the figures were attained and how representative they were. How the impact of HIV was having an effect on the economy, as there were conflicting views, and that a healthy workforce was imperative to the economy.

Ms D Tsotetsi (ANC) asked for greater information regarding gender equality.

Mr S Ngonyama (COPE) said that more work needed to be done relating the presentation to budget allocation and how the budget could address these challenges. The presentation was excellent as it gave facts and conclusions with recommendations of what needed to be done, however he felt that by including the budget a fuller picture would be had.

The Director General responded that a number of data sets from Stats SA were used in this presentation and he was sure there had been studies on HIV and the effect on worker productivity but he was not sure of the results. The Director General said that if this presentation was taken forward into a workshop meeting the budgetary implications would be taken into account.

Ms Mchale said that a workshop could be arranged where this presentation was looked at in much greater detail. She emphasised that although only a few of the Goals had been looked at in depth in this presentation, the New Growth Path did encompass nearly all the Goals, including health and HIV.

The Chairperson asked that other colleagues in the economic sector also be present at that workshop. She thanked the Director General and the leadership of the department for their presentation and honest responses. The meeting was adjourned.


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