Minister & Department of Economic Development on its 2012/13 Annual Report

Meeting report

Introduction by the Acting Chairperson
The Acting Chairperson welcomed the Members of the Committee, the Minister and Deputy Minister of Economic Development and the Director General of the Department of Economic Development. He apologised to the Committee on behalf of the Chairperson, who was attending to other urgent issues, and would join the meeting at a later stage. The purpose of the meeting was to give the Department of Economic Development (EDD) an opportunity to present the non-financial and performance aspects of their Annual Report. He handed over to the Minister of Economic Development, Mr Ebrahim Patel, to introduce the EDD delegation and proceed with the presentation.

Briefing by the Minister of Economic Development
Minister Patel introduced the Deputy Minister of Economic Development, Prof Hlengiwe Mkhize, the Director General, Ms Jennifer Schreiner and the rest of the delegation from the EDD.

Minister Patel told the Committee that the EDD had tabled a copy of its annual report to Parliament and the presentation which was before the Committee was a summary of the report. After outlining the vision, mission and values of the EDD, he told the Committee that the strategic outcome-oriented goals of the EDD included promoting decent work through meaningful economic transformation and inclusive growth; and providing participatory, coherent and coordinated economic policy, planning and dialogue for the benefit of all citizens. Against the background of the policy and legislative mandates of the EDD, he outlined the strategic role of the EDD, and listed the five entities reporting to the Minister of Economic Development. Besides the legislative framework governing the EDD, he noted that the Minister of Economic Development was the head of the Presidential Infrastructure Coordinating Commission (PICC). The EDD had facilitated and monitored six accords -- the Basic Education Accord, National Skills Accord, Local Procurement Accord, Green Economy, October 2012 Social Accord and the Youth Employment Accord.

The EDD provided strategic oversight to its entities in terms of industrial funding, small business, competition and trade. Its policy work was guided by the New Growth Path (NGP), the Industrial Policy Action Plan (IPAP) and the National Development Plan (NDP).

Economy Highlights
Minister Patel told the Committee that annual employment in South Africa had grown by 199 000 new jobs, and that total employment stood at 13.62 million.  The GDP annual growth was R240 billion and the size of the GDP was R3,2 trillion.  Infrastructure spending was R204 billion and year by year investment had grown by R50 billion.  Among performance highlights of the EDD and its agencies, the Committee was told that Industrial Development Corporation (IDC) funding approvals were R13.1 billion and from this amount, R4.4 billion had been allocated to BBBEE companies.  IDC disbursements had increased by 87%, with over 22 872 jobs created and saved through IDC funding.

Minister Patel provided figures indicating the performance in terms of penalties imposed by the Competition Commission, mergers, accords, staff increases, jobs on PICC projects, PICC monitored infrastructure projects and ITAC tariff increases.

The Committee was presented with the details of the national infrastructure plan highlights, social pacts for the New Growth Path, with the Minister speaking of practical examples in the taxi assembly factory in Springs, and a state-of-the-art soya bean crushing plant in Mpumalanga.

Highlights of Entities’ Performance
The IDC approved funding to the value of R13.1 billion, while disbursements amounted to R15.9 billion. This was an increase of 87%, and enhanced industrialization, local manufacturing, job saving and creation. Improved alignment of state efforts to support small businesses was realised in the first year of the Small Enterprise Finance Agency’s (SEFA’s) operation, doubling the value of approved funding from its predecessors in 2011/12.  According to SEFA records, 47 000 small, medium and micro enterprises (SMMEs) were assisted, maintaining 53 700 jobs.

Competition authorities had launched a comprehensive investigation into collusive behavior in key sectors such as construction, infrastructure and telecommunications, leading to penalties worth R1.4 billion against colluders in the construction and infrastructure sector, and R650 million in the telecommunications sector. The Competition Appeals Court judgment in the Walmart-Massmart settlement had raised the public profile and interest in the role of jobs and local industrial capacity in mergers and acquisitions. The settlement in this matter had led to the establishment of a R240 million fund to support local suppliers. The International Trade Administration Commission (ITAC) had conducted 55 tariff investigations, aiding domestic competitiveness in goods such as set-top boxes, windscreens, taps, television antennas and frozen chicken.

