National Consumer Commission, Companies & Intellectual Property Commission; Export Credit Insurance Corporation Strategic Plans 2013

Meeting report

The Acting Chairperson welcomed the members of the Committee and the delegations of the presenting entities, and extended apologies on behalf of the Chairperson, Ms J Fubbs (ANC), Mr X Mabasa (ANC) and Mr M Oriani-Ambrosini (IFP).

National Consumer Commission (NCC)
Mr Ebrahim Mohamed, Acting Commissioner, said his presentation would explain why the NCC had changed its strategy since its establishment two years ago. In its initial institution-building stage, the number of complaints had risen sharply in a short space of time, and emphasis had been placed on resolving them while the corporate governance and due processes necessary for the operation of an efficient public entity were lacking. Working primarily on conciliating disputes between businesses and consumers, the Commission had issued consent orders and compliance notices where businesses were found to have acted unfairly. However, in issuing such orders and notices, due process had not always been followed. Although many businesses had settled in favour of consumers, because it was not cost effective to oppose the orders and notices, other businesses had successfully contested them, resulting in adverse publicity for the NCC and a hugely inflated legal bill. It was found that the NCC had acted beyond its powers in a number of matters, as the Consumer Protection Act (CPA) specified that it was merely responsible for promoting the resolution of disputes, and was not responsible for intervening and directly adjudicating any dispute.

The NCC was not able to deal with all consumer complaints on its own, as its key mandate was to investigate prohibited conduct. This meant it had to work closely with other key stakeholders to promote the resolution of complaints. However, the Commission’s strategic framework (2013 to 2017) had to a large extent not been aligned to the policy prerogatives espoused in the CPA, and all its plans had been highly ambitious, taking into account it was still in its infancy, with very limited resources and relevant skills. As a result, the NCC had been unable to deliver according to its plans, which appeared to have been based on an unrealistic budget. The Minister had then recommended that the NCC formulate a strategy to deal with complaints handling, ensure proper compliance notices were issued, and revise the strategic and annual performance plans.

Faced with opposition from businesses to the conciliation approach, the NCC’s strategy was now to shift the responsibility for conciliations to the relevant industry bodies through a process of accreditation of ombud schemes. Provincial consumer protection authorities would be approached to prepare to deal with consumer disputes which arose within their provinces, and industry would be advised that the Commission would cease with conciliations incrementally until the conciliation mechanisms were operational. This approach would ensure that the NCC was fully adhering to CPA policies, diverting consumers from approaching the NCC as a forum of first instance, thereby alleviating the complaints burden and allowing it to use its resources appropriately.

Staff had identified 14 weaknesses in the Commission’s operations. The first of these was inadequate information and communications technology (ICT) systems. This was being addressed by the procurement of a web site and computers, as more than 30 of the NCC’s computers had been stolen. It was also hoped to obtain a call centre within the next six weeks. The human resources situation presented serious challenges, and additional funding was being sought to cater for the increased requirements. Other weaknesses were its internal and external communications, job descriptions, lack of clear processes, inaccessibility of the NCC to consumers, skills and capacity building, high work load, working in silos, leadership continuity, low work output, low staff morale, differing interpretations of the CPA, and a poor reputation and negative publicity.

The strategic objectives of the Commission over the next five years would be to promote compliance with the CPA, and to be a well governed and capacitated organisation. Details of the targets linked to these objectives were outlined in the presentation.

Mr Kgabo Mantsho, Chief Financial Officer, said the budget allocation from the Department of Trade and Industry (dti) for 2013/14 was R44.8m, an 8% increase over the previous year, although it was noted that the dti had provided an additional R6.7m to enable the NCC to meet its expenses. In the current budget, some of the costs had been reduced, not because it was anticipated that the costs would actually be lower, but because of the constraints of the allocation, and in the hope that the dti could be motivated to allocate more funds.

Discussion
Mr G Hill-Lewis (DA) asked whether the revised approach meant the Commission was phasing out conciliations and moving straight from the point of complaints, into investigations. If this was not the case, he was the concerned that the NCC would simply become a post box, referring all complaints to the ombuds or provinces. One of the NCC’s targets was to register and analyse 50% of complaints received within eight days of receipt, inferring that the other 50% would be referred. How would one know the complaint could be referred if it had not been analysed? Surely 100% of all complaints had to be analysed? Who did the NCC refer complaints to, as there was a dire lack of accredited consumer protection agencies? It would be useful to provide the contact details of accredited ombudsmen so that small-level complaints could be directed to them.

