Stats SA & Public Investment Corporation 2012 Strategic Plans with Minister of National Planning Commission & Finance Deputy Minister

Meeting report

Statistics South Africa (Stats SA) 2012 Work Plan: briefing
Introduction
Minister in the Presidency: National Planning Commission, Trevor Manuel, introduced the delegation. He said that the Stats SA Strategic Plan was for the period to 2015. The Strategic Plan was elaborated in the Work Plan for 2012/13, which was three times longer than the Strategic Plan and contained much detail. Highlights of the Strategic Plan were the expansion of Stats SA's information base. The second was to enhance the public's confidence in statistics. The third was to improve on productivity and service delivery. The fourth was to redevelop the coordination of statistical production within a South African national statistical system, which was dependent not so much on Stats SA as on other departments and competencies. The fifth was to invest in the learning and growth of the organisation. The sixth was to promote international cooperation and participation in statistics (see graphic on the last page of the Strategic Plan which explained how that worked. He hoped that Members were familiar with the 270 pages, because this was basically about how South Africa held itself accountable to Parliament. It was compiled especially for Parliament, and it was fundamentally important within the greater scheme of things that Members should have a discussion based on this document. He was aware of the pressures of time upon the Committee and was concerned that a budget of the size of that of Stats SA should have to be discussed in as little as less than two hours a year. It was even more important this year, because strategically there were big issues this year on Stats SA's calendar, such as restructuring the basket for the Consumer Price Index (CPI). The very important and exciting issue was the one where the Statistician-General had indicated that he would take his yellow suit of the museum along with his blue shoes and release the results of Census 2011. Member of the Committee had visited the processing centre. It was important for Stats SA to remain accountable for the time lines of the census.

Mr Pali Lehohla, Statistician-General, outlined the content of the presentation, which was in five parts. Stats SA's narrative drew from the National Planning Commission's document such as the Reconstruction and Development Programme (RDP) and other documents from which it was established that South Africa suffered the triple challenge of unemployment, inequality and poverty

▪Modern states required systems of evidence to bring about desired change
▪System of planning – roadmap to achieve long-term goals
▪System of statistics – provided evidence to inform planning
▪Monitor progress
▪Evaluate

A platform for a planning, monitoring and evaluation environment was adequately anticipated in the Stats Act. Section 14 introduced statistical coordination within the South African National Statistics System (SANSS). The Statistician-General emphasised that such coordination needed to be reinforced, particularly in this environment of planning and monitoring. (Slide 3)

Strategic Plan 2012/14
Overarching strategic goal: Expanding the statistical information base by increasing the supply of official statistics to inform evidence based decisions

Hence a strategic shift:
▪Addressing the statistical information gap
▪Addressing the quality gap
▪Addressing the skills gap

Therefore the key deliverables of the strategy were broadening the role and reach of official statistics; growth through coordination – in terms of expanding the statistical base, departments must come to the party, the Statistician-General noted, because their administrative records were part and parcel of the system; enhanced quality, which became of greater importance as other departments were involved; sustained capacity; and doing more with the same (slide 4).

Strategic Plan 2010/14 strategy implementation phases were described under phase, financial year, strategic focus, and enablers (table, slide 5).

Phase 1: Statistical development in Stats SA
Key breakthroughs:

▪Conducted Census 2011
▪Improved methodologies and surveys -
Price statistics (Consumer Price Index (CPI), Producer Price Index (PPI), Income and Expenditure Survey (IES), life circumstances, service delivery and poverty (Living Conditions Survey (LCS), Quarterly Labour Force Survey (QLFS), Victims of Crime (VOC) Survey)
Expansion and coordination of quality statistics through South African Statistical Quality Assessment Framework (SASQAF)

▪Improved survey operations -
Established corporate data processing (scanning technology, warehouse)
Established statistical infrastructure in the provinces (56 regional collections points)

▪Improved governance and administration -
5 consecutive unqualified audit opinions (slide 6).

Phase 2: work programme 2012/13: addressing the priorities was described under the column headings development outcomes, statistical themes (universe of statistics), and system of statistics (table, slide 7).

Phase 2: work programme 2012/13: Stats SA response (partial) was described under the headings system of statistics, statistical themes, and plans for 2012/13 (table, slides 8-9).

 Figures for funding of key priorities up to 2012/13 were provided under financial year (2008/09 to 2014/15), allocations, accommodation, census, baseline, year on year changes in allocations, and % changes in baseline allocation (table, slide 10).

Key priorities: 2012/13: building and expanding the SANSS
▪Release Census 2011
▪Improved price statistics
▪Release re-engineered PPI
▪Release re-weighted and rebased CPI
▪Maintain and consolidate the social statistics surveys
Life circumstances, service delivery and poverty (General Household Survey (GHS), IES, DTS, LCS, QLFS, VOC) (slide 11).

Key priorities: 2012/13: Release of Census 2011 results: end September 2012
▪Successfully concluded field operations and data processing started
▪14 million questionnaires being processed in a 24/7 operation at 120 000 completed per day
▪1 200 staff deployed at the processing centre
▪Processing of an independent post enumeration survey (PES) ongoing
▪Five percent firewall processing completed
Council had appointed a team of national and international experts to evaluate the census
▪Massive operation for dissemination of results in print and electronic media to the public (slide 12)

Key priorities: 2012/13: Building and expanding the SANSS
Initiate future expansion:
▪Create an enabling regulatory environment for statistical production and coordination
▪Build and maintain spatial information frame
▪Business registration reform
▪Integrate communication, marketing and stakeholder relations
▪Integrate survey operations
▪Participate in statistical development in Africa
▪Build statistical capacity (Slide 13)

The future: 2013/14 – 2014/15
Phase 3: Expansion 2013/14 – 2014/15
Expand and improve economic statistics: National Accounts; International Standard Industrial Classification; Agriculture statistics; and Environmental Economic Accounts.

Expand and improve registers and frames:
Business registration reform; Spatial information frame; and Administrative sources.

