Department of Economic Development on its Annual Report for 2012/13, with Deputy Minister

NCOP Economic and Business Development

04 November 2013
Chairperson: Mr F Adams (ANC; Western Cape)
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Meeting Summary

The Economic Development Department (the Department) briefed the Committee on its Annual Report for the 2012/13 financial year.
Some of the Department’s highlights were that the country's annual employment grew by 199 000 new jobs. Total employment was 13.6 million, of which 5.9 million were jobs for women and 5.7 million were held by the youth.  Annual gross domestic product (GDP) growth had been R240bn, infrastructure spending was estimated at R204bn, manufacturing production had grown by R14bn, and agricultural production by R7.6bn.  It was expected that R1 trillion would be spent on infrastructure in the 2012/13 financial year.  Sixteen Strategic Infrastructure Projects (SIPs) had been formally launched. The SIPs covered social and economic infrastructure across all nine provinces, with an emphasis on poor regions.
The Industrial Development Corporation (IDC) had co-funded a number of strategic industries across the Eastern Cape, Northern Cape, KwaZulu Natal and Limpopo.  Government’s efforts to support small business had been realised in the first year of the Small Enterprise Finance Agency's (Sefa’s) establishment.  According to Sefa’s records, 47 000 Small to Medium Enterprises (SMEs) were assisted, and these maintained 53 700 jobs.

The EDD had obtained an unqualified audit report, with one emphasis of matter relating to the restatement of corresponding figures.  Overall, the Department had set 42 targets and of these, 19 had been exceeded, 22 targets had been met, and one target had been under-achieved. The annual budget was R 696.5m, and 96.7% had been spent. This was an improvement from the department’s 2011/12 spending, where only 96.5% had been spent.
Members asked how the department was contributing to economic development within the country while there was still an increase in social dependence through social grants.  Why was the Department saving on compensation of employee costs, when there were clearly still vacancies and skills shortages which needed to be addressed?  Where did the Department get money for its unfunded posts? Of the jobs created through the Presidential Infrastructure Coordination Committee (PICC), how many were sustainable?  What was the role of the National Economic Development and Labour Council (Nedlac) with regard to economic development?  The significant increase in advertising and consultancy costs also came under scrutiny.

 

Meeting report

Briefing by Department of Economic Development (EDD)on its 2012/13 Annual Report
Professor Hlengiwe Mkhize, Deputy Minister: Economic Development Department, said the Department’s strategic oriented goals were to promote decent work through meaningful economic transformation and inclusive growth, and to provide participatory, coherent and coordinated economic policy, planning and dialogue for the benefit of all citizens. The strategic role of the department was to implement the National Growth Path (NGP) 2010 by developing strategies and implementing plans in cooperation with relevant government departments and agencies.

Some of the Department’s highlights were that annual employment grew by 199 000 new jobs. Total employment was 13.6 million, of which 5.9 million were jobs for women and 5.7 million were held by the youth.  Annual gross domestic product (GDP) growth had been R240bn, infrastructure spending was estimated at R204bn, manufacturing production had grown by R14bn, and agricultural production by R7.6bn.  It was expected that R1 trillion would be spent on infrastructure in the 2012/13 financial year. Sixteen Strategic Infrastructure Projects (SIPs) had been formally launched. The SIPs covered social and economic infrastructure across all nine provinces, with an emphasis on poor regions.

The Industrial Development Corporation (IDC) had approved funding to the value of R13.1 billion, while disbursements amounted to R15.9 billion. The IDC had co-funded a number of strategic industries across the Eastern Cape, Northern Cape, KwaZulu Natal and Limpopo.  Government’s efforts to support small business had been realised in the first year of the Small Enterprise Finance Agency's (Sefa’s) establishment.  According to Sefa’s records, 47 000 Small to Medium Enterprises (SMEs) were assisted and these maintained 53 700 jobs.