Mr A Alberts (FF+) expressed concern over the Commission’s budget limitations, and suggested that the government should look more sympathetically at the entity’s position, bearing in mind the amount of work it had to carry out. A particular problem requiring the CNN’s attention was the activities of vacation clubs, which were increasingly approaching gullible groups of people with promises of “heaven and earth” holidays. They were now targeting the up-and-coming black market and offering them products which they could not afford. This should become a priority issue for the Commission.

Ms S van der Merwe (ANC) thanked the Acting Commissioner and his staff for stabilising the situation at the NCC, but warned that the Commission needed to get its ICT structures “up and running” to compensate for its shortage of personnel. She also asked whether differences in interpretation of the CPA applied to the Commission’s staff.

Mr G McIntosh (COPE) said he sensed an “extreme twitchiness” on the part of the dti towards the NCC. A good law had been passed, but what had happened since then had not been successful. To their credit, the dti had recognised the situation and was trying to rectify it. He was astonished that 80% of complaints related to the furniture and motor industries, and wondered what the actual number of complaints was. When would the conciliation mechanisms become operational? In the light of employee problems, was the National Education, Health and Allied Workers Union (Nehawu) – an “octopus” whose tentacles went all over the dti – involved? How was the “discretionary” additional amount of R6.7m allocated to the NCC dealt with administratively in terms of the Public Finance Management Act (PFMA)? He suggested that because there was a certain embarrassment about the use of the word “consultant”, even though there were circumstances where it was sensible to use them, it would therefore be better to refer to them as “service providers.”

Mr G Selau (ANC) said the weaknesses in areas such as communication and information technology were all linked to human resource issues, and suggested that consultants being employed to deal with communication and IT matters should be encouraged to address these issues as well. It had been said that it was the responsibility of industry to develop industry codes for accreditation, but did the NCC have the authority to compel them to do this if they did not come forward themselves? He also queried the rationale behind some of the reductions in budget allocations.

The Acting Chairperson asked whether the Commission’s organogram was representative of the country’s racial diversity. In engaging with industry, it was critical that the NCC did not adopt an adversarial relationship, and rather conduct strategic discussions with sectors such as the motor and communication industries, emphasising the need to keep consumers happy. He was worried that only 30% of the posts in the organogram had been filled, and as expectations for the NCC were high, it was important for the dti to find a solution to what was a very serious problem.

Ms Prudence Moilwa, NCC Head of Enforcement, said the Commission had had to revise its standard operating procedures in order to improve its communications with consumers. Regarding the analysis of complaints, it was correct that the Commission had to analyse all complaints before it could decide whether to refer them or not. It was projected that it would be able to analyse at least 50% of the applications within eight days – some would take less time, and some would take longer.

It was also correct that the NCC should be able to project when it would be phasing out the reconciliation process. However, this was a new development and the strategy was to empower those organisations recognised in terms of the CPA and ensure they were able to handle complaints.

She agreed that the 80% level of complaints involving the motor and furniture industries was high, and said the Commission was working with them to ensure they were capacitated to provide consumers with the type of redress that was expected in terms of the CPA.

As far as the “vacation clubs” were concerned, the screening committee of the NCC had recommended an investigation against various clubs where practices contrary to the spirit of the CPA had been identified. It was hoped this matter would be dealt with within the next three to four months.

Mr Mohamed said that the entity had discussed the Commission’s ICT challenges with the Auditor General (AG), who had advised that a deviation would be allowed in order for the urgently needed call centre to be established. This would eliminate a source of frustration among consumers, who could not currently get through to the NCC.

Mr Babs Kuljeeth, Office of the Commissioner, said the incremental approach to phasing out conciliations depended primarily on how quickly ombuds schemes could be accredited. It was expected that at least two ombuds schemes might be accredited within the next few months. The Commission would continue to assist consumers seeking redress who were willing to sit around a table and resolve matters.

The entire organisation abided by the Commission’s interpretation of the CPA. Differences in interpretation came from industry and other stakeholders. It should be borne in mind that the CPA was a new Act, and there were no precedents, so there was quite a long way to go before certain interpretations were finalised.

Nehawu was “alive and well” in the NCC. Union activity was encouraged, as it was important for employees to have their rights protected. There was no agreement with Nehawu yet, but discussions were in progress.

Mr Mohamed said that there had unfortunately been no changes in the Commission’s demographic composition over the past year, as no new appointments had been made. New appointments would be made in due course and a report would be made to the Committee.

