Deputy Minister of Finance and the Development Bank of South Africa (DBSA) on its 2009/10 Annual Report: briefing; Deliberations on a request for comments on Private Members Legislative Proposals (Hon. Davidson)

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Finance Standing Committee

14 March 2011
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The Development Bank of Southern Africa briefed the Committee on its 2009/10 Annual Report. The Deputy Minister of Finance said the Bank had exceeded most of its targets. A key aim of the Bank had been to ensure stability in local government and thus the Bank had invested a lot into municipalities. The Bank’s role had been to develop and build technical capacity to support infrastructural development. In this regard the Siyenza Manje project was the flagship of the Bank where it had recruited and trained artisans to support the development of municipalities. 100 apprentices would pass their trade test by the end of next month and be deployed in rural municipalities. 750 qualified artisans had already been deployed so far.

R8.3 billion had been disbursed by the Bank operating in difficult economic conditions. It had given R550 million, equivalent to 67% of the income it had generated, to municipalities lacking in capacity or funding and had unlocked R8.9 billion in Municipal Infrastructure Grants funds. Expenses had remained under control and below inflation. 80% of funds were spent on social investment projects like roads, water, and sanitation, while municipalities received 49% of the funds. This current financial year its focus would be on the health sector.

Members said that capacity building in municipalities remained a challenge. They questioned whether there was any monitoring of the usage of funds disbursed to local municipalities and provinces. Members were not concerned about the surpluses generated by the Bank but rather on what impact the spending had on communities, especially in rural areas. Members questioned why the expenses on non executive board members had doubled and why a board member was still being paid when his contract had ended in September. Members wanted to know if it was true that the commercial banks offered better rates than the Bank. Members said that the Bank should address sport facilities funding as this fell under Municipal Infrastructure Grants but stood no chance of being implemented as municipalities would always consider it a lower priority. Members said it was no use getting fancy reports while there was a lack of capacity in rural areas. Members were concerned about the board attendance record, as the board was the custodian of policy and were the shareholders representatives and that this responsibility had to be taken seriously by board members.

The Committee deliberated on the request for comments on a private members legislative proposal (Hon. Davidson) to bring to Parliament a bill regulating public representative’s business interaction with Government institutions. The Committee agreed to draft a letter requesting an extension so that broader consultation could take place.

Meeting report

Development Bank of South Africa (DBSA) Briefing
The Development Bank of South Africa (DBSA) briefed the Committee on its 2009/10 Annual Report. The Hon. N Nene, Deputy Minister of Finance, said that the DBSA had exceeded most of its targets. A key aim had been to ensure stability in local government and the DBSA had invested a lot into municipalities. The DBSA’s role had been to develop and build technical capacity to support infrastructural development.

Mr Paul Baloyi, Chief Executive Officer, DBSA, said the bank was being evaluated on its developmental impact, sustainability and the development of organisational capabilities.

Dr Paul Kibuuka, Managing Director, DBSA, said the Siyenza Manje project was to develop artisans to support the development of municipalities. He said the growth in Municipal Infrastructure Grants (MIG) expenditure for infrastructure projects was mainly in Gauteng and the Eastern Cape. Roads, at 24%, accounted for the highest number of programmes. The target for the training of MIG officials was exceeded by 20%.  

The total delegates trained in Vulindlela Project had doubled, with 60% coming from Siyenza Manje municipalities. Sponsorship provided by the DBSA, together with the Agence Française de Développment (AFD) / French Development Bank and the Industrial Development Corporation (IDC), saw a 400% increase in Southern African Development Community (SADC) delegates who were trained.

Mr Pieter Del la Rey, Chief Financial Officer, DBSA, said R8.3 billion had been disbursed in difficult economic conditions. Out of the income it had generated, it had given R550 million to municipalities lacking in capacity or funding, this was 67% of the surplus generated by its operations. R8.9 billion in MIG funds was unlocked. Expenses had remained under control and below inflation. In sector terms, 80% of funds were spent on social investment projects like roads, water, sanitation etc.  Geographically, the Eastern Cape had most of the investments while municipalities had received 49% of the funds.

Mr Baloyi said the DBSA had contemplated and consulted on the possibility of providing extensive coverage and delivery through launching scalable projects with a focus on key sectors like water and sanitation. This financial year the focus would be on health. The speed at which it could operate would depend on the departments and ministries concerned.

Dr Z Luyenge (ANC) said capacity building in municipalities remained a challenge. Based on the Auditor-General’s report on the Eastern Cape, where most of the municipalities were in the red, he questioned if there was any monitoring of the usage of funds disbursed to local municipalities and provinces. He said he was not concerned about surpluses or savings but rather on the impact of the spending on communities especially rural ones.

Mr N Koornhof (COPE) asked the DBSA to explain what the term “loans not yet due” in the Annual Report meant. Why had expenses on non executive board members doubled? Why was a board member still being paid when his contract had ended in September?

Ms Z Dlamini-Dubazana (ANC) asked the DBSA to explain the criteria used to place the 10 “young professionals” it had assisted in KwaZulu-Natal (KZN) and how they were monitored. Why were there still rollover funds? Why were grants not being used up?

