Minister and Deputy Minister on Economic Development Department 2011 Strategic Plan

Economic Development

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

The Minister of Economic Development introduced the briefing by highlighting that the strategic plan was built on the first strategic plan and that the vision of the Department was different in that its organogram consciously sought to equip the Department with high level skills in the front office to do the work of implementing the plan with a minimum of administrative staff. The targets given in the plan for administrative personnel therefore, were maximum numbers, while those of front office staff were minimum numbers. The Department sought to work towards greater integration, for example with the Industrial Development Corporation, to see how the Department could increase the ability of agencies to do their work. It was striving to have well functioning, capacitated agencies, especially the development finance institutions, to deliver on their mandate.  He said there was an explicit commitment to the New Growth Path which had benefited from the input of different departments. Inter-ministerial committees were becoming a critical forum for developing a consensus followed by departments.

In less than two years a brand new government department had been successfully established and had been instrumental in the formation of the New Growth Path policy. The Department noted that economic policy had to pursue the jobs goal. It outlined its planned policy initiatives.

Some of the areas identified as a particular focus was tackling monopolies, price fixing and lowering the cost of capital for small business. Key indicators for its strategic goals were the number of jobs created, the growth in GDP, employment ratio or absorption rate, distribution of earned income and households in poverty. The strategic objectives, budget and projected staffing were presented for each of the four EDD programmes: Economic Policy Development, Economic Planning and Co-ordination, Economic Development and Dialogue, and Administration. It also provided a situational analysis of itself as a department. Co-ordination across government departments, engaging with social partners and the accuracy of data and statistics were seen as external risks. Trying to get credible numbers was a challenge and reliable information was needed to measure the impact of the Department’s strategies on employment.

The Minister would make a major announcement in the Budget Vote speech on the merger of the Industrial Development Corporation, Khula and South African Microfinance Apex Fund.

Members said that there appeared to be no link between national government and the provinces and that the strategic objectives of other departments did not dovetail with that of the Department. Also, there should be more incentives rather than punitive taxes to promote growth and job creation and rather than a reliance on central government. A comment was made that the disabled did not feature in the jobs target of 5 million new jobs. Members wanted to know if the New Growth Path was the new economic policy of the country. A concern was raised that the strategic plan did not address the apartheid spatial development patterns nor change at provincial and local government levels. Members said it appeared that the Department was not impacting on Small, Medium and Micro Enterprises yet SMMEs drove economic growth and job creation. Further, the response of the private sector and investor perceptions reflected the uncertainty felt (about nationalisation of assets and majority share ownership of companies). The Committee needed a checklist and did not have the EDD’s Annual Performance Plan. The organogram needed to be looked at in conjunction with the strategic plan. It asked from where the finance would be sourced to fund staffing levels which had been indicated as minimum levels.

Meeting report

Introduction by the Minister
The Minister of Economic Development, Ebrahim Patel, introduced the briefing by outlining key points, that the strategic plan was built on the first strategic plan of the Department and that the vision of the Department was different in that it consciously sought to recruit high level skilled staff for the front office while keeping to a minimum administrative staff. This was reflected in its organogram which sought to equip the Department with high level skills to do the work of implementing the plan. The targets given in the plan for administrative personnel therefore were maximum numbers while those of front office staff were minimum numbers. The Department sought to work towards greater integration, for example with the IDC, to see how the Department could increase the ability of agencies to do their work. It was striving to have well functioning, capacitated agencies, especially the development finance institutions, to deliver on their mandate.

Discussion
Mr X Mabasa (ANC) said he appreciated the Minister’s comments with its emphasis on delivery not administration. As a new department, it should study how other departments had failed as reported by the Auditor General and learn from that. He was concerned that there appeared to be no link between the Economic Development Department at national and provincial level.
 
Mr S Marais (DA) said he got the impression that often the strategic objectives of other departments did not dovetail with the Department’s.

Minister Patel said there was an explicit commitment to the New Growth Path which had benefited from the input of different departments. Inter-ministerial committees were becoming a critical forum for developing consensus which was followed by departments. The Integrated Resource Plan (IRP2) was a classic example of coordinated work across many departments. [The Minister then left as he had another engagement]

Department Strategic Plan and Budget Vote
Professor Richard Levin, EDD Director-General, said that in 2008/9 one million jobs had been shed. The New Growth Path sought to create five million jobs by 2020. The State of the Nation address had called for the mobilisation of all state institutions to align itself to the New Growth Path, especially job creation. Economic policy had to pursue the jobs goal. The Department sought to use the integration of the green economy as well as regional economic opportunities to create jobs. After discussing the principles of the New Growth Path, Mr Levin spelled out the planned policy initiatives. Areas identified as a particular focus were tackling monopolies and price fixing and lowering the cost of capital for small business.

