Deputy Minister on Economic Development Department Strategic plan & budget 2011

Meeting report

Deputy Minister and Economic Development Department briefings: Strategic Plan and budget 2011
Mr Enoch Godongwana, Deputy Minister of Economic Development, provided a brief introduction of the focus of his department, which was to meet the challenge of job creation.

Professor Richard Levin, Director General, Economic Development Department, introduced the strategic plan for 2011/12 to 2015/16 of the Economic Development Department (EDD or the Department). He noted that the vision of the Department was to create decent work through meaningful economic transformation and inclusive growth. The objective of the Department was to create 5 million jobs by 2020. To achieve this, the Department had selected some key policy areas. These include identifying new opportunities within the economy, developing the green economy and stimulating the manufacturing industry. EDD also wished to focus on opportunities on the African continent and on identifying areas for South African investment and trade. This would include supporting logistics within the Continent to create more jobs, improving linkages between different sectors and public institutions, creation of social partnerships with business, labour and government, and micro economic interventions, including lowering the capital needed for manufacturing, tackling price fixing, supporting small business, supporting the growth of co-operatives and re-balancing trade. There was also a focus on rural development and drawing people from rural areas into the value chain. Furthermore the Department would address goals of women’s empowerment and broad based black economic development.

He outlined the four programmes, and provided detail on the strategic objectives, budget and projected staffing of each programme.

Programme 1: Administration covered the main administrative functions of the Department, which included human resource management, information technology, and planning and reporting. This programme had a budget of R55 million in the Medium Term Expenditure framework (MTEF) for 2011/12. It was estimated to increase to R60 million in 2012/13 and R63 million in 2013/14, by which time the Department also projected having a total staff of 62 people.

Programme 2: Economic Policy Development evaluated both the macro and micro-economic policy tools used by government to promote the developmental aims of the government and to ensure alignment and cohesion between the different policies. The budget for this programme was R23 million for 2011/12. This amount was forecasted to grow to R29 million by 2012/13 and R30 million by 2013/14, an annual rate of about 21.8%, due to the fact that it was a new programme whose employee complement as well as goods and services would rise. The staff complement was expected to comprise of 26 people by 2013/14.

Programme 3: Economic Planning and Coordination had three sub-programmes. Spatial, Sector and Planning focused on developing and coordinating economic plans for South Africa which would help to realise government’s broader goals. Economic Development, Financing and Procurement would undertake research and analysis on development programmes and processes, budgeting and procurement within the state, to identify opportunities to improve local procurement and production. Investment for economic development provided policy oversight and strategic direction to the Industrial Development Cooperation  of South Africa, Khula Enterprise Finance, the South African Micro Finance Apex Fund, as well as provincial agencies. The budget, of R499 million for 2011/12 would grow to R566 million in 2012/13 and finally to R599 million in 2013/14. By 2014, the staff complement was estimated to comprise of 38 people.

Programme 4: Economic Development and Dialogue included subprogrammes for National Social Dialogue and Strategic Frameworks, Sector and Workplace Social Dialogue, Capacity Building for Economic Development and Productivity, Entrepreneurship and Innovation. All of these sub-programmes promoted social dialogue and built research capacity on economic development issues. The budget for this programme was R16 million in 2011/12. It was expected to grow to R18 million in 2012/13 and R19 million in 2013/14 respectively. The staff was expected to grow to 16 by 2014.

Prof Levin noted that most of the challenges experienced by the EDD related to the fact that it was still a new department. High rates of staff turnover, the pace of personnel recruitment, adequacy of internal controls, reliability of assets management and the availability of office accommodation were some of the immediate internal risks highlighted.

The successful implementation of the New Growth Path (NGP) by the EDD relied on the ability of the EDD to coordinate with different  government departments, engage with social partners, have access to accurate and reliable data , and to monitor and evaluate the success of policies. These posed external risks and challenges to the EDD.

The EDD was responsible for three regulatory bodies: the Competition Commission, the Competition Tribunal  and the International Trade Administration Commission (ITAC). It was also responsible for three development finance institutions (DFIs): namely, Industrial Development Corporation (IDC), Khula Enterprise Finance Limited (Khula); and The South African Micro-finance Apex Fund (Samaf).

Prof Levin concluded by saying that in less than two years a new government department had been successful established and had contributed to the New Growth Path.

Discussion
Mr D Gamede (ANC, KwaZulu Natal) said that it was mentioned that there was a disparity between the funded posts and those set out in the organogram. He asked how this would affect the Department. He also wanted to know when all the posts would be filled, in light of the President’s call on all departments to attend to this urgently.