Coordinate statistical production and build capacity:
South African Police Service (SAPS); Education; Civil registration and vital statistics; and International Statistical Institute (ISI) ISIbalo training institute (slide 15)

Phase 3: Risks and constraints
Phase 3: Lack of funding impacted on the implementation of the strategy. The implementation of statistical benchmarks was constrained. The quality of macroeconomic and social indicators would deteriorate over time. The System of National Accounts 2008 (SNA 2008) and (International Standard Industrial Classification of All Economic Activities, Revision 4 (ISIC Rev. 4) international standards affected statistical information on economic growth, price stability, and employment and job creation. If current status continued – statistics would become inaccurate and irrelevant. The impact would be on international trade, competitiveness, economic growth, and policy development.

The implementation of statistical coordination (Section 14 of the Statistics Act (No. 6 of 1999) was hampered. State planning, monitoring and decision-making would continue to be based on poor statistical information, with affects on more than 400 external data sources – potential official statistics, and statistical support and advice to organs of state on administrative records. It was required to designate statistics as official to certify quality. Building statistical capacity in the SANSS was limited. (slide 16)

Phase 3: Risks and constraints (2)
Phase 3: Lack of funding impacted on the implementation of the strategy. Reverse gains were achieved in establishing statistical infrastructure. Statistical infrastructure (national footprint) could not be sustained. Provincial, district and satellite offices could not be sustained. Master sample could not be maintained. Decentralisation initiatives were to be discontinued. The IES/LCS cycle and methodology could not be sustained. The impact was on the household survey programme and CPI basket. (slide 17).

Phase 3: Risks and constraints (2) Funding Request
 was indicted under Medium Term Expenditure Framework (MTEF) request for the years 2012/13, 2013/14, and 2014/15, for improving economic statistics, statistics coordination, statistics infrastructure, and office accommodation (table, slide 18).

Delivery of the strategy
Stats SA had built the engine to deliver on the strategy in terms of broadening the role and reach of official statistics, growth through coordination, enhanced quality, and sustained capacity.

Stats SA had demonstrated delivery, delivered Census 2011, and demonstrated consistent delivery of quality statistical products.


Stats SA had improved its governance and administration – evident through improving opinion of Auditor-General – 5 unqualified opinions.

Stats SA was recognised as a lead agency on the continent and globally in statistical development (slide 19). The Statistician-General noted the standards established by South Africa were being used by the United Nations Educational, Scientific and Cultural Organisation (UNESCO) for the Southern African Development Community (SADC).

Conclusion
Stats SA had consistently delivered on its mandate over the past five years. However inadequate funding threatened growth and expansion to implement the strategy, with non-delivery on statistical information, quality and skills gap. The engine would have to be dismantled, with a move back towards pre-2005 (slide 20).

Discussion
Mr T Harris (DA) sought help with Stats SA's own statistics. Slide 10 provided an overview of Stats SA's budget. Mr Harris was interested in why Stats SA had specified an accommodation column. Surely it was in Stats SA's MTEF as a line item. Why was it highlighted. He could understand why the census was highlighted. He asked about the request on page (slide) 18. Were those amounts requested to be appropriated above and beyond the allocation for the years 2012/13 and 2013/14? If this was the case, they appeared to be quite significant relative to the allocation which Stats SA was to receive in the MTEF. One was looking at a 12% increase in2012/13 and a 23% in the years thereafter. This sounded inflationary and quite high in comparison to the increases for the other departments which appeared before the Committee. One understood that Stats SA wanted to expand its output and workload, but he was not sure that the strategic objectives in the programme reflected a 23% year-on-year increase.

The Minister replied that this year there would not be a crisis but as for next year, with Stats SA's additional responsibilities, Mr Harris was correct to say that the Strategic Plan did not sufficiently impact on what the detailed demands were. The Statistician-General should elaborate on that.

The Statistician-General replied that Stats SA had costed its request. The International Standards Industrial Classification was the biggest cost driver. It was taking about half that amount. The SNA2008 took a bit of money and those were the components. Stats SA's growth was largely in the area of economic statistics.

Mr Harris's second question was around differences between statistics from the South African Revenue Service (SARS) and from Stats SA, in particular with regard to the number of taxpayers and the number of businesses registered. The SARS tax statistics suggested that there were almost eight million taxpayers. However, the quarterly labour force survey referred to 7.2 million. Any difference to the tune of around 10% was cause for alarm. He had not seen any adjustments in the Strategic Plan for those particular statistics. Was there a programme perhaps to work with SARS to determine why Stats SA relative to SARS appeared to be under-counting the number of taxpayers and the number of businesses registered for Value Added Tax (VAT)? The SARS figures reflected around 654 000, whereas Stats SA's figures was around 574 000. This variance of around 13% made it difficult for the Committee to have these two governmental bodies reflecting statistics that seemed to be so variant.

The Statistician-General replied that the tax returns might reflect the same individual twice. Stats SA had done some work to harmonise these figures.

Dr Jairo Arrow, Stats SA Deputy Director-General: Methodology, added that as of March 2012, there were 20.4 registrations from the income tax register of SARS, of which 17.1 million were active. Out of those active registrations, 14 million were individuals, 2.7 were companies and close corporations, and 33 000 were active trusts. The numbers that were recorded earlier by Mr Harris said that there were 8.2 million taxpayers, as compared to the figure that Dr Arrow now quoted. This was somewhat of a divergence, and he would be interested to see how these numbers could be reconciled. However, the fact was that these numbers were the result of an administrative change in the manner in which tax registration was done. This illustrated the kind of difficulties that the state experienced in that two departments would have different figures because of differences in the manner in which the figures were collected. Stats SA had brought to Parliament consistently the need to reform the business registration system so that all departments could quote a single number on which reliance could be placed. Moreover, statistics should be certified through the South African Quality Assurance Framework. The statistics quoted from were from SARS but they were not official. In fact, Stats SA had serious observations about the quality of those statistics. There was thus a need for the departments to coordinate their data gathering. The need for the business register had been on the agenda for 10 years and Stats SA appealed to Parliament for assistance. 

