SA Post Office, Media Development & Diversity Agency, Brand South Africa (IMC) on their Annual Reports 2010/11

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Communications

18 October 2011
Chairperson: Mr E Kholwane (ANC)
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Meeting Summary

The Board Chairperson and the Acting Chief Executive Officer of the South African Post Office briefed the Committee on the Annual Report. Despite the postal industry being in decline globally and conditions being tough, 2010/11 was the seventh consecutive year that SAPO had seen a profit; although mail volumes had declined for a third consecutive year. Corporate governance had been an area of scrutiny; following investigation the Chief Executive Officer was on a leave of absence and the contract of the Chief Operations Officer had been terminated. Revenue had increased to R5.953 billion and costs had increased by 5.8%. Net profit had declined by 48%. The corporatisation of Postbank was in process and new services, such as motor vehicle licence renewal, had been added. Environmental targets had been met. Mail business comprised 64% and non-mail business would grow as mail-volumes declined. The decline in government subsidy posed a challenge to profitability.

Members requested further information and clarity on the investigations taking place and the suspension of the CEO. Information was requested on the spread of post offices across the country. Concerns were raised about the decrease in capital expenditure, armed robbery crime rates and the deterioration of governance control indicated in the Annual Report. The diversification strategy and response to declining mail volumes was questioned and information on training programmes was requested. Clarity on timeframes and information about funding and the challenges to universal service obligations was requested The Chairperson requested a full report on the outcomes of the investigations and hearings and a timeframe for universal access be given to the committee before Parliament closed in November. 

The acting Board Chairperson and the Chief Executive Officer of the Media Development and Diversity Agency presented its Annual Report. The mandate focused on supporting diversity of language and geography in mass communication and ownership by previously disadvantaged South Africans. A clean audit had been achieved. R25.8 million had been approved and distributed in grants to support 59 projects across every province. This was funded by government and media partnerships; R35 million from the Government Communication Information System and R18 million from industry. Community television had seen significant growth, community radio remained the largest sector of community media. A move by the Government Communication Information System to centralise government advertisement was welcomed.  23 staff were employed and all positions had been filled. The Auditor-General’s report had been unqualified with a matter of emphasis. Additional funding had been requested totalling R17.629 million. This was needed in order to service the growing number of beneficiaries and increase capacity to monitor the impact of work. 

Members requested clarity on the funding criteria for grant applications and further information on the matter of emphasis. Information on how objectives were affected, the funding model and who decided what was spent and where was requested. Several questions were asked about the distribution of projects across the country. Members congratulated the agency on their clean audit and their stance on protecting media freedom and asked if community media organisations ever became independent of subsidies over time.

The Board Chairperson of the International Marketing Council, now renamed Brand South Africa, briefed the Committee on the 2010/11 Annual Report. The mandate was to build South Africa’s brand reputation and competitiveness internationally and build pride and patriotism and social cohesion locally. South Africa had fallen in placing on global brand indices, but had been placed 34th on a brand equity index, a positive valuation. Reputation had been monitored across 37 countries and South Africa had achieved an average rating of 50%. The organisation had been restructured and two disciplinary hearing had taken place.
R751 433 had been recorded as wasteful and fruitless expenditure. Brand South Africa had previously reported through the Government Communication Information System and had now been moved to the Presidency in line with international protocol.
 

Members raised concerns over the whether a specific agency was in fact needed to do this work.  Questions were asked about the impact of international events such as the FIFA World Cup as well as incidents such as the recent Dalai Lama controversy. Further information on the disciplinary enquiries was requested. Members asked questions about how national branding was measured and whether there were any specific brand ambassadors for South Africa and requested clarity on expensive audit fees. Members congratulated Brand South Africa on their impressive website and professional presentation.

Meeting report

Ms Vuyokazi Mahlati introduced the presentation with background context; the postal industry was struggling globally and SAPO was one of the few profitable offices. This was the seventh year in which SAPO reached a profit. The company was managing in difficult conditions and had reached nearly R10billion in assets. Oversight was an area of concern. Investigations had lead to the suspension of the CEO who was on a leave of absence awaiting the finalisation of disciplinary hearings. Former Chief Operating Officer, Mr John Wentzel, had his contract terminated following investigation. She handed over to Nick Buick, acting CEO.

Mr Nick Buick, Acting Chief Executive Officer, presented the annual financial results for the year. The focus for 2010/11 had been on corporate governance and compliance and a lot had been done to ensure efficiency and bring down costs, this was important when mail services were unpopular. The local trends for the year were outlined. This was the third consecutive year in which mail volumes had declined (by 3.6%). Optimisation and efficiency innovation were required to combat the growth of digital technology. Robust financial management was seen to be particularly critical. The strategic themes placed emphasis on growth in areas other than mail service and on improving customer experience and efficiency of service in all areas.
The financial highlights presented showed an increase in revenue to R5.953billion. Total assets were up to R9.95 billion and Postbank deposits had increased by 9.1%. Cash flow had declined by 46.9% to R157 million.