Minister Patel explained the EDD’s strategic support for industrial development, citing the example of the Atlantis Industrial Recovery programme. He further provided details on the building capacity in relation to the economy, and economic recovery.

2012/13 Performance Overview
In terms of the overall performance levels and targets, the EDD had a total of 42 targets. The Department had exceeded 19 of these targets and had met 22. Only one target had been under-achieved. The Committee was presented with the overall performance per programme, outlining the total number of targets, targets exceeded, targets met and targets under-achieved.

Minister Patel handed over to the Director General of the Department, Ms Jennifer Schreiner to brief the Committee on the operational aspects of the EDD contained in the annual report.

Ms Schreiner said that for the period under review, the EDD had obtained an unqualified audit report. There was one emphasis of matter relating to the restatement of corresponding figures in the previous year, which arose from an error in administrative interpretation. The Department was committed to addressing the audit issues as a consolidated “heat map”, reflecting all audit issues that had been identified, had been compiled, with responsible persons and timeframes to rectify the issues. Biweekly meetings to track progress on implementation of mitigation plans were being held. There was an internal audit to review evidence for adequacy, as per the audit coverage plan.

Ms Schreiner outlined the measures, steps and activities carried out by the Minister, the Deputy Minister and the Department in relation to the four programmes of the EDD -- Administration; Economic Policy Development; Economic Planning and Coordination; and Economic Development and Social Dialogue.

Discussion
The Acting Chairperson welcomed the Chairperson of the Committee, Ms E Coleman who had joined the meeting, and handed over the presiding of the meeting to her.

The Chairperson acknowledged that the presentation was very thorough and was a good summary of the entire annual report. She called on Members to pose questions and comments on the presentation, bearing in mind that the annual report was also a reference point which included many of the answers. The EDD was going to be presenting to the Committee again in the coming week on their financial performance, so questions had to be limited to the non-financial performance issues.

Mr S Mohai (ANC) noted that one of the values of the EDD was the promotion of decent jobs and in this light, there was the good performance of the creation of almost 200 000 jobs in the year under review. Was the Minister satisfied with the current situation across all the nine provinces in terms of the delivery of decent jobs?

Mr X Mabasa (ANC) congratulated the Department on getting an unqualified audit opinion. As a relatively new Department, it was greatly appreciated that they could get such an audit opinion from the Auditor-General. He asked the Minister to expand on the issue of infrastructure development having the capacity to unlock the other areas which had potential economic value, especially in the area of productivity. He hoped that South Africa could come to a stage where it could produce all its own taxis and buses. He was appreciative, however, of the endeavors made where 38% of the taxi components were manufactured in the country and buses were assembled locally. These were achievements which had to be seen as successes for Southern Africa and Africa as a whole.

Mr Mabasa commented that in a number of areas, the Minister had made reference to SMMEs, but they were not associated with cooperatives. He was saying this, because if the country failed to group SMMEs with cooperatives, an unintended message was going to be given to the industry that SMMEs had to operate in isolation from cooperatives. He asked how the EDD was working towards marrying their achievements to the SA Bureau of Standards (SABS), as all Departments had to grow and alongside the growth, there had to be the development of SABS because there was a need for more rapid economic growth. This was not directed only towards the EDD, but to all government Departments and entities. The SABS was supposed to be placed at the centre of development.

Ms D Chili (ANC) asked why nothing was said about people with disabilities. She remarked that there were many rural areas where the locals still consumed drinking water from the rain and running streams and rivers. This was unacceptable. She asked if there was nothing which the EDD could do to redress this situation.

Mr M Hlengwa (IFP) asked if the 199 000 jobs referred to by the Minister were new jobs created or jobs recovered from the recent economic hardships. In terms of the social pacts for the NGP, there was a lot which still remained to be done on basic education. He asked if the education system of the country was producing people who were qualified and competent for the job market. There could be a high matric pass rate, but the big question was whether these people could take up the relevant jobs. There was an argument that it was not a question of no jobs, but a situation that there were no skills for the jobs available. How was the EDD working in this regard?  On the Walmart-Massmart settlement, was the EDD satisfied that the settlement and establishment of the fund -- with the terms and conditions that were arrived at -- were adequate?  What lessons had been learnt from the whole situation?