Mr Harris questioned Stats SA's estimation of the informal sector and the number of immigrants in South Africa. Could Stats SA give an estimate of how many immigrants there were? If one did not know, it seemed to be a gap in the Strategic Plan. Similarly, the size of the informal sector – there had been moderate economic growth in South Africa over the past decade, but growth in employment had not kept up. The suggestion was perhaps that because the informal sector was growing but Stats SA was not able to measure that properly. The implication was that one should ask if the Strategic Plan should not include a comprehensive survey to focus on informal employment and illegal immigration in the next few years.

The Statistician-General replied that Stats SA measured the informal sector in the quarterly labour force survey for which it had a very robust methodology. However, there was not a register of the informal sector since its members were usually below the radar in terms of turnover. The only way in which one could capture this information was through a survey such as the quarterly labour force survey. Stats SA followed up on these households that had indicated a form of business activity. It was what Stats SA called a survey of employers and the self-employed. Thereby Stats SA captured what the informal sector was. What had been in the public domain was to work with Stats SA figures of about 13 million people who were employed, 'and then this company adds another three or four million on top of that'. How 'they' came to that figure was really unknown. Moreover, how 'they' defined informal employment was not clear. The informal sector in South Africa constituted about three million or so people. There were two methods of measuring this. One was the approach from the business side; the other was from the household side. The information from business establishments always was in the range of eight to nine million. The household side revealed more people because it included the informal sector as well. The discussions in the debate organised by the think-tank importantly from the academic and labour economists suggested that the methods that Stats SA applied were robust with meta-data on its website and what it was doing was transparent. However, there could still be improvements because in any survey method there were always margins of error. The improvements could take the form of going to firms and sampling the firms and the employees, and then taking the same sample of employees and sampling them in households and comparing the answers. However, Stats SA had not yet taken this route. On the other hand, Adcorp was adamant that it would not give Stats SA their methods. It would not give anyone anything. Therefore Stats SA was working on an unequal basis here. So there was no discussion. 'One cannot not have a transparent process when discussing statistics. The essence of the practice of science was transparency of methods.' He conceded that Stats SA data had limitations but Stats SA was transparent about them.

Dr Howard Gabriels, South African Statistics Council Chairperson, added that Stats SA wanted to understand what the statistics on migration were inside the country and from without. It was not up to the statistical agency to determine whether immigration was legal or not, for this was the competency of the Department of Home Affairs and other state agencies. So the main instrument for understanding migration in the country was the Census. Hopefully, when the results of Census 2011 were published later this year, it would be evident that Stats SA had done a better job on the migration question this time, compared to 1996 and 2001. However, one could not expect the statistical agency to say how many people were legal or not. It just asked people where they were born and where they were living now, and thereby calculated the movement of people from province to province and from municipal area to municipal area, and from abroad to South Africa. The Council was very happy with the work on the Census so far, but it was now entering the difficult time of tallying the numbers. It had put together a team to work with the Council independently from the work that Stats SA was doing to ensure that the numbers tallied.

Mr Joe de Beer, Stats SA Deputy Director-General: Economic Statistics, commented that people might naturally compare figures for informal settlements with economies such as might one find elsewhere in Africa or in developing countries. The characteristic of South Africa's informal economy was that it was very much based on trade rather than on manufacturing. So if one contributed to the informal sector by selling vegetables in the street, the actual value of the production of the vegetables was already measured by the formal sector farm. It was only the trade margin, not the production margin, that was added. However, the value added by a member of the informal sector who manufactured furniture from timber would be much more per person. That was why there was often surprise that the actual value added contribution from the informal sector in South Africa was only the six per cent that it was, rather than nine per cent or 10 per cent.    

Mr Harris asked lastly about the employment statistics. Five of the nine provinces did not achieve statistically significant results for the unemployment rates. If one did not achieve statistically significant results it compromised the level of one's estimates. Therefore it had to be asked if one should not be expanding the samples to try and achieve statistical significance, particularly in those provinces where one was not achieving it.

The Minister replied that there was recently a discussion facilitated by a think-tank in which a number of people participated, including labour economists and other economists, from both academia and the private sector. The Stats SA and SARS numbers needed to be expanded.

The Statistician-General added that Stats SA had a very robust method by which it ran its measurements. This method was peer reviewed, with assistance from experts from across the world on re-engineering the quarterly labour force survey in order to run it twice a year. He emphasised that the methodology was very strong. (See also his reply to Mr Harris's earlier question.)

The Statistician-General replied, with reference to Mr Harris' reference to statistical significance, that he, the Statistician-General, replied that failed to understand what Adcorp was trying to do in its document. He did not think that there was cause for concern in this instance. However, an increase in the sample phase might be welcome.
 
Dr Z Luyenge (ANC) commended Stats SA for its sterling work and asked about its staff establishment in order to sustain its excellent work, and also its retention strategy.

The Statistician-General replied that Stats SA had about 4 000 staff members position with a vacancy rate of about 8% at present. One of the measures that it had taken this year was deliberately not to recruit more people 'in order that we secure the strategy'. However, beyond this year, Stats SA would reprioritise 'to secure the strategy'. To retain staff, Stats SA had an internal training programme.

Dr Luyenge asked with reference to the priorities of Government, including the very important one of job creation. Stats SA recruited a number of young people when its work was actually in progress. However, was Stats SA really creating much in terms of job creation? To what extent did Stats SA absorb the staff that it trained either on a temporary basis or through internships to ensure that this contribution was sustainable?

The Statistician-General replied that Stats SA appointed permanently a number of the people recruited for the Census. Its policy for staff refreshment in the past year had been through the Census. However, its strategy now for staff refreshment was recruitment directly from high school. It then gave them scholarships to university and on graduation they worked for Stats SA. Once they were in the organisation, they moved through the one-year internship programme beyond which they received training in Stats SA in particular fields. There was, moreover, a capacity building programme that Stats SA wanted to get on board with the help of the Statistical Training Institute. However, these things were not coming together fast enough. In terms of job creation, Stats SA had been absorbing staff members from the Census survey but was under pressure because there were more such staff members available than it could absorb on a permanent basis.
 
Dr Luyenge asked secondly about the authenticity and legitimacy of statistics issued by other bodies, but quoting Stats SA as the legitimate source, while the information was not exactly what Stats SA had provided. Did Stats SA have any role over the work done by other bodies that were working with surveys but were referring Stats SA as a source? If this was unchallenged, this tarnished Stats SA's work.