SAPO’s mandate included the provision of physical addresses to every household and provision of postal and financial services to all South Africans at affordable rates. 1.7million new addresses had been created against a target of 1.6 million. There had been a 5.7% growth in customers and tariff increases were below CPI. Key progress in the business model included the pending corporatisation of Postbank, the need to unlock the value of SAPO’s large property portfolio (its largest asset) and continued investment in IT technology.

In the area of customers and performance, new services had been added such as motor vehicle licence renewals at certain post offices. Equity targets had been achieved and recognised with an award. A recognition of prior learning programme had been instituted.

Environmental plans had seen a 3.4% reduction in carbon emissions, a paper-recycling programme had been initiated and energy-saving programmes had been piloted.

The group financial overview was presented. Total assets had increased by 5.68%; revenue had increased by 3%; expenses had increased by 5.8%; net profit had decreased by 48%. Cost control was strong, an achievement under the circumstances.

Postbank remained the biggest contributor to the group excluding subsidiaries, this would change when it became a separate legal entity. Interest income had declined in recent years, having peaked in 2008.
Group revenue was comprised of 64% mail business and 46% non-mail, the intention being that as mail declined non-mail revenue would take over.

The major cost drivers were staff, transport and property. The largest cost to company being staff; SAPO employed 17 000 people. Transport cost had increased by 4% and had been strongly managed. The cost of managing property and outlets had increased with higher rates, services costs and increased electricity prices. With the further pressure of declining mail volumes this posed an increasing challenge to meeting their mandate for providing more post offices.

The decline in subsidy (from R383 million in 2009/10 to R306 million in 2010/11 and R51 million 2012/13) posed significant challenges to retaining profitability.

Discussion
Ms N Michaels (DA) expressed her disappointment and surprise at the findings of the Auditor-General’s report. SAPO was the last entity she expected to be accused of wasteful and fruitless expenditure. She asked for details on what follow up action was being taken because the amounts in question were obscene and required serious consequences. The report implied that the funds had simply disappeared; were investigations being conducted?

Ms Killian asked for full disclosure on what had gone wrong with the financial management at SAPO and what steps were being taken. The presentation was good, but did not include comments on what would be done to address shortcomings on deliverables and on the findings of the Auditor-General. The Committee wished to see that people would account for financial misconduct.

Ms Mahlati answered that SAPO had not been caught out with the problems, they had been discovered internally. Staff members came forward about gaps in information about 18 months ago. The board and board committees disclosed the problem in the Annual Report and audit report. She stressed that it was SAPO who was disclosing and highlighting the issues and had discovered and acted on them. The board committees were always vigilant for governance issues and identified and dealt with them. This prevented larger problems developing. In this case information pointed the board toward further investigation. Whistleblowers had pointed to problems with service providers, but further non-compliance became apparent in the property unit procurement sector. Governance in this unit needed to be strengthened. It was a large portfolio and involved much new procurement each year.

The second level of investigation focused on specific individuals responsible for particular areas. There were two issues: noncompliance and misrepresentation of information. Misconduct needed to be looked at particularly in terms of chapter 10 of the Public Finance Management Act (PFMA). The board had to make certain allegations; investigation was a challenge in a democracy such as this because everyone had protection. Charges had to be carefully evidenced and space given for response. There were two different cases specifically dealing with the property division. At this stage SAPO had had to deal with issues about the head of the property division. His contract was ending and it was agreed not to renew. Another senior manager resigned. This did not preclude action against the individuals. There was alleged criminal behaviour and the police were now dealing with the individuals. Ms Mahlati noted that with these individuals gone, there would be space to clean up the property section; a turnaround strategy was being developed.

The findings on governance contraventions and non-compliance pointed to the CEO and the chief operational officer (COO). Executive management started proceedings for disciplinary action. The contracts for executive directors gave clear stipulations for how to proceed. Such cases were dealt with by the board and those at lower levels by managers reporting to the board. Ms Mahlati stated that she could not deal with the details of the cases because they were still in process. The findings thus far had been limited to areas of non-compliance and evidence had not yet pointed to fraud or criminality. There was sometimes confusion in the media about irregular and wasteful and fruitless expenditure. The fact that there had been irregularity did not mean that funds had been expropriated, but rather that contact procedures had not been complied with. 

The Chairperson asked why such non-compliance should take place if no one stood to benefit.