Mr Mantsho said that if a code was required for a particular industry, and the industry itself did not make a submission, the CPA made provision for the Minister to impose a code, and the NCC would normally draft a code for the Minister to consider.

He conceded that reducing the budget for legal costs meant that the Commission would not be able to meet its expenses. This was why there would be a meeting with all divisions to create an ideal budget and identify what extra funds were needed.

Ms Jodi Scholtz, Group Chief Operating Officer of the dti, said the Minister was aware of the challenges facing the NCC, and was not trying to hide them from the Committee. He had put in a plan of action to look at the backlogs and review the strategies. Most of the issues were being addressed and a dti team was working with, and assisting, the Commission. However, there were government processes that had to be followed when dealing with finances, and this had been done. She wanted to put on record that Nehawu was a very good partner, and while discussions had been robust in certain areas, the union had been instrumental in identifying human resources problems that needed to be addressed. The NCC’s new approach of looking at partnerships and working with the provinces, was correct.

Mr Kumaran Naidoo, Chief Financial Officer, dti, said that the Commission had to date been unable to motivate a proper budget to the Department, despite staff and expertise being made available on numerous occasions. This had led to the dti making funds available only for expenses that were necessary. The reason for the current expenditure being reduced was that it was being done correctly, and there was proper accountability. Unfortunately, when the new Acting Commissioner assumed office last September, the Medium Term Expenditure Framework was being finalised, and there had been no motivation for additional budgets. However, if the NCC required extra funds, these would have to be found within the dti’s own savings. The dti believed the Commission needed extra budget, but this needed to be properly motivated.

Companies and Intellectual Property Commission (CIPC)
Ms Astrid Ludin, Commissioner: Companies and Intellectual Property Commission (CIPC), said that after meetings with the National Treasury and the Auditor General, adjustments had been made to the strategic and annual performance plans. The presentation would focus on the key performance indicators and targets, which were conservative, following the advice of the AG.

The organisation was almost two years old, and during this period a lot of preparatory work had been done, reviewing the workings and structure of the Commission, which would bear fruit in the near future. Key projects which would start as early as next month included e-filing on the intellectual property side, as well as the “FNB project”, which would provide a service of registering a company at the same time it opened a banking account for its customer – a process which could take only 24 hours. This was a South African innovation which was unique in the world.

The structure of the organisation, particularly the functioning and service delivery model, had been reviewed. This had led to resources being moved to allow for more telephonic, rather than face-to-face, contact with customers. Three new offices were planned – in Sunnyside, Soweto and Cape Town – with a view to facilitating electronic transactions and helping people to complete registrations on-line. A fax and scan service had also been launched, and this was having a big impact on the number of applications being received and the improvement in turnaround times. Two other projects were data cleansing, to improve the integrity of the CIPC’s records, and the opening of a call centre. It was hoped to roll the call centre out in January, but the licences had not become available until March, and it was now expected to take off in May.

Ms Rialda Williams, Senior Manager, Organisational Performance, CIPC, said that while the Commission’s strategy had been updated, the policies remained the same. It had been agreed with the Minister that there would be four strategic focus areas. These were to increase the reliability and integrity of the information in the database, to improve the relevance and value of the Commission to its customers, to enhance the ease of transacting with the Commission, and to demonstrate the CIPC’s economic impact.

She explained that the FNB project was a pilot scheme so that it could be thoroughly tested. However, all the other banks had been invited to participate in the project, and they seemed quite keen, provided they could develop systems which were compatible with those of the CIPC.

The Commission’s three strategic goals were to improve the competitiveness of the local economy by enhancing the reputation of South African businesses and the business environment, to contribute to a knowledge-based economy and competitive local industries by promoting innovation, creativity and indigenous cultural expression, and to promote broader formal economic participation by enhancing service delivery and extending the reach of the CIPC.

Major emphasis would be placed on providing easy access to credible, reliable and relevant information and advice, with a 90% website availability and 50% of calls being answered in the current year, rising to 95% in both areas by 2015/16. There were now 70 “volunteers” in the organisation handling calls for a set period between 09h00 and 11h00, during which period it had been agreed that no meetings would be scheduled. If each volunteer handled five calls an hour, it was estimated the answer rate would reach 80%.