(See also the response to Ms Z Dlamini-Dubazana (ANC)'s question below)

Dr Luyenge asked lastly about the issue of lack of funding. It would not always assist to cry foul for lack of funding when there was a responsibility to plan accordingly. The Statistician-General must take this opportunity to ask the Hon. Minister to make sure that Stats SA was crying foul for the last time because one relied on Stats SA and its sustainability was therefore a necessity.

This question was not answered.

Ms Z Dlamini-Dubazana (ANC) referred to objective 2.3 where the Statistician-General highlighted the improvements in service delivery, but he had mentioned that Stats SA wanted to produce high quality statistics. One appreciated that, but how could one do that when there was so much fragmentation of the statistics from other departments? What was Stats SA's model for producing high quality statistics, since this was the medicine. Was it proper that the National Development Plan (NDP) had been produced already and one was busy discussing it, when one was not aware yet of the outcome of the Census 2011? Would the NDP be reviewed in the light of the Census results? She also asked about the concept behind the integrated survey operations to improve the measurement of the economy. How often was this information to be collected?

The Statistician-General replied that without the ability to coordinate Stats SA was less likely to manage what the Members had talked about as to how Stats SA supervised. The Act was very clear. No Government department could initiate without permission from the Minister. It was necessary to bring Section 14 into effect very quickly. However, to do that it was necessary for Stats SA to find its ability to coordinate. This was why it was asking for more resources so that the skills gaps and quality gaps could be filled. The Public Finance Management Act (No. 1 of 1999) provided for an internal audit committee an annual auditing. Stats SA needed a similar approach to its quality assessment framework. Stats SA was working on this.

The Statistician-General added that South Africa had the best position in the world in terms of the separation of political power from the production of statistics.

The Minister added that in respect of the National Plan, Chapter 2, in so far as it dealt with demographics going forward to 2030, there was a degree of precision. The Actuarial Society of South Africa had done the modelling. There was a very high confidence index for population figures. The age distribution figures were correct. On urban migration, which would add another 11 million people to the urban population, one was 'pretty confident'. The numbers on inward migration from outside South Africa, the Actuarial Society did not have a reliable database. Even at the Census, no one would fill in an official Government form and declare that he or he were present in South Africa illegally. People would try to tweak the truth so that they could comply with the requirement to fill out a Census form, but try to remain below the radar screen. He did not think that the absence of information about Census 2011 would undermine the National Plan because the Plan was in broad terms at a pretty high level.

Dr Gabriels added that the model was the centrepiece of the strategy for the five-year period, since one sought harmony between what departments did and what the official statistics agency did. Ideally what one wanted to do, and he took the example of the police, was for the police to generate data of reported cases, and that helped the police to understand properly what their business was, and secondly, how they would allocate their resources strategically to deal with crime, and for Stats SA to ask people in their homes if they felt safe or if they had been a victim of crime. Then those two data sets needed to talk to each other. It would sometimes give divergent results, because the one was asking people at home what they thought about safety in the country, and the other was cases reported to the police. Thus one wanted to build coordination. When the police produced statistics off the data that they collected, that data must be of high quality. However, throughout the world, there were always questions about police data. Also with every department it was necessary to ensure that the data was of high quality. For that purpose the main instrument designed was the South African Statistics Quality Assessment Framework (SASQAF), as referred to earlier. This framework had nine categories whereby Stats SA interrogated the way in which the data had been corrected, processed and made available. Linked to that was the third element. This was the human resources required to produce good quality data. This was why the Statistician-General had admitted that Stats SA was not making enough progress with the ISIbalo Institute was a critical challenge that Stats SA faced. It was necessary to develop the human capacity to develop the model that Ms Dlamini-Dabazuma was referring to. This, in brief, was what the strategy document set out.

Dr Gabriels added, with reference to the NDP, that hopefully when the National Planning Commission (NPL) had updated data in September [from the Census] would be able to say that it had a much better understanding of the data. However, until then the Minister and the members of the Commission would not have any insight into the Stats SA statistics. The Council did have some insight into the data now, but still did not have the full set of data since it was still in process, as the Statistician-General had said.      

Advocate S Swart (ACDP) commended the Strategic Plan and the presentation, and what seemed to be a comprehensive Census 2011. He sought to follow-upon his parliamentary question of last year on the initial challenges experienced – could the Minister elucidate further? He also asked the Minister about the degree of under-reporting, though he acknowledged that the Minister might not wish to answer at this stage. Lastly he asked about action taken against people who did not cooperate with the Census enumerators. He shared his colleagues concerns and those of the Statistician-General on the under-funding. He was very concerned at the sentence 'the engine will have to be dismantled'. What did the Statistician-General mean by that if he did not succeed with his request for extra funding? If the matter was critical one could consider an adjusted appropriation. Perhaps Stats SA should prioritise its request. This was help the Committee in preparing its report.

The Statistician-General replied that Stats SA had made two strategic interventions in response to challenges. These were the 'know your enumerator campaign'. The second was the branding of the Stats SA cars, and installing transponders on them; this had helped to reduce the number of accidents. However, accidents had still occurred. The campaign was well supported by all layers of society. Stats SA was able to deal with its challenges. Funding in this instance was not a problem, and in that regard Stats SA was well resourced as far as the Census was concerned. Stats SA had taken to task people who refused to be counted. The police were there to arrest them. Stats SA took one of them to court, and he was sentenced to community service of 54 hours at the library at Waterkloof.

The Statistician-General replied, with reference to dismantling the engine, that what had happened in anticipation of expansion was that the engine had been built up; then, when the funding changed, one was faced with no alternative but to start dismantling it. However, if Stats SA did dismantle the engine, it would be in an orderly fashion. The coordination of Section 14 in its entirety would not be implemented. This would undermine very greatly the National Planning Trust and the response from departments that did not produce well-coordinated or high quality statistics.

The Minister added that the Statistician-General was given to the use of superlatives like 'to dismantle the engine'. One would try to restrain him.