Ms Mahlati answered that this question had not yet been answered. She reiterated that the details of the cases could not yet be discussed and that because each case was interconnected with the others even those that had been completed could not be discussed. The current status was that the CEO had taken a leave of absence pending the outcome of the hearing. The COOs contract had been terminated. Other processes were continuing. Corrective action had taken place and had been disclosed as expected in the Annual Report. The investigation was ongoing and procedures needed to be tightened in order to prevent future incidents. A task team had been put together to deal with the outcomes. Areas of critical concern were procurement and the management of contracts to ensure compliance. Another critical area was security; investigations needed strengthening in order to reduce the number of cases. The board believed that strengthening these units would ensure issues were avoided in future. The board needed to address how accountability could be pushed and how oversight of delegations within management could be maintained. A transitional governance arrangement had been developed and committees set up to deal with various aspects of procurement and tenders. An operations committee would ensure that there was direct accountability at business level.

Ms Michaels commented that she was incredibly impressed with the overshoot on the targeted roll out of new addresses. An address gave people dignity, perhaps even more could be achieved next year.  She asked for information about strike action during the course of the year. She had been aware of strikes which were kept under wraps and handled poorly. In certain areas, specifically Kempton Park, South African’s were without post in excess of six weeks.

Ms Michaels commented that the new service allowing customers to renew their vehicle licenses at Post Office was outstanding and made life easier. Why did this have to be paid for with cash only and not card?

Mr Buick responded that there were a number of agreements with third parties and margins were slim. The issue was the bank charges on credit cards. SAPO was in the process of renegotiating contracts but many third parties were reluctant to reimburse for credit cards.

Ms J Killian (COPE) asked for further detail on the spread of post offices, particularly in remote areas. In remote communities post offices had a critical function. To what extent was it becoming impossible to chase profitability while still meeting universal service obligations?

Mr Buick responded that there were currently 4223 post offices nationally; this was a combination of branches and agencies. There was a backlog of 2000. The license agreement stated that SAPO had to provide a post office for every 10 000 citizens including children. SAPO hoped to convince the Independent Communications Authority of South Africa (ICASA) to exclude children, reducing the backlog to 800 or 900, but had not yet succeeded. The backlog was in under serviced areas.

Mr Buick answered that the necessity to drive out addresses and expand into non-profitable areas was a significant challenge to SAPOs profitability. This was why the continuation of subsidy had been requested.

The Chairperson commented that the Committee would not support the exclusion of children because of the high percentage of the population in this category.

Ms Killian asked for a breakdown of operational expenditure and capital expenditure. Reducing capital expenditure, as had been alluded to in the presentation, could put infrastructure at risk. This was a critical issue; what was the international benchmark for this type of service?

Mr Buick agreed that if capital expenditure shrank for too long it would shrink infrastructure and therefore push operational expenditure up. It was a difficult balance. When SAPO became profitable there was a lot of work to be done to fix decay and so little was invested in growing the business, this was now necessary. How would it be funded? Loans cannot be procured for investments that would not yield a positive return. This was related to the subsidy question and meant the decline in subsidy would make it difficult to continue SAPOs social mandate.

Mr K Zondi (IFP) noted that despite the increase in revenue, profit had decreased substantially. What underpinned the increase in expenses? Was there a strategy in place to deal with the decline? He asked for further clarity on the advantages of diversification sited in the presentation, given the trend of declining profitability. Did SAPO see any end in sight to the tough trading conditions?

Mr Buick responded that diversification was central to the strategy for remaining profitable. Postbank needed to be corporatised in order to offer new products. Another area needing focus was internet services. Mail service needed to be consolidated and new product lines introduced in order to grow revenue and reduce costs with efficiency.

Mr C Kekane (ANC) suggested that there might be wastage in the property and assets sector of SAPO. In an area neighbouring his constituency office there were disused post offices getting vandalised while other areas still needed offices. He commented that the fact that 51% of income was spent on employment was a good thing and served a valuable purpose in providing jobs.

Mr Kekane asked if Postbank was linked to any conventional bank. Did normal banks not pose the challenge of doing it better?

Mr Shaheen Adams, Chief Operational Officer for Postbank answered that Postbank differed from commercial banks and was not fully compliant with the Banks Act. When it was corporatised Postbank would need to comply; this would allow for new products and services such as lending services. It was, however, currently the fifth largest bank in South Africa, though it did not hold the largest deposit base because it serviced the lower income sector.

Ms S Tsebe noted that violent crime had decreased; were all cases investigated by police? What was the result?

Mr Buick responded that he did not have the crime statistics but could certainly provide them to the Committee.

Ms Tsebe congratulated SAPO on a community visit recently. The community leaders had expressed appreciation for having people from government and the post office visit. At the site there had been a mobile post office; how did this operate? Where did it go? And who decided where it went? Mobile post offices could assist areas without facilities.