Ms D Tsotetsi (ANC) said that many of her questions were related to financial issues so she was going to ask them during the meeting to discuss financial performance. She also noted that many of the questions being asked by Members were in the annual report itself. On the aspect of capacity-building workshops, what was the EDD doing in particular to assist in the training of its staff.  What was the area of focus of the capacity-building workshops?   Many of the aspects which had previously been raised by the Committee had been addressed by the EDD, and that was very impressive.

Mr Ntuli asked how the EDD handled cooperation between the provinces and municipalities, and the extent of resistance to the work of the EDD. He was asking this because the Department was new and the municipalities had local economic development strategies. Was there any resistance and how good was the cooperation?  There were accusations of the transgressing of turf by other Departments -- how was the Department handling such issues?  Had the Youth Employment Accord been signed by all the youth formations in the country?

Responses
Minister Patel informed the Committee that the Deputy Minister was going to answer most of the questions and he and the Director General would add to any remaining questions.

Deputy Minister Mkizhe said she was going to make a general statement which would cover many of the questions and issues raised. It was important to appreciate the difficulty in capturing the annual report in just a few slides, as many of the answers were in the report.

On the question of skills for the economy and the relevance of the educational system, she responded that in the operations of the EDD, a lot had been learnt about the kind of skills required for the development of the country. The EDD took part in the Human Resource Development Council and there was extensive dialogue about the need for critical skills. There was a bigger story to be told about the development outcomes of the EDD.

The aspect of SMMEs and cooperatives had always been one of the objectives of the government, and through the NGP policy there had been an awakening in terms of an understanding that cooperatives did not mean a far-removed entity. They were an entry point for people who had been excluded, but with a clear view and knowledge of their position within the value chain, and for that reason it was important to always locate cooperatives within the value chain. This was currently being done through partnerships with the private sector and the servicing of the industries within which they were located.

On the issue of the inclusion of people with disabilities, the EDD had visited factories which were established specifically to target disabled people and provide them with an opportunity to supply specific industries. There was one such factory in the Western Cape and another in KwaZulu-Natal.

On the issue of the supply of water, she said that the Minister could tell a story about the huge budget which was being directed towards the supply of water infrastructure.

Deputy Minister Mkhize said that there was some sort of a revolution, where people who had been comfortable with the social wage were now interested in getting gainful employment and becoming economically active. Government had to use this trend to encourage the entrepreneurial spirit and to find a way to make sure that the school system assisted in this regard.

Minister Patel said that he was going to respond to the questions in the order in which they had been asked, excluding those responded to by the Deputy Minister.

On the question asked by Mr Mohia about his satisfaction with the situation in the nine provinces, it was important to note that seven of the nine provinces had registered positive job growths during the year under review. One of the provinces had no growth at all and another province had actually lost jobs. Looking at the data, the top performing provinces were Limpopo and Mpumalanga, with 57 000 new jobs each. Gauteng was second on the list with 44 000 new jobs created. The Eastern Cape came third with 33 000 jobs, the North West had 27 000 jobs, the Free State had 17 000 additional jobs and in sixth place was KZN with just over 1000 new jobs. The Northern Cape had no new jobs and the Western Cape had actually lost 37 000 jobs in the past 12 months.

On the issue of cooperatives, Minister Patel added that in the quarter from April to June 2013, SEFA’s loans to cooperatives stood at 2 920 transactions. These were either direct or through intermediaries. A total of R25.8 million had been disbursed and about 8 000 jobs created. The average loan size was about R8 000 to R9 000. The EDD was increasing the loans to cooperatives, but money was only one element. It was important to build the business skills among cooperatives and their members in a sustainable manner. The EDD was working with the Department of Trade and Industry (Dti) in this regard. The importance of cooperatives could not be overemphasized.

The Chairperson said that the Minister was actually identifying the challenge, and it was important to follow up progress in this regard in the various provinces.

The Minister said that the EDD was providing the funding, while the Dti was providing the technical support. The Dti was looking at establishing a cooperative academy to build hard core business skills among the cooperatives and their members.        

With regard to marrying the work of the EDD with the SABS, the point made by Mr Mabasa was very good.  If a business was to be sustainable, it had to give its customers a value proposition and the SABS helped to support the growth of quality production. It was important to make sure that people considered South African goods as quality goods. South Africa could not compete in terms of prices with many goods in the global market, but it could definitely improve its quality. This was exemplified in the solar water heater projects, where the quality of the heaters was impeccable.