Dr Gabriels said that perhaps 'dismantling the engine' was too strong a metaphor. However, there were significant challenges that Stats SA would face if it worked within a budget that was not growing at because just as he had explained what that model was there were new challenges. The problem for Council had been that the two areas in which the financial challenge would constrain Stats SA into the next three years were firstly in economic statistics, for example, the need to update the data to the SNA2008. This was the global standard by which Stats SA gathered its statistics without going into detail. However, if Stats SA did not have the funding for it, and it was quite an expensive exercise, one would still be working on the 1990/93 system of national accounts, and South Africa's economic data would no longer be comparable. The second area was the capacity to coordinate, for example, the work with the Department of Basic Education. It took resources to expand that work. However, he was encouraged by the progress being made in work with the police and with the Department of Basic Education.

Dr Gabriels said that it was not yet possible to say what the 'undercount' (under-reporting') was. However, a post enumeration survey had been done, by means of a separate team with a separate management team and separate reporting line. The results of this survey, together with the main Census data, would help determine what the 'undercount' was.

The Chairperson asked Dr Gabriels to respond to outstanding questions, and to be brief because four more questions would follow. 

Mr N Koornhof (COPE) asked Stats SA on its key priorities for next year with reference to re-engineering PPIs and the reweighted CPIs and to expand on why and how it would differ. He also asked about expanding and improving on environmental economic accounts. Was this a direct result of Conference of the Parties (COP) 17? Would it assist other environmental statistics?

Mr Joe de Beer replied that it was international best practice to update the price indices in terms of the basket of goods that was being priced on a periodic basis, not more than every five years, and it was now time to change the basket of the CPI. The current basket was based on figures from the income expenditure survey of 2005/06. Any forthcoming change was to update the weights. The relative expenditure patterns of people had changed over time, and these changes must be reflected in the CPI. The PPI would be dismantled into five separate indices. There would be a greater correlation with the CPI. It was important to draw a distinction between environmental economic accounts and environmental statistics. Stats SA did not intend to get much more involved in the collection of the latter, since these were still the expertise of the line ministries. The environment economic accounts were a framework adopted at the international standard in February this year at the United Nations Statistics Division, and it provided a framework for linking environmental statistics with macroeconomic statistics. The idea was to see if one could integrate statistics from energy, minerals and forestry into a broader macroeconomic framework. Work had been published thus far as experimental, rather than official, statistics.

Dr Gabriels said that the Members' questions were encouraging and spoke to the core issues.

The Chairperson noted 'an invasion' – the arrival of the Deputy Minister of Finance and the Public Investment Corporation delegation. The Deputy Minister later said that he had staged 'a walk-in' to demonstrate that he and his delegation were punctual.  

Mr D van Rooyen (ANC) failed to understand the continued questioning of the credibility of South Africa's statistical information. He sought Stats SA's view.

The Minister replied that he had hoped that this briefing would not be about Adcorp. He had studiously avoided mentioning this firm as he did not want the discussion to be side-tracked. The Statistician-General had made important observations on the requirements of Stats SA to follow a particular methodology that would be subject to improvement. The peer reviews that took place both within the United Nations (UN) system and also by the International Monetary Fund (IMF) by the standardised data dissemination system were fundamentally important. It was important for Stats SA not to give findings that one would wish to hear, but rather to give the findings that one needed for informed policy making. This unfortunately made Stats SA often the bearer of bad news.

Ms P Adams (ANC) said that other Members had anticipated her questions.

Ms J Tshabalala welcomed the presentation and thanked Stats SA for the wonderful job that it was doing. However, statistics was a developmental process. One encountered possible problems with the dynamics of population. She asked about the role of non-government organisations that took on the role of compiling statistics.

The Minister replied that there would be a difficulty with population dynamics, because modelling was about estimated forecasts. One of the problems on urban migration was that there was a current problem in South Africa of very large numbers of people who had migrated to all the cities, and who were living in the informal areas. It was difficult to plan housing, public transport, water, electricity, and other essential services for such people. He did not think that there would be a major diversion between now and 2030, but there would be additional information. However, he could say that, if there were major divergences between the population dynamics data that the NPC had and what emerged from Census 2011, the NPC would be able to make adjustments. As to data collection there was actually a large private sector network of people that collected and provided data. Dr Gabriels also did some work in a different capacity. The advertising industry, for example, would use baseline information. The Minister was confident that such users would be very interested in the level of data that Census 2011 would reveal. Also private companies collected baseline information to assist such industries. It would be impossible for Stats SA to provide all of that kind of information.  

Mr D Ross (DA) was interested to hear from Mr De Beer about the CPI and the PPI. He was interested to hear about the progress on the experimental statistics document. The cost of living was becoming more and more problematic. He referred to coordination and the issue of administered prices. He also referred to the Bloomberg survey which indicated that South Africa had the highest unemployment figures from amongst 51 countries. Perhaps so many people were misled by much reported statements which were very negative for South Africa's economy. It would be good to have a mechanism to counter such information. He did not believe that South Africa was 'so far down the line' and he was pleased to hear from the Minister about the Actuarial Society of South Africa from which one could obtain certain information.

Mr De Beer replied that both the CPI and the PPI would be published in February 2013 for the reference month January 2013 with the current time lag of three to four weeks. He clarified that the experimental statistics did not relate to price statistics, but rather to the work done on environmental economic accounts.

The Statistician-General emphasised the importance of the business registration reform. It was anticipated and captured in Section 14 of the Statistics Act 1996. It was vitally important to coordinate. The benefits of securing the strategy would be realised in the future. He believed that the strategy could be secured within the fiscus, as through coordination one could do more. He noted the importance of ensuring that no single data item should be financed more than once. The identification of these items was critical in order to achieve rational budgeting.
The Minister noted Mr Harris' request for more detailed information as one of the sharpest challenges that had arisen in the discussion. He would ensure that this detail was provided before the Budget Vote 12 debate.

The Chairperson said that the challenge was always finding sufficient time for adequate engagement. It was very clear from the presentation that the NPC must work very closely with Stats SA. It was important to ask to what extent Government departments used this information, what the basis of planning was, what tools were used to monitor, and what the capacities of the state to respond to these challenges were. It was the responsibility of all Members of Parliament and all key role players in society to internalise the NDP. He noted that Stats SA should not be shy to express its needs, as its was Parliament's responsibility to appropriate the budget. It was a very good strategic plan that would take planning in Government forward. The Committee was proud of Stats SA's work.