Mr Buick responded that the mobile post office was one strategy for deal with the declining subsidy and that in some areas it was not justified to open a full unit. The unit visited two to three villages per day. SAPO could provide the Committee with a schedule when and where the unit would be.

Ms Tsebe asked for follow up information on a report she had given to the board on misused funds in excess of R20 000. She understood they were busy but wished to know how far the investigation was.

Mr Buick answered that the issue had been investigated as soon as the member handed over the report. Customer refunding was now in process. An audit had been conducted to determine what refunds were required and all customers would be refunded. The board had been assured that the fraudster was no longer employed at the agency; this would have to be verified.

Ms Tsebe asked about the relationship between SAPO and tribal authorities in rural areas. Where there was no structure, tribal authorities helped provide services; how did SAPO monitor if this was working well?

Ms Killian referred to page 86 of the Annual Report which indicated deterioration in the control environment at SAPO. There had been non-compliance. This was of deep concern. What had lead to this. Where had the failures been? And what leadership had been given in this regard?

Mr Stephen Dietrich, Chairperson of the Audit Committee, responded that there was a duty to report anything that concerned the committee. A trend of deterioration in procurement controls had been noticed in comparison with last year. In all instances this was being addressed and monitored by the Audit Committee

Ms Tsebe asked for information on the employee training. How have you trained your staff? The SABC had a bursary policy for the children of employees. Are you capacitating staff of SAPO?

The human Resources Director Answered that the training provided in the rural areas was in partnership with the Department of Rural Development and Land Reform and gave basic skills to community members. Otherwise training was largely meant for employees within SAPO. A joint programme with the South African Defence force put soldiers through the SAPO training programmes to enable them to run Post offices on military bases. SAPO had 453 active part-time bursaries and aimed to empower youth. There was no bursary policy for employee’s children.

Ms Tsebe asked if there had been any follow up on her concerns raised previously about the Rustenburg post office which always had long queues and had no marshal helping people or prioritising the sick or old.

Mr Buick responded that questions had been asked of the manager and that he had resigned and new management had improved. The oversight team would conduct a surprise visit to confirm improvements.

Mr Van Den Berg commented that while it was good to see that armed robberies had decreased, 100 was still too many. In his area a small post office had been hit several times in a few years. Did certain post offices get targeted? What was being done?

Mr Buick answered that bulletproof counter screens were installed where feasible. In some instances where counters could not carry the weight of the screens this required renovation. Time delay systems and alternative approaches to dealing with cash were being considered. There was some suspicion that staff may collude with robbers to provide information on cash drop off times, for example. 

The Chairperson noted SAPO’s request of funding to support their universal service obligation (USO) moving forward. This still needed to be motivated. He requested that SAPO give further information on the figures.

Mr Buick responded that details could certainly be given. The decline in subsidy meant it would be difficult to fulfill SAPOs social mandate.
 
Ms Killian expressed concern that if the issues were raised 18-months ago, the Committee had remained unaware until only recently. It would have given the board greater credibility had they advised the Committee sooner. The reports of the past had seemed so flowery and given cause for excitement. She asked how often the board met, and whether, in order to process this quickly, they meet more often.

Ms Mahlati responded that perhaps there was a need to discuss with the Committee how feedback on these issues should be dealt with. When the process was started it was to deal with internal issues and it was not expected that would be a major issue. As it unfolded we recognised the gravity of the issues. The board met four times per year and had held extra meetings in order to speed processes.

Ms Killian noted that it was good that there was an interim structure. How would expansions be sustained so that this did not become wasteful and fruitless expenditure?

Ms Tsebe asked if any timeframe could be given for when information on the cases could be revealed. Why did the media often get access to this kind of information when no one else did?

Mr Kekane commented that it looked like the Committee were being given ambiguous answers which made it hard to decide on a solution. Could the Committee not have an exact explanation of the property issue and how it would be resolved?

Ms Mahlati answered that a new team had been appointed to look at the issues and what needed to be done. It was a slow process and would be more directly reported in the next meeting. 

The Chairperson stated that the Committee understood that SAPO could not compromise the cases and that the investigations were ongoing. It was not known if people had benefited personally or not and this did not help. The Committee needed a better understanding. If this aspect remained unknown and the matter was only an irregularity, why was the CEO given a leave of absence? He requested a breakdown of how many people were involved. There were complaints in post offices about favouritism. SAPO seemed to have been privatised by management to a certain extent; they ran it as they wished to a certain extent. Did this investigation speak to any of these issues? The rot started at branch managers and went up. Some, of course, worked to ensure that SAPO ran well, but their work was undermined by those who did not. Would this investigation reveal these issues? It should be a chance to deal with SAPO once and for all. It would be good to show managers that they may not do as they wish. It should not compromise the cases to explain how many people were involved and what the level of investigation was. It would empower the Committee to deal with the situation. The media often appeared to know what was happening and the Committee were the only ones without access to the information. A time-bound programme of action was needed in order for the Committee to do oversight.