Ms Ludin said there had been an engagement with National Treasury (NT) over the development of a ten-year projection and a sustainability framework for the organisation, so there may be some adjustments to the budget later in the year. The CIPC was a fully self-funding operation, so there was no appropriation from the national budget, and the concern was over how the operating surplus would be used in relation to operating expenditure. It was expected that expenditure would increase as the new structure was implemented and additional staff were recruited. As a service delivery organisation, employees were the main cost. It was also planned to spend about R35m on IT in the current year, and R20m on the intellectual property system. Modernisation would take place incrementally over the next five years.

Discussion
Ms Van der Merwe commented that it was essential for the CIPC to make it easier for businesses to register. Just one missed call was 100% wrong! For this reason, she did not agree with the AG’s advice that the Commission should set conservative targets.

Mr McIntosh said he was very excited to hear about the use of volunteers to handle telephone calls, as this demonstrated a fine esprit de corps. He asked whether there were plans to include trusts in the register, and wanted to know what the difference was between filing and registration. Was the rapidly increasing use of “smart phones” a factor in CIPC dealings?

Dr W James (DA) asked whether there were plans to introduce a “one-stop shop” to ease the registration process. He also wanted to know how many businesses were being de-registered.

The Acting Chairperson asked whether CIPC certification covered Black Economic Empowerment (BEE) and labour issues. He then commended the Commission for the work it was doing, pointing out that the International Monetary Fund (IMF) and World Bank had ranked South Africa 35^th in the world for “ease of doing business”, and tenth for the protection of investors. These were achievements that needed to be broadcast so that people appreciated the good things that were being done in the country.

Ms Ludin said she agreed that every call should be answered, but the CIPC needed to be realistic about what it would be able to achieve. It would not happen overnight, as it involved a change in organisational culture and the way the organisation functioned. The goal was to over-perform in the current year.

Regarding trusts, there had been a project between Statistics SA, SARS, the dti, National Treasury and the CIPC for quite a long time, and over the years the aim of the project had changed. Regular meetings over the past six months with SARS had resulted in the Commission clarifying what it wanted to achieve. Now concrete plans had to be developed, and these would take about 18 months to be implemented. SARS was keen to bring trusts into the broader framework, involving the Department of Home Affairs, the CIPC, the Master of the Courts (responsible for trusts) and SARS. The idea was to have high-speed links between the entities to exchange data, and while this would not be a one-stop shop, it would provide an integrated service which would be rolled out incrementally, resulting in improved compliance and greater information verification.

She explained that when an application was filed, it was registered only after it had been validated and approved.

Ms Williams said the percentage of South Africans who had “smart phones” was quite high, and the CIPC believed it could do much more with them than it was currently doing. An employee had used her phone as a “mystery shopper”, and within a 24-hour period had been able to register a company by taking a copy of her ID document and her registration forms, and sending them through. Increased use of smart phones would help to bridge the digital divide.

Ms Ludin said about 110 000 companies and close corporations had been de-registered in January, and a further 300 000 would be de-registered by June. These were basically all entities that had been delinquent since May 2011. However, the Commission did not have accurate figures of voluntary de-registrations because this was not being done on a continuous basis currently. Once the bulk de-registrations were completed, voluntary de-registrations would be dealt with on a monthly basis.

Regarding the compliance certificate, this had not been easy to implement, taking into account the data available to the Commission. This year the focus would be on one component – annual return compliance. Next year, the emphasis would be on financial statement submission compliance.

Mr Selau asked if there were differences in the compliance requirements for big and small companies, such as cooperatives, and were informal businesses such as hawkers and township liquor outlets required to register?

Dr James asked if de-registration figures would provide an indication of the state of business sustainability.

Ms Ludin said the only distinction between big and small companies on annual returns compliance was in the financial statement requirements. For small companies, only basic details – such as updating contact details and providing a turnover figure – were needed. This was essentially a way of establishing whether an entity was active or not. Cooperatives were registered by CIPC and compliance was monitored. Last year, the number of cooperatives registered had doubled, but because there were so many members it was not easy to register them electronically. It was up to entities in the informal sector to decide whether they wished to formalise their businesses or not, but the dti was looking at legislation to register all businesses.

It was hard to assess how sustainable business was, based on de-registration figures. One needed to know where economic activity was taking place, and the CIPC register did not provide an accurate reflection of underlying economic activity.

Export Credit Insurance Corporation (ECIC)
Mr Mandisi Nkuhlu, Acting CEO of the ECIC, said its role was to facilitate export trade and cross-border investments between South Africa and the rest of the world by underwriting export credit loans and investments outside the country. This enabled South African contractors to win capital goods and services contracts in other countries.