Mr Baloyi said that the DBSA did have people to assist in the planning and to implement the plan. Assistance was given in the form of non technical assistance like planning, procurement, finance and in technical projects like infrastructure projects. The training was extensive and was monitored to see that it was implemented. On the use of profits, he said the Bank was not concerned with profits but spent the money voluntarily when approached by municipalities. The Bank had an initial capital of R5 billion rand when it started; it had used R200 million and its capital now stood at R18 billion rand. It had to ensure that its money was spent correctly and to this end Chartered Accountants (CAs) and engineers were sourced and sent to oversee projects.

Mr Kibuuka said experts were paired with young professionals who were then developed in a structured program. The 10 young professionals in KZN were part of this program. A performance plan was setup and performance was monitored from the office.

Mr Baloyi said 200 young professionals had been monitored and assisted to become fully fledged professionals. He said that since 2006 board fees had not increased and the increase in fees was a once off to catch up and was generally quite low in comparison to others. The number of committees the board members sat on had also increased.

Mr Del la Rey said “loans not yet due” was an impairment decision based on credit model projections. Entities that did not pay a second consecutive payment were classified as defaulters. Its loans went into the defaulters’ book which led to a decrease in the loan reserve and was carried as a write off. However these were payments that were not yet due at the time the accounts were being finalised.

Mr Baloyi said that the individual mentioned was not part of the board but was still part of Development Bank funding.

The Chairperson asked why there appeared to be a lack of confidence and increased risk in the market. He said the portion of development expenditure did not correlate with that which was disbursed. Why was this so?

Ms Dlamini-Dubazana asked whether the Bank’s Key Performance Indicators (KPI) were the same as the KPI’s of rural areas, given DBSA’s concerns as expressed in its core functions. She requested DBSA to take capacity building further because currently it appeared that only 200 young professionals had been trained which was the equivalent of one young professional per municipality.

The Deputy Minister said there had been risk aversion because of the worldwide economic crises but that the DBSA had acquitted itself well. The young professionals programme was very successful and even having one CA or engineer per municipality was good. He said that rural areas had been the main beneficiaries. The Department had realised the importance of the Siyenza Manje project. He recommended that the Department of Cooperative Government should take the lead and push for the expansion of the programme. Siyenza Manje was the flagship program of the Bank.

Mr Baloyi said it was not a lack of confidence in the country but of outside the country and of the costs of liquidity. The bank could access funding, but not cheaply. He said the disparity between approvals and disbursements was normal.

Mr Kibuuka said there had been a shift from local government to rural development following the State of the Nation address and this focus was driven by infrastructural development.

Mr Baloyi said it was recruiting and training apprentices to trade test level and deploying them in rural municipalities. 100 would pass out by the end of next month. 750 qualified artisans had been deployed so far.

Mr D Van Rooyen (ANC) asked if it was true that commercial banks offered better rates than the DBSA

Dr Luyenge said he was not happy with MIG. The DBSA should address sport facilities funding. As it stood sports facility funding was part of the MIG but stood no chance of being implemented as municipalities would always consider it a lower priority. It was no use getting fancy reports when there was a lack of capacity in rural areas. It was perpetuating underdevelopment.

The Deputy Minister reminded members that the role of the Bank was not to implement projects but to facilitate them by providing capacity building. It could not prescribe to municipalities what should be prioritised. The uncompetitiveness with the banks was being addressed as the banks had the luxury of taking deposits and placing them.

Mr Baloyi said that the DBSA had to borrow from banks so it could not be cheaper than banks. It had talked to the Minister of Finance on how it could become more competitive. In addition the DBSA provided significant benefits to municipalities through free grants tapped from its surpluses and through capacity building.

Mr Van Rooyen asked how the DBSA was related to the central bank.

Mr Baloyi said that it was governed by the Minister of Finance and had no access to the Reserve Bank.

The Chairperson said he appreciated the work done but that the DBSA should tell the Committee where Parliament could assist. This would help Parliament make municipalities deliver services in rural areas.

Dr Luyenge said many people were not being paid by municipalities when it became known that the project they were working for was a DBSA project.

Ms Dlamini-Dubazana was worried about the board attendance record and that members were not allocated to committees. Were they paid a retainer or on a per meeting basis?

The Deputy Minister replied that members were paid on a per meeting basis and that governmental employees were not paid. He urged the Committee to visit projects with DBSA, particularly ones that the Members knew were failing. He said that the Committee’s recommendations should be forwarded and be incorporated into the DBSA’s activities.

Mr Baloyi said the board did not sit regularly.

The Chairperson said the board was the custodian of policy and were the shareholders representatives and that this had to be taken seriously by the board members.

The Deputy Minister said that in future it would be appreciated if the DBSA could present to a joint sitting with the Select Committee on Finance.

Deliberations on request for comments on Private Member’s Legislative Proposals (Hon. Davidson) The Committee deliberated on the request for comments on a private Member’s legislative proposal (Hon. I Davidson (DA)) to bring to Parliament a bill regulating public representatives’ business interaction with Government institutions.

The Chairperson noted that it had been tabled in October 2010.

Ms Dlamini-Dubazana said that the Members needed more time to see how Members would be affected.

Dr Luyenge concurred

Mr Van Rooyen said he could not see the need to review legislation. The existing legislation was sufficient.

Ms Dlamini-Dubazana said the Broad-Based Black Economic Empowerment (BBBEEE) Amendments was a process which ran parallel and time was needed to compare the effects of the proposal in the light of the BBBEEE Amendments.

The Committee agreed to draft a letter requesting an extension so that broader consultation could take place.

The meeting was adjourned.

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