Ms Mahlati thanked the chair and responded that this was a difficult ask. The investigations should be completed by December and would be reported to the Committee early next year. At this point a number could not be given. The board would prefer to prepare a report on specific issues and the work done. She agreed that the scope was broader than governance issues relating to Eco Point. Issues would have to be dealt with systematically. It would be more thorough to compile a report. The board could deal only with governance and compliance issues. Allegations of personal benefit needed be investigated by authorities who could check bank accounts and such levels of detail. Police were dealing with the cases and had not yet finalised anything. She stressed that the board and team were determined to be transparent but were at a sensitive stage and needed a few months.

The Chairperson commented that it seemed SAPO could not talk (the Committee would have to read about it in the newspaper). This was okay. On the matter of the COO, had there been a conditional golden handshake?

Ms Mahlati responded that there had been no golden handshake. The contract had been specific and there was no allowance for resignation so it had been agreed to terminate.

The Chairperson noted that Parliament would stand down at the end of November. This would mean that the matter would only be dealt with in early 2012, 24 months after the issue started. He asked that the Committee be given the report before the end of November.

Ms Killian asked that the report give indication of what the additional risks would be and potential fruitless expenditures connected with the cases.

The Chairperson thanked SAPO and summed up that the Committee required clarity on the issue of SPAOs sustainability moving forward. A timeframe for when 100% universal service would be achieved. The Committee appreciated the board’s attitude in dealing with the matters of non-compliance and wished to thank all those employees who had come forward as whistleblowers, he hoped they were protected.

Briefing to Committee on the Annual Report of the 2010/11 Annual Report of the Media Development and Diversity Agency
Ms Nadia Bulbulia, acting chairperson of the board for the Media Development and Diversity Agency (MDDA) began by noting that a clean audit had been achieved and that there had been no major areas of concern. The MDDA dealt with diversity and development in all forms of mass communication.  Historically, many in South Africa had been disadvantaged as owners, managers and consumers of media. The issue of ownership was of particular concern.

The MDDA's vision was that each South African citizen should have access to a choice of media and their mandate was to create an enabling environment for this. Their work encouraged media ownership and control by previously disadvantaged groups and minority languages and raised public awareness of media diversity issues. All people should have access to information in their language of choice. Languages other than English and Afrikaans were prioritised. Work achieved most importantly through grants and subsidies.

Mr Lumko Mtimde, CEO of the MDDA noted that the date was ‘black Wednesday’, and the presentation was therefore dedicated to media freedom. He hoped the discussion was understood in the context of the day; it was a good date to assess whether the MDDA’s aims were being achieved.
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Roughly R128.8 million in grants had been approved since 2004. Some were refused because the applicants did not hold a license or had incomplete paperwork, no business plan for instance. Support was given to assist with proper planning and those refused were given the opportunity to reapply.

The MDDA existed thanks to government and media partnerships from both radio and print. Unqualified reports had been achieved in all eight years since the agency’s inception. 59 projects located in every province of South Africa were supported in 2010/11 with just more than R25.8 million in grants approved for disbursement. 243 people had been skilled. Targets had largely been met so focusing only on variances, as requested by the Chairperson, meant there would only be a few issues raised.

Mr Nkopane Maphiri, programmes director, presented the nine key performance areas of the strategic business plan. Most objectives had been met. Knowing that South Africans were waiting to get services, the agency felt motivated to try and exceed expectations. The research and knowledge management area had seen a growth in community television and research was being done looking at how to better support this. Quality programming had seen a variance due to uncertainty over the transfer of funding from the Department of Communication (DoC). Discussions had since commenced to correct this target. There had been three international fundraising efforts.
 
Community media had grown substantially since 1999. Listenership for community radio had grown to nearly nine million, a 300% increase. South Africans wanted to hear relevant information and the aim was to ensure that every municipality of the country had a radio station. This did not, unfortunately, translate into advertising revenue and the government remained the largest spender in the community radio sector. Revenue from the Government Communication Information System (GCIS) was R35 million, with R18 million from the advertising industry. There were now 5 licenses held for community television stations and communities were beginning to see their value.

The challenge remained that blue chip companies and big agencies did not recognise the importance of using small commercial and community media platforms. South Africans were beginning to consume media of their own choice and also produce this media, allowing a platform to tell their own stories relevant to their communities, in a language of their choice. There were efforts to encourage a culture of reading. Keeping newspapers alive was a challenge due to the artificially inflated costs of printing and distribution. The move by the GCIS to centralise the media buying service for advertising was welcomed and seen as a progressive decision.