The economic slump in the European Union and United States highlighted the strategic importance of facilitating South African exports and investments into new markets. The African continent had also become more competitive, with many other international players seeking to take advantage of its growth opportunities. Africa was proving a challenging environment in which to operate, with acts of political violence, terrorism, piracy and wars continuing to plague a number of countries. Most of what was produced in Africa was consumed overseas, so to strengthen intra-African trade, one had to address the existing shortcomings through infrastructure development – roads, rail and ports – combined with efficient border management and better regulation. Improved collaboration among BRICS countries presented new opportunities for value-added exports.

One of South Africa’s competitive advantages on the continent was ECIC’s capacity to underwrite large transaction exposures on a long-term basis. Being based in Africa, it had a better understanding of the environment and a higher risk appetite. Because of its government backing, banks were comfortable with buying ECIC insurance.

The ECIC was working in partnership with the Industrial Development Corporation to offer performance bond insurance to small, medium and micro enterprise (SMME) exporters. Special insurance products were offered for boat-builders.

A study conducted by KPMG, covering a six-year period from 2005 to 2010, showed that ECIC had generated a R7.8bn impact on South Africa’s gross domestic product at a cost of R900m – a net benefit of R6.9bn. Over the next three years, the corporation would be looking for substantial growth and diversification in its insurance portfolio, and the significant rise in supported exports and cross-border investments would result in a positive economic impact and local job creation. Growth would be driven mainly by infrastructure projects. ECIC would also raise its profile among BEE exporters so that they could take advantage of the BEE policy incentives.

The National Development Plan (NDP) anticipated that intra-regional trade in southern Africa should increase from 7% of trade, to 25% by 2030, while South Africa’s trade with regional neighbours should rise from 15% to 30%. This meant strategic alliances were needed to build mutually beneficial local, regional and global relations to advance South Africa’s trade and economic development objectives. The corporation was committed to working towards a prosperous and equitable South Africa, a better Africa, and a better world.

Discussion
Mr Alberts said that in aligning itself with the goals of the NDP, the ECIC had indicated it had a role to play in protecting human rights. How would it fulfil this role in Africa?

Mr McIntosh asked for confirmation that Credit Guarantee provided only internal insurance, while ECIC provided insurance only outside the borders of the Republic. The presentation had not listed the corporation’s bad debts, and he was interested to know how efficient it was against an international benchmark. Did ECIC provide insurance for agricultural investments? Had the investments of any South African companies in the Central African Republic been insured by ECIC?

Mr N Gcwabaza (ANC) asked whether ECIC had encountered any fraudulent claims and, if so, how had it dealt with it?

Mr Selau asked what potential existed for ECIC to grow through the impact of BRICS.

The Acting Chairperson referred to ECIC advocacy strategy, and asked how it reached out to businesses. Did its sponsorship of maths and science academies or Saturday schools, as part of its corporate social investment, reach into South Africa’s rural areas?

Mr Nkuhlu responded that ECIC had on its own initiative adopted a set of international standards for best business practices for financial institutions, which bound signatories to adhere to many standards, including human rights. It was also abiding by anti-corruption and anti-bribery conventions. The corporation imposed a condition on those it supported, to abide by these standards.

He confirmed that Credit Guarantee was mainly involved in short-term insurance in the domestic market.

ECIC had inherited a lot of claims in 2001, but because these were being paid out over a long period, there was no strain on the organisation’s cash flow. The amount involved represented less than 10% of the premiums generated.

Support was provided for agricultural investments. There were sugar, bio-fuels and banana projects in African countries which were supported by ECIC.

ECIC had no exposure in the Central African Republic.

Regarding potential fraud, a lot of due diligence went into ECIC transactions. This meant there was a thorough investigation, as well as collaboration with the banks. There was always potential for corruption, but if this was identified, the policy would lapse and the matter handed over to the authorities.

Mr Nkuhlu agreed that the BRICS situation provided an opportunity for collaboration to the benefit of South Africa, but pointed out that it also opened the door for increased competition.

He conceded that advocacy had been a weakness of the organisation, and the need for ECIC to intensify its marketing activities had been identified.

At present, the support for Saturday schools was focussed on two areas in the north of the country, but the intention was to roll out the programme to the provinces and the rural areas.

The Acting Chairperson congratulated ECIC on the quality of its presentation and responses, but reiterated the need for increased advocacy and involvement in the rural areas.

The meeting was closed.