Economic Development Department Third Quarter Report 2011

Economic Development

07 February 2012
Chairperson: Mr Z Ntuli (ANC) (Acting)
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Meeting Summary

The Economic Development Department presented its third quarter report for the year 2011/12. The major concerns of the Department during the quarter were the retention and creation of job opportunities, particularly for the youth, and the development of the green economy. Several workshops had been held to assist small businesses. Most targets had been met or even exceeded. There were still some vacancies in the Department which needed to be filled by applicants with both the appropriate qualifications and skills. On the financial side, the position was healthy. The rate of spending indicated that the full annual allocation should be spent although the vacancies might lead to underspending.

Members were concerned about the inability of the Department to staff all its own positions, let alone to solve the unemployment of people. Staff retention was identified as a problem. Members were also concerned that there was no follow-through on those attending EDD workshops. The Department undertook to provide this information. An explanation was needed on how certain regions were identified for assistance. The rationale was explained, based on poverty levels and consultation with provincial authorities.

Members were told that all fines levied had to be returned to the National Revenue Fund. The Department could not follow the advice of Members by disbursing such income to parties injured by collusive practices.

Meeting report

Mr Z Ntuli (ANC) was elected at Acting Chairperson in the absence of Ms Coleman, who was ill.

Mr X Mabasa (ANC) proposed that the scheduling of meetings should be better co-ordinated so that Members did not have to choose between attending different Committees.

The Chairperson agreed with the proposal and would liaise with other Committees. It was also noted that some of the new Members of the Committee had not yet been sworn is as Members of Parliament.

Mr N Singh (IFP) requested to be excused as there was an important briefing taking place at the Standing Committee on Public Accounts.

Economic Development Department (EDD) briefing
Mr Richard Levin, EDD Director-General, said that a report on employment and inclusive growth had been tabled for inclusion at the Cabinet Lekgotla in January 2012. In collaboration with other Departments another survey had been conducted on employment rates. It was important to assess the results of government interventions. A workshop had been held on youth employment involving senior officials within the Economic Cluster. The outcomes would be presented at Ministerial level.

Mr Levin said there was still a massive challenge with regard to inequality. A policy platform had been conducted with McKinsey and a workshop had been held with Friedrich Ebert Stiftung and the Studies in Poverty and Inequality Institute. There had been engagement at provincial and local government level. The EDD had participated in the Department of Rural Development and Land Reform (DRDLR) programmes, and with Presidential interventions in two municipalities in the Free State.

The sector planning function now resided with the Economic Policy and Development Branch. The EDD had devised various spatial plans that were being implemented with a variety of organisations.

A Green Jobs report had been submitted. There had been engagements on sustainable energy and solar water heaters. A provincial green economy unit had been established. There had been a workshop with the Congress of South African Trade Unions (COSATU) and the Cape Business Chamber. There had been consultations on the promotion of black dairy farmers.

Mr Levin gave a breakdown of the R2.3 billion which had been disbursed. Most of this (R1.8 billion) had gone to the Industrial Development Corporation (IDC), R184.4 million to the IDC Distress fund and R343.4 million to the Unemployment Insurance Fund (UIF) Bond funding. Work had been done on the South African Bureau of Standards (SABS) technical specifications focusing on local content requirements. There had been engagements with financing bodies. Reports were received on development finance institutions (DFI) and  Economic Regulatory Body (ERBs) on a regular basis.

There had been a number of engagements on capacity building and social dialogue. Agreements had been signed on local procurement. There was a focus on the sectors designated by the Department of Trade and Industry (DTI). The Green Economy Accord was signed on 17 November 2011. Labour capacity building workshops had been held in four provinces.

Mr Levin said there had been a number of engagements on productivity with the International Labour Organisation (ILO), Proudly South Africa (PSA), organised labour and communities. There had been meetings regarding interventions to create or save jobs. There had been a presentation at the ILO Jobs Pact workshop.

The EDD had performed fairly against Estimates of National Expenditure (ENE) targets. Most had been achieved and some exceeded. The target for financing small businesses, targeted growth sectors and companies in distress had been exceeded considerably. R2.3 billion had been made available compared to a target of R1.2 billion.