On the questions of water supply to rural communities, the Minister said he had visited a local community in the Mthatha District Municipality, and there was a new school which did not have access to water. The surrounding community and all sanitation projects did not have access to water either.  After a brief investigation, he had found out that the money had been set aside, the area had been prioritised and a tender published and awarded. One of the loosing companies had taken the matter for a review in the courts, and the case had now been stuck for a long time in the legal process. The EDD was finding many of these kinds of situations around the country, and it was one of many challenges to rolling out water to rural areas. In many other cases, there were challenges related to dams. Many dams were now being opened around the country to tackle this problem. The EDD was in agreement with the Committee that the rolling out of water to rural communities was very essential and a top priority.

Regarding the breakdown of the 199 000 jobs asked by Mr Hlengwa, the EDD had noticed that some of the jobs lost in the past were not going to be recovered.  Economies were dynamic so it was hard to recover jobs which had already been lost and written off. The 199 000 new jobs were based on a year-on-year analysis. The statistical system classified the job creation by industry, so the EDD could point to which sectors had performed well. During the period under review, agriculture was the best performing sector. However, it was not possible to do a one-on-one mapping exercise to identify which jobs were had been lost and regained. The EDD was, however, keeping its eye on recovering not only production, but also the job numbers in the economy.

With regard to the education issue, the EDD recognized that skills and infrastructure were two of the biggest challenges to sustainable long term growth, social inclusion and job creation. There was a need to do more on basic education and skills enhancement.  Government was beginning to get the post-schooling structure right by expanding FET colleges. There was a need to improve on quality, so that the diplomas and certificates were of value in the market place.

In terms of the Walmart settlement, it was important to note that when the company had made known its intention to enter the South African market, the government had correctly pointed to the impact on the local industry and jobs. The case allowed the government to develop a new jurisprudence, where the courts applied their minds to a new to look at the public interest considerations in the Competition Act. When Parliament had passed that law, it gave effect to the reality that employment was one of South Africa’s most burning challenges. The competition authorities did not have guidance on how to apply the law in practical situations. After due process, Walmart was compelled to re-instate about 500 workers who were retrenched and also to set up a supplier development fund of R200 million. It was important to note that the R40 million which the company had already spent on supplier development was not to be subtracted from the fund. This meant that the total amount set aside for supplier development was about R240 million. The lesson for South Africa was that it was important for government to look after the interests of South Africans. After the court decision, the government had been vindicated and a precedent had been set in this regard. The EDD saw the settlement as a workable basis moving forward, but it required the company to operate in the spirit, and not just the letter, of the law. The EDD was going to receive a report from the committee monitoring the compliance of the company and once such a report was received, he was going to make a public statement on the matter.

On the question relating to capacity-building workshops, the topics ranged widely. Examples of the topics included the definition of jobs, training on matters like small business payments, policy frameworks of government, and the implementation of an accord. On the quality of the workshops, he did not doubt that they were of some value, but there was a need for a system to evaluate the impact of the training. This would not only measure the number of workshops and participants, but also the impact. As the EDD was stabilizing and becoming less of a young department, more effort was going to go into quality.

In terms of cooperation between the three spheres of government, the experience of the EDD was that when there was an alignment process, people were always excited, worried and finally they recognised that their own work became better through the alignment. This always resulted in great cooperation. The most advanced example was with the PICC, where the integration across the three spheres of government was better than most other policy areas. There was mostly the alignment of documentation, but not practical plans. There were good successes to celebrate, but there was still a long way to go.

The Chairperson thanked the Minister, the Deputy Minister, the Director General and the entire EDD for the great improvement in the Department. The Committee had noted with great delight that the EDD was very good at taking the recommendations of the Committee and implementing them. She thanked the entire Department for their hard work. The EDD had started on a very doubtful note but with time, the Committee was very proud of the EDD.

The Minister thanked the Committee for their continuous guidance and recommendations, and noted that the EDD looked forward to continue working with the Committee.

The Chairperson reminded members that the Committee was still going to meet with the EDD in the coming week for a briefing on the Department’s financials statements.

The meeting was adjourned.