Mr Mshiyeni Gungqisa, Chief Financial Officer, presented the financial statements for 2010/11.
Income for year had been R46.2 million. A full list of funders and partners was given (slide 43). Total expenditure amounted to R39.4 million. Administration accounted for 25% of total cost, with 10% being personnel and 1% training

Mr Lihle Mndebela, director of Human Resources and Corporate Services Management presented the structure of staffing at the MDDA. 23 staff were employed and all positions had been filled.
 
Mr Mtimde noted that the Auditor-General’s report had been unqualified and clean. There had been a matter of emphasis; the disclosure of restated corresponding figures.
The greatest challenge for the MDDA was that their mandate was not funded adequately. This required discussion with the Committee.
Funding agreements were divided between print and broadcast on different cycles. Print funding was not prescribed by law and would be decreasing. This required an amendment to the law.

A request was in place for additional funding for monitoring and evaluation (R3.1 million), grant funding (R10 million), Implementation of communication strategy (R2.4 million) and human resources (R2.1 million). Total funding requirements amounted to R17.629 million. Beneficiaries had increased dramatically and there was a need to increase capacity to monitor and evaluate and measure the social impact of work. The staff were committed and worked well beyond the usual hours of work to achieve our mandate.

Discussion
Ms Killian asked for clarity on the additional funding requirement; it would seem the request was that their funding be doubled for next year. Was this the case?

Mr Mtimde responded that in the year under review the MDDA received R17million from government and was indeed asking for a 100% increase. This would go a long way to investing in this noble venture.

Ms Killian asked for clarity on the selection criteria for funding approval. She asked for clarity on why COSATU had been given funds for a project. How would one convince the print media to support a party political component?

Ms Bulbulia responded that the MDDA had clear and sound procedures for allocating funding. These were available on their website

Mr Mtimde answered that the MDDA supported initiatives intended to diversify media in South Africa. It was assumed that a magazine show-casing Mercedes Benz, for example, would target an audience with access to a wide range of media, therefore this would not be supported. Meetings and conferences were not funded.  COSATU had been funded for broadcasting infrastructure intended to support the production of information for workers to be distributed through a range of media, particularly community radio. The funding was not for any other area of COSATU.

Ms Tsebe commented that the MDDA was making the Committee proud and deserved credit. She felt there were two elements missing from the presentation; clear outlines of actions and what still needed to be done. There were a lot of challenges acknowledged, but the Committee could not help the MDDA deal with the challenges unless the requirements were clear. She commented that the clean audit was good. She asked for clarity on the matter of emphasis noted in the presentation.

Mr Gungqisa answered that this simply clarified that previous financial figures had been changed due to new regulations. This allowed the reader to follow the changes and gives consistency across the years.

Ms Tsebe commented that overall the objectives had been presented well, but how they would be tackled was not clear. The issue of language was challenging. How would this be tackled? And if the work had started, how far had it gone?

Mr Mtimde referred members to the performance information table. The objectives, language diversity for instance, were expressed in the funding criteria; if you wished to produce media entirely in English the MDDA would not support the initiative. This gave meaning to the objective. This was similarly the case in efforts to prioritise provinces other than Gauteng and the Western Cape, from where most applications were received. Awareness building in other areas was prioritised, however these initiatives might not meet all the bureaucratic requirements (tax certification, for instances). In such instances the MDDA might partner with the South African Revenue Services (SARS) to run workshops to help applicants comply.

Ms Tsebe asked for further information on the funding model.

Mr Mtimde answered that the funding model was a partnership between government and the print media. Broadcasters give the MDDA 0.2% of their annual license turnover. This was stipulated by ICASA and so offered certainty. An agreement was signed with print media committing them to supporting the MDDA for five years. This would expire in 2013/2014. In previous years this contribution amounted to R4.8million but from next year it would be reduced to R4million. Government funding had been requested to fill this gap. It was not clear if the agreement with print media would be renewed. International fundraising is used to generate further funding.

Ms Tsebe commented that no timeframes had been given for the key focus areas; this meant the Committee could not measure performance over time. It was important to give timeframes for fixing problems. She also commented that the Committee was particularly concerned with the rural level and needed information on specifically where objectives had been achieved.

Ms Tsebe asked if there was political will to ensure that delayed funds from the DoC would be transferred.

Mr Mitimde responded that the issue was historical. The agreement had been signed in 2007/2008 and was shortly followed by a change of leadership at the MDDA. For a time there was resistance to compliance with the agreement and funds were not received. When leadership changed again, funds started being received. There was political will from the DoC. Unfortunately the DOC had missed the MDDA’s deadline for signing the MoU agreement and therefore the MDDA would like to see this reconsidered at the start of the financial year. The solution might be to have the unsigned MoU funds allocated to the MDDA from start of the financial year. The MDDA asked for the help of the Committee in ensuring that money in the DoC intended for community radio went to the MDDA and not the SABC. 