Mr Levin said there 129 funded posts for the year. Of these, 61 were filled on a permanent basis and 39 on contracts. There was a plan to fill the balance by the end of the financial year (FY). In terms of employment equity, 88% of the EDD was black and 59% women. There was still a backlog in terms of persons with disability, with just one such person employed. The EDD was behind in its target of having a 50/50 balance of male and female persons under contract. The EDD was continuing to recruit personnel to replace losses due to resignations and other reasons. Eleven persons had been recruited during the quarter while seven had left the EDD. The big challenge was to find people with appropriate economic skills to fill the vacant posts. Recruits had to add value to the organisation.

Financial information had been provided to the Committee. There were monthly reports to National Treasury. 75% of the adjusted appropriation had been spent by the end of the third quarter. The big challenge was compensation of employees. Since the EDD was not fully staffed, there was a degree of underspending. This varied between the different programmes within the EDD. The budget for revenue collection of R243 million had been exceeded. The surplus was returned to the fiscus. The Pioneer Foods settlement accounted for the excess achieved. Fines were a major source of funding.

A number of projects had been earmarked for the remainder of the year. This would help the EDD to achieve its spending targets. There were a number of projects under way, including several green projects.

Mr Levin said

the EDD wanted to consolidate the work done thus far in the final quarter. In the fourth quarter special attention would be paid to youth unemployment, the Green Economy, Inequality, Implementation of the Accords and special financing The EDD had run an exhibition at the COP17 climate change conference. Some R750 000 had been raised, which was used to donate 5 000 solar heaters to an impoverished community in Groutville. The real challenge focussed on finding the right people to deliver the quality of work the EDD required to continue with its job creation initiatives. The EDD had launched its website. He encouraged Members to visit the website and advise on what should be included.

Discussion
Mr Mabasa appreciated the input made by the EDD. Some of his comments were not new. He congratulated the EDD on the launch of its website. The Committee had made an oversight study, visiting Orlando East and other industrial parks in Soweto. Members had observed some of the challenges faced by small businesses. The Committee had indicated its willingness to work with these communities. Small business should be able to close the gap with big business. It was easy to see a visit as an incident rather than as part of a process. If the EDD could not fulfil the requirement of employing people with disabilities it would be even harder for private business to comply. He could not understand why there was still a gap. EDD was the lead Department in the challenge of job losses. If the Department had vacant posts, one had to consider the reasons seriously. It was a matter of public interest. People with degrees were unemployed. He suggested that a certain shop in Soweto should be visited as they were playing a leading role in employing people with disabilities.

Mr Levin replied that the EDD was directly involved with the industrial parks. The Committee would need to talk with the specialist agencies involved.

Mr H Hoosen (ID) asked about the reference to projects in the Eastern and Western Cape. He would like to have more detail. He asked how the EDD recovered money from companies that had been assisted by the Business In Distress Fund. He asked if there was any monitoring of the local procurement accords. He asked if there was any way that the income from fines levied on companies found guilty of collusive practices and price fixing could be used to assist those who had suffered as a result of the collusive activities. He congratulated the EDD for the donation of the 500 solar heaters, but asked how that particular community had been chosen.

Mr Levin replied that the EDD was in the process of establishing a monitoring process for the accords. An overarching approach was needed in collaboration with social partners. Responsibilities had been defined and the role of the different communities. Implementation was a joint responsibility. It was difficult to channel income from fines to re-investment in projects. This would be allocated by National Treasury. The 500 solar heaters were allocated on the basis that the conference was held in KwaZulu-Natal. Groutville had been identified in discussion with the provincial Premier and the President. The final allocation was in the hands of the relevant district authority.

Ms D Tsotetsi (ANC) wanted to know who the beneficiaries of EDD funding were. She asked what was being done to keep the Proudly South Africa campaign going in the face of massive imports from China which had resulted in some small businesses closing down. She also wanted to know how beneficiary communities were identified. On the one hand COSATU was saying that many people were unemployed and had to leave the country to find work, while many graduates were not finding employment. Skills should be identified. The EDD was head-hunting for skilled people and yet the contracts of some were allowed to expire without being renewed.