With regard to capacity building, the Department had developed a virtual Economic Development Institute capacity, which in its first phase referred to major research projects undertaken in collaboration with various experts. The Department had also entered into a partnership agreement with the University of Johannesburg to develop the technical capacity of regulatory bodies. In addition, it had also worked with a task team from the Human Resources Development Council of South Africa to align skills planning with the NGP.

The EDD had obtained an unqualified audit report, with one emphasis of matter relating to the restatement of corresponding figures.  Internal audit had reviewed evidence for adequacy, as per the audit coverage plan. 

Ms Jennifer Schreiner, Director-General, EDD, said her part of the presentation would be dealing with the Annual Report in more detail.  Overall, the department had set 42 targets and of these, 19 had been exceeded, 22 targets had been met, and one target had been under-achieved.

Ms Semphete Thobejane, Chief Financial Officer, EDD, said in total, the Department had an annual budget of R 696.5m, and 96.7% had been spent. This was an improvement from the department’s 2011/12 spending, where only 96.5% had been spent.

The Department’s programmes per economic classification were as follows:

Compensation of employees (88.2% of the allocation spent); goods and services (84.2%); departmental agencies (100%); universities and technikons (100%); public corporations (100%); households (99.6%); and machinery and equipment (32.8%).

The reasons for the department’s under-expenditure largely related to:-

-  Compensation of employees (R8million), due to vacancies during the year and at financial year end;

-  Goods and services (R11million), which was largely related to R20m that was allocated during the adjustments estimate process for capacity building for the economic regulatory bodies;

-  Machinery and equipment (R3.7million), where vacancies and a delay in the procurement of a video conferencing facility largely contributed to this under expenditure

Ms Thobejane said that revenue collection had increased from R593 million in the 2011/12 financial year, to R671 million in the 2012/13 financial year. This was largely due to increases in fines and penalties imposed by the Competition Commission. In total, R 527.7m was transferred to the department’s agencies in the 2012/13 financial year. Of this amount, R 109m was to the Industrial Development Corporation, R 171.3m to the Industrial Development Corporation: Sefa, R157.2m was transferred to the Competition Commission, R15.8m to the Competition Tribunal and R74.4m was transferred to International Trade Administration. She added that R 23m had been transferred to entities and agencies.

Mr Alan Meyer, Acting Chief Director: Corporate Management, EDD, said at the inception of the Department in 2009, 265 posts had been approved. Over the Medium Term Strategic Framework (MTSF) period, the department’s Human Resource Planning Strategy had filled 166 funded posts. The annual target for funded posts in 2011/12 was 129, and this had increased to 142 funded posts in 2012/13. The Department’s recruitment strategy had been prioritised to enable the delivery of targets forecast in the Strategic Plan and Annual Performance Plan. However, difficulties had been encountered around the recruitment of staff with specialised and critical skills, as well as women in senior management positions. The department had achieved 45% of women employed in senior management, and 2% for people with disabilities, against in the national target.  Head hunting strategies would be employed for the recruitment of strategic, specialist and senior level posts.
Discussion
Mr D Gamede (ANC; KwaZulu-Natal) asked why the Department’s achievements had not made any impact towards improving the unemployment percentages within the country. How was the Department contributing to economic development within the country when there was still an increase in social dependence through social grants? On Broad-Based Black Economic Empowerment (BBBEE) and the “inclusive economy,” he asked why no money had been spent on these programmes. How was it possible that 12 targets had been met and exceeded, yet no money had been spent on them?  Why was the department saving on compensation of employee costs when there were clearly still vacancies and skills shortages which needed to be addressed?  On skills training, he asked why the department’s focus was on the University of Witwatersrand and the University of Johannesburg, and not on traditional African universities such as the University of Fort Hare and the University of KwaZulu-Natal, where the demographics there needed the most training and upliftment. Where did the department get money for the unfunded posts?