Mr Levin provided a situational analysis and looked at the organisation’s environment such as the fact that the lack of accommodation on the dti campus was a constraint. In terms of EDD staffing, he said that the Department had 70 staff which was expected to rise to 90 next year. Key corporate posts in the back office had been filled and it had a Memorandum of Understanding governing its relationship with the dti. Key indicators for its strategic goals were the number of jobs created, the growth in Gross Domestic Product (GDP), employment ratio or absorption rate, distribution of earned income and households in poverty.

He proceeded to look at the strategic objectives, budget and projected staffing for each of the EDD programmes:

Programme 1 – Administration had a budget of R55 million rising to R63 million by 2014 with a maximum staff of 62.

Programme 2 – Economic Policy Development had a budget of R23 million rising to R30 million in 2014. It would have a staff complement of 20 which was expected to rise to 26 in this period. These were minimum figures as it was expected that monitoring and evaluation would play an increasingly important role.

Programme 3 – Economic Planning and Co-ordination had a budget of R30 million rising to R44 million in 2014, with a staff complement of 33 rising to 38 by 2014.These were minimum figures.  Strategic objectives would be the development of sector, spatial and national economic plans, the alignment of provincial and local government economic development plans, the promotion of regional and international trade and to identify and promote growing the green economy within industry as a means to create jobs.

Programme 4 – Economic Development and Dialogue had a budget of R16 million rising to R19 million in 2014. It would have a staff complement of 14 rising to 16 in this period. The strategic objective would be to lead national and social dialogue and engage in sector and workplace dialogue.

Staff turnover, in the context of recruiting competent staff into the public service and into a new department establishing itself was identified as a risk. In addition establishing adequate internal controls was a risk and separating from the dti was a challenge. The success of the New Growth Path lay within how well the Department collaborated and engaged with its social partners and business. Co-ordination across government departments, engaging with social partners and the accuracy of data and statistics were seen as external risks. Trying to get credible numbers was a challenge and reliable information was needed to measure the impact of the Department’s strategies on employment.

IDC, Khula Finance and the South African Microfinance Apex Fund (Samaf) had to support the New Growth Path and Industrial Policy Action Plan (IPAP) 2. Khula would pilot a new project Khula Direct in 2011 which might need more funds were it to be successful. There were current discussions on how to scale up its intervention in the second economy.

The budget was R594 million and was expected to grow to R713 million. He noted that should its programmes be successful the annual increases would not be proportional and the Department might run into a budget shortfall at the end of the term. The budget was not a constraint currently but could become so in the future.

The organogram needed to be realigned with the Budget and Strategy. A big focus would be the disengagement from the dti. The EDD did not have an IT backbone and needed to entrench internal controls.

He noted that in less than two years, a government department had been successfully established and which had been instrumental in the formation of the New Growth Path policy.

Discussion
Mr Marais said the New Growth Path stressed the importance of the green economy, yet this was done via punitive taxes rather than incentives to encourage business and consumers. Similarly the NGP stressed the importance of the private sector for job creation but there was little or no direct benefits and incentives, there was more a dependence on the central role of government to create sustainable jobs. He said that the response of the private sector and investor perceptions reflected the uncertainty felt (about nationalisation of assets and majority share ownership of companies). How would higher fuel prices impact on the GDP?
 
Mr Mabasa said that the plan did not speak enough about what needed to be done for the plan to be a success. He said that it appeared that people with disabilities did not feature in the jobs target of 5 million new jobs by 2020.

Mr Z Ntuli (ANC) asked what the transfers to University of Johannesburg and Wits University were for.

The Chairperson asked if the NGP was the new economic policy of the country. She was concerned that the spatial development patterns were still based on the apartheid model (Bantustans) and that the strategic plan did not address this as well as providing for change at the provincial and local government levels.

Deputy Minister of Economic Development, Enoch Godongwana, said that the NGP identified the job enablers like infrastructure. The current capacity of Eskom was 43000 MW and was expected to double. There was huge investment in electricity and road and rail infrastructure of R900 billion in the next 15 years. There were a number of energy efficiency incentives like solar water geysers. He confirmed that the NGP was the economic policy. The current government economic plan was built on the old one while introducing new elements. Resources would be given to the principles of the NGP and so, for example the auto industry would be given incentives. In the NGP, bantustans had been identified as a challenge and an opportunity for job creation.