Public Investment Corporation (PIC) 2012 Strategic Plan: briefing
The Hon. Nhlanhla Nene, Deputy Minister of Finance, said that the PIC's presentation would focus on key objectives and 10 year strategy, a summary of the corporate plan for the next three years, a break down of clients and assets under the PIC's management (unaudited as at 31 March 2012), developmental investments, the PIC's Africa Strategy, and key financial figures. He assumed that Members had studied the corporate plan. The three year strategic plan document tabled in Parliament did not focus in detail on the developmental investments and the Africa strategy at this point. The reason was that there was much discussion with the Government Employees Pension Fund (GEPF) which had not yet been concluded in time for tabling. However, in view of the importance of the developmental investments and Africa Strategy, the Deputy Minister thought it important to share with the Committee the progress so far; he would provide details when there was finality. In the meantime he looked forward to a detailed discussion.

Mr Elias Masilela, PIC CEO, said that the Chief Investment Officer was travelling around Africa to try to find new investments. Given the nature of the funds for which the PIC was responsible, which had a maturity of at least a lifetime, it did not make sense to plan on a three year cycle, but rather on a 10 year cycle. Secondly, given PIC's dual mandate, it was not like other traditional asset managers which were interested only in obtaining a certain level of asset performance. It was also expected to contribute to economic growth and development. This meant that the way that the PIC invested had to take a long term view. This was the premise on which all the PIC's plans were based.

10 Year Strategy - From the Biggest to the Best!
 Mr Elias Masilela explained this slide. The key idea was that there was no doubt that the PIC was the biggest asset manager on the African continent, but it had to move from being big to being the best and greatest.

The end state to be achieved was what it meant for the PIC to be the best and greatest:
▪Consistently deliver returns. There was no doubt that the PIC was the biggest asset manager on the African Continent.
▪Exceed Client expectations
▪A benchmark for Public & Private Asset Managers
▪Considered the best partner in growing the wealth
and welfare of South Africans & other Africans
▪Investing for growth and development
The PIC had to move from being big to being the best and the greatest!
▪An effective piece in the Social Security System
▪Contribute towards building efficient asset
management industry
▪Reducing costs of asset management services (slide 2)

Mr Masilela emphasised the importance of skills and technology and the technology that PIC used that would enable it to do the things that it sought to do. These were not easy tasks. It might be necessary to attract the same skills that were being attracted into the private sector into the PIC in order to deliver on the PIC's mandate. The question was how to do that – whether through money or through other interventions, such as developing the skills within PIC – such was not a short term intervention, but one that was necessary. 

Key empowerment outcomes
▪Facilitating the biggest empowered property investor / construction company to be amongst the Top 3
▪Facilitating the biggest empowered property service provider to be amongst the Top 3
▪Be the leader in acquiring and developing shopping centres in secondary towns and townships
▪Develop SMMEs in the retail sector through retailer development and franchisee promotion
▪Facilitating the biggest empowered asset manager to be amongst the Top 3
▪Facilitating the biggest empowered broker firm to be amongst the Top 3
▪Facilitating the biggest empowered private equity firm to be amongst the Top 3
▪Be a leader in facilitating SA Inc in the BRICS Region
▪Be  the leader in infrastructure and private equity financing in South Africa and on the continent (slide 3)

The corporate plan was described with reference to goals, objectives and initiatives as against delivering investment performance which met or exceeded the set benchmarks, conducting sustainable and efficient PIC operations, and contributing positively to the development of South Africa (slide 4) (See also Corporate Plan document, pages 9-13)

An overview of PIC clients and assets under management was given. PIC’s clients were public sector pension, provident, social security, development and guardian funds in South Africa.
Collectively, the assets under PIC management as at 31 March 2012 were R1.17 trillion (unaudited). Government Employees Pension Fund (GEPF) was PIC’s largest client and as at 31 March 2012 had entrusted assets worth R1.04 trillion (unaudited) to the Corporation. (Table, slide 5).


The four pillars of the GEPF developmental investment policy
Mr Roy Rajdhar, Isibaya Fund General Manager, explained the developmental investment policy which had the aim of sustainable long-term returns for the GEPF (slide 6).

Developmental investments were indicated ( slides7-9).

The rationale for Isibaya restructuring was explained: changes in GEPF mandate; PIC would create Funds- e.g. economic / social infrastructure fund, private equity fund; the fund investment strategy and risk parameters would be determined in line with available investment opportunities; GEPF would play the role of Limited Partner (LP) Investor and PIC General Partner (GP) Manager in the Private Equity practice. GEPF IC would be the Advisory Board. Each fund would be governed by an Investment Panel (IP) chaired by a PIC non-executive director. GEPF would have a direct representation on the IP; each fund would have an advisory board which would include the GEPF. (Slide 10)

The PIC's structure and governance was described (chart, slide 11).

Reasons were given for the PIC's Africa strategy – why Africa? The PIC noted the Smart State Strategy – collaboration amongst Government, private sector and other funders.; South Africa (SA) was dependent on development of rest of African Continent – exploring investment opportunities for SA Inc.; portfolio diversification; and from “hopeless continent” to rising star - rapid growth and stabilising political landscape, powerful demographic trends, rich with natural resources, increased regional cooperation, and improved governance. (slide 12)

How does PIC invest in Africa was described under investment strategy and allocation range (table, slide 13).

Target sectors were consumer goods and retail sector;
agri-business and agri-processing; resources and mining; infrastructure and construction; property, business and financial services; telecommunications, media and technology (slide 14).

Progress on Africa strategy implementation was given: the PIC had already started deploying some funds to the listed investment allocation, for example, investment in EcoBank; the Africa unlisted investment would be rolled out in the second quarter of the year; and the drafting of a framework for selecting African Fund managers was in progress (slide 15).

Financial stability
The PIC CFO translating objectives into numbers, referred to revenue, growth in revenue, operating expenses, growth in expenses, and net profit after tax for 2011, 2012 (unaudited), and as budgeted for 2013, 2014 and 2015 (table, slide 16).