Mr A Nyambi (ANC; Mpumalanga) said the issues which had been raised by the Auditor-General on the department’s Annual Report should be addressed. It was a serious concern that there was no accurate recording of leave taken by employees – how was the Department addressing this, as per public service regulations?

Ms B Abrahams (DA; Gauteng) said the Department had indicated that they had created a number of jobs throughout the financial year. Why were there still so many people unemployed?  Of the jobs created through the Presidential Infrastructure Coordination Committee (PICC), how many of them were sustainable?   In addition, how sustainable were the jobs created through industrial strategic development?  What problems did the department foresee with regard to head-hunting internally? Was corruption and nepotism not a concern?

Mr K Sinclair (COPE; Northern Cape) asked whether the Economic Development Department was relevant. He argued that instead of making government bigger, it made sense to reduce the number of departments to increase accountability and efficiency. What was the role of the National Economic Development and Labour Council (Nedlac) with regard to economic development? On the accords facilitated and monitored by the department, he said the Mining Accord faced serious challenges.

The Employment Creation Fund supported two projects – why were these not reflected in the Department’s balance sheet? What progress had these projects made to date with regard to employment creation?  Advertising costs for the Department had increased from R341 000 in 2011/12, to over R15 million in 2012/13 – how was this possible? The cost of consultants and outsourced services had increased from R182 000 to about R6 million in the 2012/13 financial year. How would the department explain this?  Of the Department’s political office bearers, who was IA Makgetla? He argued that the Department was involved in many sectors of the economy - what involvement did it have with the Department of Tourism? Tourism was one of the biggest drivers of South Africa’s economy.

Mr B Mnguni (ANC; Free State) asked whether it was as a result of the Department’s poor planning that R20 million in extra funds had been requested, but less had actually been spent. How was the Department advocating for direct international investment into the country?

The Chairperson said that because of time constraints, follow-up questions from Members would be forwarded to the Department in writing. According to the Goldman Sachs Review, economic growth in South Africa had increased from 2002.  The Economic Development Department had been a big player in this improvement. He congratulated the Department on its work.

Professor Mkhize replied, and said the mandate of the EDD was very broad and that in understanding the crises of unemployment, it was closely linked to other developmental challenges which the country was facing. Skills development and transformation, and creating sustainable jobs, were at the core of achieving the mandate of the Department. On the question of why the EDD was partnering with the University of Johannesburg and the University of Witwatersrand, rather than paying more attention to the needs of traditional African universities, she agreed that the greatest need for skills development was indeed in rural communities. The universities in these areas were, however, facing other challenges in terms of capacity building, which needed to be overcome before government could partner with them. These traditional African universities were now building their capacity, according to the Department of Higher Education and Training, and this would be taken into consideration.

The suggestion to partner with the Department of Tourism had been considered. Tourism was one of the biggest drivers of job creation and economic development.  Long-term beneficiation and sustainability were at the core of the Department’s mandate as well. A written response would be given to Mr Sinclair about the question on whether the Department was of any relevance.

Ms Schreiner said the EDD was up to addressing the challenges of unemployment and skills shortages throughout the country. Its capacity had grown over the years.  However, it was still a very young department. The Auditor General’s report had been considered, and all recommendations had been taken seriously. On the additional allocation from last year of R30 million, she said that this had not been money which the Department had requested – it had been allocated through the Medium Term Expenditure Framework(MTEF) process. The area of compensation of employees was not where the Department was looking to generate savings. However it was an area where the department was battling to reach targets. The complexity of the department’s staffing strategy was one which also needed to be taken into consideration. Flexibility with regard to short term employment was a crucial element of the department, when it came to the recruitment of temporary staff for certain projects. On head hunting, she said it followed from an advertised process, and the process was no different from the shortlisting, interview and competency assessment process. A database would be built up in Human Resources.

The Chairperson thanked the Department for the presentation and wished them a wonderful festive season.

The meeting was adjourned.
 

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