Mr K Mubu (DA) was a bit surprised that graduates were unemployed when there was so much unemployment. People across the skills sector were jobless. External recruitment might be an option to provide the required skills.

Mr Levin said that there was a difference between qualified and skilled people. The issue was more about the specific economic skills. This was an issue in recruitment both inside and outside the public service. A different approach was needed with the focus on job creation.

The Chairperson was interested in the reports on government co-operation across all three spheres. More information was needed on the co-ordination initiatives. The provinces were generally continuing to operate as they always had. He needed more specifics, as sometimes it felt as if the Department was merely ticking off boxes without the work being done at local level. The people who could touch the lives of members of the community lived within the ward. He was interested in the youth employment and green economy projects. He asked for more information at a later meeting. He wanted an explanation on the eleven members who had been appointed, only for seven to be terminated.

Ms R Mashigo (ANC) felt that there were important community projects that needed to be addressed. She feared there would still be some underspending at the end of the FY.

Mr Mabasa felt that government was running into the danger of serious underspending. This would be hard to explain to the people. The Auditor General had some concerns. These should be considered on a continual basis, as should the concerns raised by the Committee. He asked if community workshops were covering the issue of co-operatives. At present, neither government nor community members had mastered co-operative structures. These bodies could assist in distributing wealth.

Ms Tsotetsi asked if there was a special procedure to cover those applicants who did not succeed in making interviews.

Mr Levin said that it had been a challenge to identify the right person for a specific job. The real question was what impact was being made at a provincial or local level. There was some unevenness. The MinMEC structures could ensure that decisions around the New Growth Path were communicated and work programmes put in place.

Mr Levin said that in terms of youth employment it would be important to get a mandate from the Minister. The matter had still to go to the Inter-Ministerial Committee. The loss of staff was a challenge across the board in the public service. It was disappointing when staff members, particularly those employed permanently, chose to leave. The assisted districts were spread across the country. Cabinet had chosen the districts based on recommendations by the DRDLR. The level of underspending came from the staffing position in the branch. There were significant gaps. Some progress had been made. At least one critical management position had been filled recently. The identified person would start work in the new FY.

Ms Ntokozo Silakazi, EDD Deputy Director: Office of the DG, said that there were three projects supported by the EDD. Two were in the Eastern Cape and one in the Western Cap. The EDD was part of a steering committee. R39 million had been released to FN Energy. The second project was for a wind power project. The third was in the Western Cape. It was a gas production project. Some blockages had been cleared.

Ms Neva Makgetla, EDD Deputy DG: Policy, said that the EDD was looking for people at Chief Director level. People of this calibre were generally settled in their current jobs. People needed to be practical and skilled. There were many good junior staff. New graduates had the theoretical knowledge but still needed to acquire the skills. Relatively few black women were studying economics. The financial sector was the best-paid in the country, and the EDD had to compete with high salaries in the private sector. The twenty districts were chosen by the infrastructure cluster. They were chosen from the worst areas, and were mainly in the former homeland areas. There was not a provincial spread as a result. Youth unemployment was worst in the age group 20 – 29. The figure for South Africa was about 50% overall. There were also life-cycle issues. One's first job was critical as a basis for future employment. There was discrimination against those with infectious diseases such as HIV/AIDS.

Ms Makgetla said that public employment schemes had ambitious targets for 2030. National Treasury was engaging on subsidy schemes. More entry level jobs were needed. It might be advisable to have a quota of entry-level schemes, but government must guard against over-regulation. Child care was a factor, and education was needed on teenage pregnancy and HIV/AIDS.

Mr Dumi Nkosi, Chief Director, EDD, said that lots could be done to co-ordinate the different districts. They faced similar challenges. The assistance of local government was needed.

Mr Molefe Matsomela, EDD Chief Director: Human Resource Management, said EDD had faced a challenge in the recruitment of people with disabilities. A broader view was needed with employment at various levels. Many applications had been received which did not meet the required standards. The EDD wished to create a caring environment. The EDD had liaised with a number of organisations. There was not a major skills problem in the administrative area, but there was a problem with the line functions. There had been some head-hunting. The EDD admitted that the pace was not what it should be.