The CFO commented that revenue was expected to grow through 2013 to 2015. A significant reason for this revenue growth of about 28% was the result of the developmental finance. There was a 55% growth in expenses projected for 2013, but this growth was expected to decrease in future years. The reason was the initial phase of the implementation of the new objective and the developmental assessment required putting capital into the business. This meant that additional resources and capacity were required. Ultimately the net impact on the net profit was that the PIC would continue being a going concern over the next three years, and it was anticipated that this would continue over the next ten years.

Key financial features 2012 to 2015 were the restructuring of unlisted portfolio; implication of the restructuring of the unlisted portfolio including offshore - increase in staff complement, increase in asset management fees generated, and increase in other corporate costs, i.e. premises rental, travel, etc;
the restructuring would initially have negative impact on the financial sustainability ratios due to the lag between the costs incurred and achievement of returns, but the situation would commence
to reverse in 2015; based on financial position and declining net profit over the next few years, no dividends to the Shareholder had been forecast. (Slide 17)

Conclusion
 Mr Masilela alerted Members to the kind of changes that one could expect from PIC: a more geographically diverse portfolio, a better capacitated PIC, increased partnerships, improved empowerment and developmental investments, and improved performance (slide 18).

Discussion
Mr Koornhof questioned the PIC's projections for its financial sustainability. Were its projections for growth in revenue realistic in terms of what was happening in the world?

 Mr Masilela replied that what drove those numbers was fundamentally a change in the mandate and the scope of the PIC. This change enabled the PIC to do business in areas where it was not doing business before. Secondly, as part of the change in the mandate, unlike the old mandate, what this mandate was doing was to recognise the need for the skills that the PIC required to compete effectively with investors not only in South Africa but elsewhere. Thus the mandate was proposing a matching of fees to be in line with market rates, whereas previously the fees that the PIC earned were a small fraction of what a private asset manager would enjoy. This was the key reason for the change in the revenue growth.

The CFO gave some further detail. 

Dr Luyenge asked about the facilitation and empowerment of the property service provider. What mechanism could PIC present that was of benefit to the previously marginalised?

Mr Masilela replied that the facilitation of property development was achieved in two respects. One was with respect to enterprise development where, in the properties in which the PIC invested, the PIC would give investment opportunities to small enterprises to provide services to the properties that the PIC owned. Over and above that, the PIC already had an allocation of space that was allocated to small businesses at a lower rate than to traditional businesses. In terms of targets, there was no particular group. PIC looked at all emerging investors. What was even more important was that of all the PIC's investments property was the most tangible, even though it was a small portion of the total PIC investment. Shopping centres were a particular example. Another example was small to medium income housing. Society was very emotional about these. Wherever the PIC invested in property, the likelihood was that one was going to have other industries developing around that property, in particular with regard to the PIC's retail investments, not only in the urban centres but in the outlying areas. A shopping centre with a bank, post office, a hardware store, and other facilities immediately reduced the transport costs of inhabitants who would otherwise have to travel, perhaps a great distance, to a city centre. Moreover, it promoted the development of small entrepreneurs around that shopping mall. It was the best way of driving the Local Economic Development (LED) concept. Thus the PIC was passionate about the shopping malls, not only from the viewpoint of investment, but because of their wider impact on society.

Ms Dlamini-Dubazana thanked the Deputy Minister and his team. She asked for clarity for Mr Masilela
on the key empowerment outcomes. Were these short term or long term? What was the population target and at what percentage? What contribution would this initiative contribute to the rural initiative?

Mr Masilela replied that slide 3 was intended explicitly to quantify what empowerment meant to the PIC for the future, with reference to the population targets.

Ms Dlamini-Dubazana asked what the strategy had in mind for the teachers, nurses, and other employees. Could they contribute to this investment and to economic growth? Why were they not seen as players?

This question did not appear to be answered..

Ms Dlamini-Dubazana told Mr Rajdhar that it was easy to focus on agriculture and the agri business, but a more developed exposition was required, not just the outline. What impact could be foreseen for rural development? Where was the PIC's model? Also, what sectors did PIC use to arrive at the 5% that it had allocated to the African projects. What would be the benefit outcome percentage?

Mr Rajdhar said that the PIC was looking at sectors which offered the prospect of high job creation, and the particular sector that PIC had identified was agriculture. However, there would be other sectors as well, such as manufacturing, construction and tourism, as well as those sectors that were incorporated in the Industrial Policy Action Plan 3 (IPAP3). The developmental investment strategy was new. PIC had invested in an agriculture fund of R500 million. He provided further detail. PIC was conducting an impact study of all its developmental investment projects and results would be included in the PIC's 2011/12 annual report.

Mr Ross noted that any businessman would want to avoid Europe as a place for investment at present. The same applied to the United States. There might be a preference for the BRICS countries, though there were huge challenges in terms of developmental issues that needed to be addressed. It was difficult for people to take decisions on where to invest. It was not always easy to get good returns from renewable energy. The PIC was in a unique position to take difficult decisions that had to be taken to ensure the right return on investment. It was not as easy as in the private sector. He asked how the PIC determined its preferences for investment. He was pleased with the African investments in terms of partnerships. However, the cost of business was increasing. He gave the example of nuclear energy projects, in which better returns were to be expected later in the project rather than at the beginning.

Mr Deon Botha: Senior Corporate Governance Specialist: Corporate Governance and Acting Chief Investment Officer (CIO), on the diversification aspect of the above question, replied that client prescribed in a mandate to the PIC how to invest in these funds. Historically the GEPF had only domestic South African investments. It had since expressed a preference to diversify.

Mr Rajdhar replied that renewable energy was a new area of investment compared to the traditional sources of energy. The PIC was taking a long term view. Returns were forecast at around 17%. PIC thought that the risk was reasonable.
 
Mr Harris was interested that the PIC focused on its new Africa strategy, for which he affirmed his support. However, it raised the question of the focus of the PIC, given the objectives of Government. He understood from information given by the Committee researchers that the PIC would not be undertaking any major capital investments for the 2012/13 financial year. However, in the State of the Nation Address (SONA), President Zuma had declared 2012/13 as a year of massive infrastructure development. It was difficult to focus on more than one major initiative at once. How did PIC focus on its expansion into Africa while rebuilding South Africa's economic infrastructure.