Prof Levin answered that the first half of the unfilled posts would be filled by mid-September and that all the posts would be filled by the end of the year.

The Chairperson noted that this would be an oversight item on the Select Committee’s list.

Mr Gamede asked if the Khula pilot project was adequately funded. He asked if the EDD was suggesting that it was unsure if the project would succeed. He was concerned that no provision was made for funding this project and that there might be a problem in the future in securing funding.

Prof Levin responded that EDD was satisfied with the project and that funding depended on the overall success of the project. A decision on further funds would be determined by the Ministerial Committee, and any allocation would be made by National Treasury.
 
Mr Saul Levin, Chief Director: Economic Development Department, added that Khula was a pilot project and it was new to lending in this way. He added that lessons were being learned on how Khula could operate as a direct lender, and the Department would use those to assess how best to build models in the future. Once the systems had been tested additional resources will be added. He stated that there would be continuity of funding, as mechanisms around future funding had been established to avoid delays.

Mr Gamede asked why the transfers to the IDC had increased, and what informed the decision and how it was related to the NGP and job creation.

Prof Levin replied that the amount trebled because funds were made available from the Pioneer Settlement, which stated that R250 million should be invested in agro-processing. The IDC would host the fund. It was the first time that such an amount would be transferred to the IDC and that it was considered wise to transfer the money in phases. He explained that the whole project was in support of new players in the agro-processing industry. The IDC was making R7.7 billion available for the agriculture value chain.

Mr Gamede asked how many jobs EDD would create.

Prof Levin replied that EDD would create jobs both directly and indirectly. The EDD had created jobs directly by hiring staff.  Indirectly, the EDD would also influence the manner in which the R9 billion jobs fund would be spent. EDD would identify key areas where jobs could be created. If the New Growth Path, the brainchild of the EDD, was implemented successfully, a number of jobs would be created. Job creation would be measured using a transversal monitoring and evaluation system. Prof Levin said that although it was important to fill government posts, these posts should be linked to service delivery.

Mr K Sinclair (COPE, Northern Cape) stated that the economic conference in Johannesburg was very good, and that there was some excellent input. He asked how the roles and functions of the National Planning Commission (NPC) differed from the EDD, and if there was a clash of interpretation on the economic data between the NPC and the EDD.

Prof Levin responded that the relationship between EDD and the NPC needed to be improved and strengthened. Both of these government organs were responsible for the institutional architecture of economic development. They would talk to each other and determine the best way for all the Economic Development desks to work together.

Mr Sinclair asked for clarification on the question of nationalisation. He noted that the Minister of Mineral Resources had said that it was not government policy but uncertainty had been created by conflicting statements from other members of the ruling party.

The Deputy Minister said that the government had no policy on nationalisation of the mines. This was not even a point under discussion at present. He maintained that, in a democracy, people were entitled to hold different views and to express them, but that alone would not be a determinant of government policy.

Mr B Mnguni (ANC, Free State) asked if there was any way in which the Development Finance Institutions could be improved and if this could be aligned to the New Growth Path.

Mr Mnguni also wanted to know it the report commissioned to restructure the DFIs was complete, and if anything from the report was useful and could be incorporated.

Mr Saul Levin responded that a report had been prepared, which was finalised at the end of 2010. Recommendations were made in this report, and a council of Ministers would be interrogating this further. EDD did not take up the specific proposal, but had taken up the question of rationalisation of the DFIs. The conclusion was reached that no matter how big the institution, the systems were all the same. By rationalising and pooling together the resources, the same benefits could be achieved.

Mr Mnguni asked for clarification on programme 2 of the strategic plan. He felt there was duplication between the sub-programmes.

Prof Levin noted this as a potential problem and assured Members that the EDD would consolidate all its efforts and attempt to minimise duplication across programmes.

Mr Mnguni asked if the tax burden on small and medium enterprise (SMEs) would be lowered.

Prof Levin said that the EDD was concerned with trying to cut red tape and create an enabling environment for SMEs, and part of the efforts would include engaging with issues such as tax. The EDD also wanted to work with social partners and to oversee funds and programmes to support SMEs.

Mr Mnguni asked what the EDD would consider to be a competitive exchange rate.

The Deputy Minister responded by saying that a stronger Rand suited importers and that a weaker Rand benefitted exporters. If South Africa wanted to support its manufacturing sector and promote export then a weaker Rand would be better. However, this all depended on whether this was regarded from the most advantageous situation for importers or exporters.

Prof Levin added that the exchange rate was a highly contested issue. It impacted also on capital flows, and was not only about competitiveness but also about volatility. Although a weaker Rand would support the manufacturing industry it would cause tension with National Treasury as to how to address the national deficit.