Ms Killian noted that the Western Cape appeared to have a particularly high rate for project approval. Was this because the community centre was so active in the Western Cape and therefore submitted more applications?

Ms Tsebe referred to the breakdown of projects by province and commented that people in the under serviced rural Northern Cape had been unable to watch the soccer in 2010. What funding went where? And was it the board or the executive management who made these decisions?

Mr Mtimde answered that the MDDA worked through responding to applications and they did receive less applications from some provinces. With no provincial offices partnerships with the GCIS and others were used in order to reach these areas. The board made all these decisions and approved funding in following with the legislation and criteria prescribed.

Ms Michaels noted that Mr Manyi, head of GCIS, had indicated that preference would be given to media that favoured government advertising houses. The MDDA could not stand for favouritism of media, but the centralisation of advertising had been mentioned in the presentation. What was the MDDA’s stance?

Mr Mtimde responded that he had understood Mr Manyi’s comments differently; this had been clarified in a follow up speech. Mr Mtimde’s understanding was that the preference would be for relevant and audience-targeted advertising. For example, it would not make sense to advertise a rural meeting in the Sunday Times; the cost would be calculated for an enormous readership and the advert would not reach the people in the targeted community. This would be fruitless spending. Little money was spent on community and small commercial media, and these served the rural areas. Rural communities could not be targeted without such media. The MDDA believed government should spend money on targeting the right audience.

Ms Michaels commented that she had been pleased to read the MDDA’s media release on media freedom in light of South African’s recent concerns with this issue. It was encouraging that the MDDA came out and freely expressed their views. She applauded their courage in supporting media freedom.

Mr Mtimde thanked Ms Michaels for her comments. The MDDA jealously guarded media freedom.

Ms Killian asked for further clarity on the COSATU question; did this mean that any organisation or non government organisation (NGO) could apply, provided they complied with the MDDA's criteria?

Mr Mtimde responded that the MDDA did not fund any government publications or agencies, but any NGO meeting the criteria of media diversity could apply.

Ms Killian asked if in a province such as the Northern Cape, funding could be obtained to start an Afrikaans community newspaper.

Mr Mtmide responded that this was an important question. While other languages were prioritised, English and Afrikaans were not excluded. Likewise no cities were excluded, though projects from outside city centres were prioritised. There were English and Afrikaans projects supported, but they were not from city centres.

Mr Van Den Berg commented that the MDDA was doing good work. Did community broadcasters ever become independent of MDDA funding?

Mr Mtimde responded that yes, this did happen and was encouraged. In certain areas this was more of a challenge.

Briefing on the 2010/11 Annual Report of the International Marketing Council
Ms Anitha Soni, Chairperson of the board committed to keeping the presentation speedy without compromising on detail by focusing on critical areas. The International Marketing Council (IMC), or Brand South Africa, had an international mandate to build South Africa’s national brand reputation in order to improve South Africa’s global competitiveness. The local mandate was to build pride & patriotism amongst South Africans and contribute to social cohesion and national brand ambassadorship.

South Africa had fallen two places in 2010 on an international brand index and had fallen nine places on the global competitiveness index. A brand equity index had placed South Africa 34th globally with a value of $135billion; this was a positive valuation. Brand strategy and reputation management were important areas of work. This included
articulating and implementing brand positioning for stakeholders and partners, creating structured digital platforms to align to a single brand and providing an online brand experience

Reputation was monitored through analysis of major publications across 37 countries internationally, analysing the amount of coverage and the rating of coverage, namely positive, negative or neutral. 
A chart showed the tracking of South Africa’s reputation in the media across these countries from January 2008 to December 2010, the average rating being 50%. Markets such as China reflected significantly positive reporting.

Brand South Africa maintained a strong online presence and worked hard to promote South Africa in specific nations such as the United States and United Kingdom.

A revised organisational structure had been implemented to improve project management capacity. A separate content hub and delivery arm had been created.

Particular issues under corporate governance and control had been the two disciplinary enquiries, involving two senior managers, conducted and finalised during the financial year. The involved officials were both dismissed. There had been fruitless expenditure amounting to R751 433 relating to an onerous contract about a photocopier contract. It had been requested that a R24 576 749 surplus be rolled over.

Ms Soni continued that looking ahead, many lessons had been learned since the board was appointed in 2009. Much work had been done to create structure and framework. Previously brand South Africa had reported via GCIS. This had been moved to the presidency, as concurrent with how nation branding was done internationally and was the achievement of a goal for brand South Africa.

There was a need to start ensuring that all parts of government started ‘singing from one tree’. There needed to be one brand and set of values expressed at all different levels of government. This could not be seen simply as an adjunct or the value of the brand would be eroded. A partnership model needed to be developed to draw in influential individuals. Nothing could be achieved without the mobilisation of citizenship. Certain strategic events such as the COP17 and BRICS summit would be used as platforms for branding.