Mr Masilela replied that it was necessary to separate capital expenditure in the PIC's accounts from the facilitation of capital investment by the PIC using third party funds. When one thought about the PIC, one did not see investing in any new significant capital in the near term, but in terms of the monies that the PIC managed on behalf of clients, those resources were still going to be directed to capital investment by investors in the economy. It was of key importance to understand that the PIC was not an originator of projects. Instead it was a facilitator of capital investment by providing the necessary capital. 

Mr Koketso Mabe, PIC Portfolio Manager: Private Equity, said with reference to diversification into the rest of Africa that one of PIC's key considerations was the client's rationale beyond the basic diversification of the portfolio. Africa's gross domestic product (GDP) growth was forecast at 6%, more than that of the United States or Europe. So the growth dynamics backed by demographics with increased consumption made it sensible to diversity into the rest of the African continent. Also there was funding that already existed in the continent. These included listed equities to the extent of about $3.2 billion. Mr Mabe gave further details. 

Mr Harris said, with reference to page 7 of the PIC's Corporate Plan, that there was a commitment that a smaller percentage of client funds would be managed by external fund managers. At the end of 2011, 11 fund managers were appointed to manage 25% of the equity portfolio. Where was the PIC before and where was it going, and what was the objective?

Mr Botha replied, in detail, with particular reference to the composition of the equity fund. The PIC was looking at fixed income managers on the fixed income side as well. The preference would be for what one used to call incubation managers, and now enterprise development managers to coach small Black Economic Empowerment (BEE) on a three year cycle.

Mr Harris asked what the criteria by which the PIC maintained the management of the GEPF were, and how the mandate was given and renewed?

Mr Botha replied that the PIC's clients' mandates could be reviewed at any time, but preferably every second year. A major change in the asset liabilities of a fund was the basic reason for reviewing a mandate. This is what happened with the GEPF, a fund that was growing at a phenomenal rate. Only to have assets in South Africa was a problem.

Mr Harris said that the PIC held roughly half the bond issue that the South African National Roads Agency Limited (SANRAL) issued to fund the toll road (e-tolling) project. Given that the project was due to go ahead at the end of this month there was some court challenge at the very least. Had the PIC considered the implications for its investments in those bonds of e-tolling project not going ahead?

The Deputy Minister replied that investing in SANRAL bonds was not only about one aspect – the e-tolling - which was the subject of a court challenge. The investment was in SANRAL as a company. When the decision was taken to invest in those bonds, SANRAL was a stable company, and it remained so.

There had been statements recently around prescribed assets, and the state's telling managers such as the PIC where to invest. What would be the PIC's response?

The Deputy Minister replied that the PIC took its mandate from its investors. However, it was a debate that one should engage in as a country at an appropriate level.

Mr Botha was comfortable with the Deputy Minister's response.

Mr Harris asked the PIC if it could comment on the actuarial surplus of the GEPF, or if this was a question that Members should address to the Fund itself. If the PIC was able to respond, he wanted to know what the surplus was.

The PIC delegation indicated, silently, a negative response.

The Chairperson advised that Mr Harris's last question would be answered the following week.

 Mr Masilela added that perhaps a technical response should be given. One could only determine the actuarial surplus if one could do an asset liability matching process for a pension fund.

Mr Van Rooyen welcomed the presentation. He noted with interest how the PIC had conveyed its key objectives with reference to Government's objectives. This information was on page 11 of the Shareholder's Compact and was very helpful to Members of Parliament. He also commended the PIC's African initiative. South Africa could not move forward unless the rest of Africa developed.

Mr Van Rooyen asked if there were any unique risks that Members should be aware of as PIC undertook other investments abroad.

Mr Masilela replied that there were three key unique risks: information asymmetry, sovereign risk, and underlying commercial risk.

Mr Van Rooyen said that some of the PIC's board members were earlier appointed as commissioners. However, the PIC did not consider their service as commissioners. Was that intentional or was it provided for by corporate governance? The King III approach to corporate governance was very clear on the composition of the board as regards the independence on non-executive directors. It called for at least annual rotation of at least one third of the non-executive directors. Those whose service extended beyond nine years should at least be assessed annually as to their independence and performance.

The Deputy Minister replied that the renewal of those long-term members had preceded the King III Report. The PIC was in discussion with the Shareholder to consider the next rotation, at which time the PIC would ensure compliance. There was a process underway.

Ms Adams asked if the PIC was counting on the Unemployment Insurance Fund (UIF) to raise its contribution to the PIC.

The Deputy Minister replied that the PIC was looking to other state entities, that might be investing elsewhere, to increase their contributions.

Mr Masilela noted that the presentation did not talk about the PIC's discarding its existing relationship with clients and going in search of new ones. However, it emphasised identifying new partners in the rest of the continent and in the rest of the world. Such partners understood the unique risks and could manage them better than the PIC.

Mr Van Rooyen was also impressed that the PIC was not driven only by returns, but was considering aspects of empowerment. He asked what precautions the PIC took to avoid investing in entities that were unscrupulous in financial practice and corporate governance?

Mr Harris reminded Members that they had forgotten to congratulate Mr Masilela on his appointment to the board of the UN Global Compact, announced the previous day. The PIC had a 20% stake in MTN which was also signatory to the Global Compact, and was facing allegations on the human rights principles of that Compact. He asked for the PIC's views.

The Deputy Minister suspected a sting in the tail of Mr Harris' congratulations. When the PIC invested in companies, such as MTN, it had very little control over where companies operated. However, South Africa sought to ensure compliance, under the auspices of the Department of International Relations and Cooperation (DIRCO). The PIC was a responsible investor. He thanked the Committee.

The Chairperson referred Mr Masilela to paragraph 8.3 of the Shareholder's Compact 2012/13, page 7: there was no confusion as to the Deputy Minister's role. He noted that the PIC's vision was very proper. It was important to maintain the PIC's reputation.

The meeting was adjourned.