Ms B Abrahams (DA, Mpumalanga) asked how many jobs would be created for women and the disabled.

Ms Setepane Mohale, Economist and Policy Analyst, Economic Development Department, said that the New Growth Path was an inclusive strategy that prioritised absorbing labour into the economy, and this included women, youth and the disabled.  The EDD was committed to creating an environment that was conducive to job creation, by finding a way to address the blockages in the system.  She noted several avenues for youth employment, including a project in conjunction with the Department of Water Affairs, in which youth would be employed to help remove alien objects from water courses and to turn them into items of furniture. EDD was looking to the causes of problems, as well as to the potential success of interventions, and would assess where further interventions were needed or matters needed to be scaled down. Research had shown that one of the problems in youth unemployment was that most black youth did not know how to access economic opportunities, as they lacked networks and could not afford the costs associated with consistently seeking work. These types of impediments would be addressed by the EDD. She further noted that the rules governing the R9 billion Jobs Fund would be finalised shortly and then published.

Mr D Lees (DA) asked for clarification on the Economic Development Institute and its development, and asked if it was to be housed within an existing university.

Prof Levin replied that the EDD wanted dynamic research, and needed to support research programmes. EDD was still debating what final form the institute would take, and was looking at precedents in other departments. The pressing question was how to attract the best talent.

Mr Lees asked if there were programmes or research on productivity. He stated that there should be greater emphasis on this, as it underpinned skills and economic development.

The Deputy Minister agreed that productivity was an important outcome.

Prof Levin added that EDD was developing a methodology on achieving productivity.

Ms Mohale added that lessons could be learned from post World War Two (WW2) Germany, where unions were known for understanding market fundamentals, which helped to improve productivity.

Mr A Nyambi (ANC, Mpumalanga) asked why the approved organogram of the EDD was not fully funded.

Prof Levin said they would forward the organogram to the committee, for their perusal.

Mr Nyambi sought clarity on the memorandum of understanding (MOU) between the Department of Trade and Industry (dti) and EDD.

Prof Levin said that the MOU focused on the corporate functions, which included matters around financial and human resource management, legal and IT. The EDD was currently building capacity and the biggest challenge at present was Information Technology (IT).

Ms E Van Lingen (DA, Eastern Cape) was happy that the EDD planned to cut red tape but found this to be incongruent with improving the regulatory framework. She also queried the extent of involvement of the Department of Labour in discussions around addressing the unemployment rate. She commented that sometimes labour relations requirements hindered the growth of business.

Prof Levin confirmed that the EDD wished to cut red tape and that 80% of job creation would be in the private sector. EDD would conduct a regulatory impact assessment and look at laws and rules, assessing if they were advancing or slowing down job creation. He said that the labour market was a sensitive topic and this matter would be addressed through the cluster of Ministers and those that supported the Ministers. The EDD planned to place researchers within the labour federations to conduct sectoral analysis, including analyses in the motor industry, chemical industry, and others.

The Chairperson asked if the EDD would conduct its own statistical  research or use the data of Statistics South Africa (StatsSA).

Prof Levin pointed out that StatsSA produced data on job creation and job losses. The EDD would not duplicate what StatsSA was doing but rather would test the robustness of the research. The EDD would interpret the data. It was important that it have access to quality research and accurate data. It would look at the impact of policies and programmes in creating jobs.

Mr Sinclair pleaded with the EDD to use its influence, wherever possible, to create jobs in smaller towns. He used the example of Kimberley, where there were originally plans to set up the State Diamond Trader, but a decision had now been made that it would remain in Johannesburg. He also spoke of the need for government to support industries affected by natural disasters, and not to limit government support simply to handing out food parcels to labourers, but to help rebuild the industry so people could be re-employed.

Prof Levin acknowledged Mr Sinclair’s points. He added that 1 000 jobs had been lost in Northern Cape, due to the infrastructure damage caused by natural disasters. 

Ms van Lingen asked if money could be made available immediately after disasters, and if there was an insurance fund to which regular contributions could be made, to assist when losses did occur. She also asked which department was responsible for addressing disaster management.

Prof Levin responded that the disaster management function lay with Department of Cooperative Governance and Traditional Affairs. He added that the IDC had made low interest loans to the affected areas.

Mr Mnguni asked why the website of EDD was not yet up and running.

Prof Levin replied it would be running soon.

Mr Sinclair proposed that a meeting should be set up between the IDC, EDD and those involved in the agro-processing industry in Upington, as he believed that government had offered very limited support to the industry in that area.

The Chairperson said this would be arranged in the next term and would form part of the list for oversight.

The meeting was adjourned.