Mr Louis Du Plooy, Office of the DG, EDD, said that the EDD would provide the Committee with a detailed list on IDC disbursements.

Mr Zweli Momeka, Office of the Chief Financial Officer, EDD, said that the fines revenue must be surrendered to the National Revenue Fund in terms of the Public Finance Management Act (PFMA). Section 15 gave guidance on how withdrawals could be made from the National Revenue Fund (NRF). All requests went into a single basket and allocations were made by National Treasury. In terms of credit bureaus, a number of projects had been earmarked. There was a plan to work with National Treasury to establish a credit bureau for small businesses. This would assist in creating a credit history. This should allow for credit worthy businesses to be rewarded. The assistance of relevant credit bodies would be needed. It was expected that the project would be self-funding. There was another project being put into place with the South African Association of Chartered Accountants. About 100 unemployed graduates would be identified for further training. Service centres would be created. Money had been set aside for PSA initiatives. They should be a good partner to the EDD and some funds would be committed. The EDD was an employee-centred entity. It was driven by employment. He expected that the budget would be spent.

The Chairperson was disappointed with some of the statements made by Ms Makgetla. The EDD was now simply throwing back some of the problems that had been identified by the Committee. There were no solutions on the table. He wanted to know who was co-ordinating employment across the other Departments. It was government's core business to combat unemployment. Government had established the EDD to create tangible solutions. He could not see evidence of such solutions. He asked if there was any retention strategy. Capacity building should not just be at the University of the Witwatersrand (Wits). There were many tertiary institutions across the country.

Mr Mabasa expressed his appreciation for the initiatives to involve unemployed graduates. His question on co-operatives had not been answered. Most small businesses encountered various problems in establishing themselves. Their problems could lie with infrastructure questions. He asked what EDD was doing to eliminate such problems. Workshops were often run with the view to getting small businesses and co-operatives established. He encouraged EDD officials to enter into close liaison with such businesses. The appropriate official should be identified, but EDD members should also step forward. There must be some tracking device to determine the success of the workshops. EDD officials should have an understanding of the problems faced by small business. There had to be some influence on the educational institutions to produce suitably educated graduates. Solar heating components had been stolen in Limpopo, if he remembered correctly. He asked if there was anything in place to prevent the units being stolen. Most of the Auditor General and Committee concerns were generic. It was important to raise these issues lest the EDD receive a qualified audit report.

Ms Tsotetsi asked if there was a retention policy for EDD members with the required skills. Recruitment was targeted for those with qualifications and experience. It was never said that those with the needed skills could apply. It was not indicated if the EDD used interns.

Ms Mashigo was moving towards the issue of understanding. Every department suffered from a lack of staff. Explanations offered were not satisfactory. Money had been appropriated based on a strategic plan. She could not understand why allocated funds had not been spent. This had not been clearly stated in the financial statement. If so much money was not spent on a programme whose importance was generally accepted as being important, she wanted to know if there would be further explanations or a request for a roll-over.

Mr Levin replied that the EDD had discussed the system created for monitoring government employment programmes. Government impacted directly through employment in the public service and short term projects. There were many regulatory burdens which needed to be overcome. The issuing of licences put a brake on the rapid implementation of projects. A monitoring system was in place to detect where the problems lay. The EDD had proposed a rapid uptake in community public works programmes (CPWP) as this was more sustainable than the Extended Public Works Programme (EPWP). The target was to have 1 million people employed. The EDD had argued strongly on issues of implementation. The Minister had been advised of where blockages lay. The right response was not always forthcoming. The EDD had partnered Wits University and an accredited course had been created. This could now be shared with other universities. The policy framework and implementation for co-operatives lay with the DTI. A small business incubator was being developed with the University of Johannesburg. The solar water heater roll-out was a model which Eskom would develop. The target was a million solar heaters. There was a set-off for co-operative activities in terms of installation and maintenance.