Mr Levin said it was more about incentives than of punitive measures although the Department could improve its communication with consumers, like for example in the case of the solar water heaters. He could not say what the impact of the fuel price would be but that it was a risk. The labour absorption rate was important notwithstanding the importance of the growth rate of the economy. The Department did have a focus on labour productivity. On Mr Mabasa’s question about what would make the plan successful were broader factors in the local and global economy, state incentives, building a Department with the skills capacity to carry out its tasks and Departmental internal audit controls.

The
Deputy Minister said that there was a consolidation of co-ordination within government horizontally across government departments and now vertically across the three spheres of government. An example of that was the impact of the Medupi power station on the local economy which was quite impressive.

Mr N Gcwabaza (ANC) said that references to opportunities on the African continent missed the element of regional integration.

Mr Mabasa said it was his impression that SMMEs were not aware of the Department, that the Department was not impacting on them. There was the threat that only big business, not small business, would benefit. Yet it was the latter that would drive economic growth. Was there still too much competition between departments?

Mr Marais wanted confirmation how money for the green economy would directly benefit the consumer. He said the responses of the private sector reflected uncertainty (over nationalization of assets, over ownership of the majority shares of a company) in investor perceptions. If the plan was not supported by investors then the plan would not work as there would be no growth and thus no job creation. On the planned policy initiatives, he said that it was critical to have targets. Not having details of the targets would not allow the Committee to assist the Department. Regarding the Memorandum of Understanding (MOU) with the dti on accommodation he asked when the MOU would end how often was it revised.

The
Deputy Minister responded to the question on the African continent and regional integration, saying that a key feature of the NGP was regional integration and the Department was committed to it. He said rail infrastructure change would be a challenge. Mentoring work was done with small and medium enterprises. The IDC would not provide a subsidy, but rather support green economic development. He said the big problem with the solar water geysers was one of a lack of skills. Plumbers did not have the capability to install solar water heaters. He agreed that Government was not communicating with consumers, business and industry adequately enough.

Regarding accommodation, Mr Levin said that it wanted to remain on the dti campus but needed other agencies to move. CIPRO was currently searching for accommodation. It was a question of timing. The MOU dealt with all corporate matters and financial agreements. It intended modifying the MOU and taking over functions from the dti while limiting any distortions arising from staffing. The MOU would be revised by 1 May and at quarterly intervals thereafter. It was considered important to migrate the IT systems.

Mr Levin said what was new and unique about the NGP was that employment was being targeted. Incentives in industries and sectors had been created that would create jobs. Moving towards a green economy was in itself also a vehicle for job creation. He said the Minister would make a major announcement in the Budget Vote speech on the merger of the IDC, Khula and Samaf. In attempting to ramp up local procurement, local content would be highlighted with policies that promoted SMMEs. An important factor here was the 30 day payment provision because small and micro businesses could not sustain themselves even if they could compete. Key indicators for success would be job creation, economic growth, the labour absorption rate, income distribution and households in poverty.

The Chairperson said the Committee needed a checklist and did not have the Annual Performance Plan. She said the IDC had committed R3.6 billion and had saved 23 000 jobs, was the Department satisfied with this?

Ms Setepane Mohale, EDD economist and policy analyst, said the monies were for capital investment in distressed sectors. New investment in the green economy could have a larger impact. The Department’s work on a “dashboard” would give a quick picture of the outputs of the development finance institutions (DFIs). A challenge would be the turnaround times of small and medium enterprises in distress.

Deputy Minister Godongwana said there was a need to tighten the definition of jobs saved so that there could be a common understanding.

Mr Marais said he was disappointed and dissatisfied that there did not appear to be qualitative targets set to measure performance. Where would the finance be sourced to fund staffing levels which had been indicated as minimum levels?

Mr Levin said that the transfers to the University of Johannesburg had been for training to align provincial and local government staff with the development requirements of the NGP.  He could not give accurate staff numbers as this was dependant on the finalisation of the organogram of the Department. It was up to the Department to demonstrate through its performance the validity for extra money. The social partner funds were not from voted funds but collaboration with other social partners. Within different sectors, unions needed to understand economic policy matters so as to engage in dialogue from a position of strength.

The Chairperson said organograms were looked at in conjunction with the strategic plan. But it appeared it had not been done. The organogram could not be looked at in isolation. The Committee needed to look at the structure of the Department. Mr Marais and Mr Gcwabaza supported this proposal.

Mr Levin said a review had been done and the Department was engaging with the Minister

Mr Gcwabaza said the allocations to Khula and Samaf were growing at a low rate and yet these agencies were supposed to support SMMEs as they were the key drivers of job creation.

Mr Levin said that the Minister would make an important announcement on the merger of these entities.

The meeting was adjourned.

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