Discussion
Ms Killian commented that looking at the staff costs of the entity one needed to identify if it was necessary to have a separate agency to deal with this work as well as agencies of state. Was it not creating an agency for the sake of having an agency?

Ms Soni responded with an example from the private sector: when marketing a brand of car different plants and showrooms might use different selling skills to market a particular model but the message of the brand would always be excellence, quality, style etcetera because those were the overarching values of the brand. Brand management was what had made most successful brands stand out. Brand South Africa never sought to market the country for investment; this was the Department of Trade and Industry’s role. Marketing the country for tourism was the role of the Department of Tourism. The IMC sought to ensure that everyone was aligned so that all the entities represent themselves and South Africa not like a Christmas tree but as a unified brand. Because the IMC did not implement it did not compete. This meant they had had to realign and check that the mandate was adhered to, and more importantly, that the agency wasn’t seen to compete with their very clients. The IMC was based on partnership and collaboration.

Ms Killian commented that 2010 had clearly been an exceptional year due to the World Cup. Would it not be difficult to grow from here without losing ground? This gives rise to a consequent concern over value for money. How do you calculate that? What was the impact of large-scale events such as the World Cup was internationally. How was South Africa’s brand measured? And if an incident had a negative impact, how was that measured?

Ms Soni responded that this was an international benchmark based on a methodology from the United Kingdom. This ranking was a number they came up with, and was globally recognised. The IMC submitted to the evaluation in order to see how South Africa was benchmarked against rest of world.

Ms Morutoa noted that there had been two disciplinary hearings. What were these about? And how were they finalised?

Mr Matola responded that the CFO and a director had been involved due to procurement policy deviations. The board had acted to investigate why there were deviations and an independent chairperson had chaired the hearings. It was concluded that there had been deviation and misrepresentation of the state of affairs. Both employees were dismissed. One took action through the CCMA and the other did not. There were no payouts in the case.

Ms Killian asked if this was related to the irregular and fruitless expenditure noted in the report.

Mr Matola answered that this would continue to reflect until the end of this financial year. The problematic contract, which related to photocopiers, was signed in 2008 and it was not possible to get out of. This meant two service providers had had to be employed at once. The issue predated the current board.

Ms Michaels commented that the reputation of a brand could drop rapidly. She asked how an incident such as the recent issue with the Dalai Lama would affect South Africa’s ranking internationally. 34th seemed an impressive ranking; how difficult was it to stay there?

Mr Matola answered that the short, medium and long-term impacts of such incidents were tracked. In the short-term they did have an impact and the media index in the presentation correlated with particular events. It was important it identify if it was policy issues that were impacting the index. A determination was made based on different indicators about whether it was worthwhile or necessary to respond. For instance, did it affect the investment community and media? One of the things that the board did to elevate index levels was to address issues like terrible school enrolment figures and tried to impact that area by partnering with the Department of Education. They had reached out to business to try and support schools. The board held up a mirror to areas that needed attention.

Ms Michaels commented that the Blue Bulls and the jacaranda had become effective symbols for Pretoria. What were the symbols for South Africa? And who were the brand ambassadors? She commented that it was sad that with the football over there was less excuse for patriotic celebrations.

Ms Soni responded that a framework was needed to recognise and kit out certain individuals and organisations to be brand ambassadors. They would not only be people, it could be a company doing good work internationally. It could be global South Africans doing good work elsewhere or globally. This had to be managed carefully and there would be more on this next year.  Expatriate South Africans acted as brand ambassadors, many subscribed to a Brand South Africa network which supplied information and brought together South Africans on particular days. The IMC had launched an active citizenship campaign to build cohesion and get people involved in tangible efforts that build South Africa. The ‘Play Your Part’ campaign encourages people to participate and build nationalism.

Ms Michaels commented that the website was excellent, but that when looking at it she hadn’t realised that it was Brand South Africa’s website because everyone’s logos are so similar.

Mr Matola responded that in a way it was pleasing that the website wasn’t differentiated from South African Tourism. This was what was meant by economies of scale. Now people couldn’t misunderstand the brand.

Mr Van Den Berg congratulated the IMC on their professional presentation. He was glad such people represented South Africa’s brand. He was the IMC was now in the president’s office. It was important that the IMC be able to give feedback to the President. Would he listen? Without this it was hard to create good branding. Maybe they could call Julius Malema.

Ms Killian asked for clarity on what had made the external audit fees so expensive.

Mr Matola responded that the audit fees were indeed high; the intention was to leverage external auditors to ensure they could rely on the work done by internal auditors and reduce the fee for the following year.

The Chairperson thanked the IMC for their presentation. The meeting was adjourned. 

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