Mr Levin said that it would be best to see what would be announced in the State of the National Address regarding infrastructure. Decisions had been made regarding rail, ports and electricity. There was still a concern over implementation. Decisions were being made over and over without any implementation. There were particular Departmental officials to assist with small businesses and co-operatives. Interns were being brought on board. Cabinet had set guidelines. On engagement with training institutions to influence curriculum development, he said that it was important that EDD be involved.

Mr Levin said that a steering committee had been set up to take up the concern of the theft of solar water heaters. Following the last audit, the EDD had drawn up procedures to address the concerns raised by the Auditor General. Mechanisms were in place. The EDD did try to discourage staff from leaving. A number of young people had been brought in at middle management level. There were retention challenges. A key element of the HR strategy was to bring in more talented young people at middle management level. It was a long term challenge and was not appropriate for quarterly reporting. There was a problem concerning social dialogue. Some initiatives were under way. There was a capacity building programme in association with the unions. Progress had been slower than expected.

Ms Makgetla said that there was a need to build on youth employment projects. The best thing would be to implement the New Growth Path. CPWP and EPWP should target 1 million people, most of whom would be youth. There was engagement at the National Economic Development and Labour Council (Nedlac) regarding the youth wage subsidy. Initiatives had been stalled and there was a risk of older people being displaced. There would be downward pressure on wages. Some 30 000 were undergoing literacy training. The programme was being wound down gradually, and the trainers might be redeployed to child care programmes. There were specific targets to create youth-friendly opportunities while not displacing older workers. There should be targets for youth entry workers. The EDD was getting some insights. More quality education and training was needed. The Green Paper targeted a twenty-fold increase in the number of Further Education and Training College (FETC) students and the doubling of university students. There was a 5% target for interns and learnerships. Guidelines were in place. Specific training was needed for the different Departments. Strategy could include anything to do with youth. There was an issue with entrepreneurship for youth. The DTI was driving the programme and wanted to set up more incubators. Some caution was needed though. Entrepreneurship was risky. Pushing people without the necessary experience and resources could set them up for failure. Most small scale enterprises did go broke within five years. All public employment schemes should have a child care or home care component. Some form of support and regulation was needed to ensure proper care. Further initiatives were needed in HIV/AIDS education. In terms of aligning Departments, the EDD did a lot of monitoring of the work done by other Departments. They wanted to know which projects were being bogged down by red tape. The biggest blockage was in getting the private sector involved. The biggest systemic problem was that the staff was lacking in getting implementation going. For examples, permits were needed but there was nobody to process the applications.

Mr Matsomela said there were programmes to determine where skills were needed. There should be a stipend for interns. There should be about eight interns in line with the 5% guideline. Efforts had been made to retain people but there had been better offers from outside of the province. There was a draft retention strategy. The EDD was looking for ways to retain staff. Another programme was that of capacity building with the unions. People had been identified and interviewed.

Mr Momeka, EDD Office of the Chief Financial Officer, said he had been trying to unpack the various factors. The budgetary allocation was R16 million. There was provision for protection against inflation. This had all been allocated. 67% of the R16 million was for compensation and the remainder for goods and services. If there were no staff then there would be underspending on the compensation budget.

Mr Mabasa asked what was being done to track people who had attended workshops. There had to be outcomes to these programmes.

The Chairperson asked for a breakdown of how many people had been trained and how many had been successful or failed. The schedule would inform Members if there was any progress.

Mr Matsomela said that there were follow-ups on people who attended the workshop. The EDD had the information and could provide it.

Mr Levin had noted some areas where supplementary information was needed by the Committee. There were issues that had been discussed repeatedly around recruitment and retention. There was engagement at Executive level on the issues that had been raised, especially regarding youth employment. There were agreements to implement decisions in support of the New Growth Path. The EDD would deal with the concerns raised by the Auditor General.

Ms Tsotetsi thanked the EDD. The Committee would still go to the people on the ground. They needed to be empowered with the knowledge to answer the queries raised by constituents. There were emotional issues. A legacy was needed. Government could still do better for the people.

The meeting was adjourned.

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