Diamond and Precious Metals Regulator 2012/2013 Annual Report; State Diamond Trader 2012/2013 Annual Report

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Mineral Resources and Energy

28 February 2014
Chairperson: Ms F Bikani (ANC) (Acting)
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Meeting Summary

The Portfolio Committee met to receive briefings from the State Diamond Trader and the Diamond and Precious Metals Regulator on their 2012/2013 annual reports. The issue was raised that the quantity of diamonds were not preferred for beneficiation in South Africa, it was enquired what was the challenges of beneficiation, and how it was positioned in the global competing environment. The State Diamond Trader noted that the goods not preferred for beneficiation referred to goods that were smaller than three grainers in the rough. The local industry preferred five grainers to 10.8 carats. Goods that were not at gem quality were not desired locally to be manufactured. India was more equipped and capable to cut and polish smaller diamonds. It was asked what the State Diamond Trader was doing in terms of job creation. The State Diamond Trader noted that it offered training opportunities and absorbed the relevant skills in order to strengthen the industry. The State Diamond Trader did not create jobs directly but through its engagement with manufacturers are about to monitor companies and see whether they could provide more jobs. Through exhibitions such as the Hong Kong show, the State Diamond Trader are able to promote South Africa as a beneficiation destination and also invite diamond cutters, polishers and jewellery makers, to promote small enterprises and expose them to markets. 

Members raised questions regarding the issue of personnel being trained by SDT which left for better prospects; it was asked why this occurred and what was being done to correct this matter. The State Diamond Trader highlighted that skills were lost to the mining industry, they did not move to jewellery making. People left due to an increase in their salary which the State Diamond Trader could not compete with. It was expensive to train individuals, as the State Diamond Trader appeared to be training for other departments. Through its retention strategy the issue of employees leaving could be addressed, but this may serve to keep employees loyal to the State Diamond Trader only because they would get more money.

The Committee asked whether the Kimberly Process Certification Scheme would not benefit the performance of the State Diamond Trader. The State Diamond Trader traded locally and did not export. The Kimberly Process Certification Scheme has positively impacted the diamond trade, to make it cleaner and in line with best practices. The State Diamond Trader was asked whether the niches were not smuggling profits out of South Africa, as the Trader stated the niches used its goods as a hobby. The State Diamond Trader noted that there has been no illegal activity by the niches. The comment that the niches were doing its job like a hobby meant that medium enterprises were not serious about expanding, they appeared to be content with remaining where they were instead of buying more diamonds from the State Diamond Trader and grow.

The State Diamond Trader mentioned that if large scale job creation was expected in the diamond industry then significant challenges should be addressed. The structure of the State Diamond Trader was problematic, affecting what it could achieve. Small enterprises lacked access to funding and access to rough diamonds. If changes were not made then growth would be minimal. The State Diamond Trader was asked if there was a problem, what it was actually doing in the diamond industry.  The State Diamond Trader noted the legacy and history of the diamond industry which limited growth in South Africa. Structural problems in South Africa needed to be addressed, so that small enterprises could develop. It would be a mistake to assume that no transformation has been achieved in the diamond industry. The State Diamond Trader served as a platform and foundation to grow and improve. The diamond trade in South Africa faced challenges but the Trader also faced its own challenges which was funding. A question was asked about the State Diamond Trader's relationship with producing companies. It was noted that in the past there was much distrust between the State Diamond Trader and producers. Relationships are characterised by trust and efforts would be combined to support small and medium enterprises.

The Acting Chairperson noted that the report of the State Diamond Trader did not provide an indication that robust action was being taken to promote turnaround in the diamond industry.

The Committee Members noted that it did not appear that the State Diamond Trader nor the Diamond and Precious Metals Regulator had room for expansion in terms of socio-economic development, and that the Diamond and Precious Metals Regulator received more money than what it should receive. The Diamond and Precious Metals Regulator mentioned that it received a fixed grant for three years of R40.500 and highlighted that there has been a decline in production from 10 to 7 million which negatively affected the industry. The Diamond and Precious Metals Regulator was criticised as simply operating on a day-to-day basis without addressing challenges in the diamond industry. It was asked what was the Diamond and Precious Metals Regulator doing to empower people and address poverty. The Diamond and Precious Metals Regulator developed a transformation plan which needed to be implemented. The Diamond and Precious Metals Regulator has been in communication with the Department of Trade and Industry to assist small enterprises. Internships opportunities were being offered and assistance was given to small enterprises, but funding remained an issue.

A question was posed about what the Diamond and Precious Metals Regulator has done within the 20 years of democracy. The Diamond and Precious Metals Regulator stated that since 2007 the amount of licenses given has increased, but more detailed information was in its annual report. More black people participated in the industry in terms of licenses issued. The Diamond and Precious Metals Regulator used the term 'other expenses' but did not clearly specify what that included. The other expenses related to for example advertising, refreshments, consulting fees, subsistence and travel. The committee members asked for more clarity on the other expenses which sparked further questions. The members were not pleased that this information was not included in its report and also indicated that certain cost such as staff recruitment and staff welfare should not fall under other expenses, it would appear under Human Resources.

The Diamond and Precious Metals Regulator stated that staff recruitment was linked to the advertisement of positions. Staff recruitment and staff welfare where labour issues and should be grouped with Human Resources. The Diamond and Precious Metals Regulator spent no funds for 2013 on strategic planning. This provided the indication that the Diamond and Precious Metals Regulator followed its daily routine without developing any programmes. It was indicated that there was an element of wasting expenditure unnecessary by the Diamond and Precious Metals Regulator.

The Acting Chairperson recommended that the Diamond and Precious Metals Regulator should add more detail to its report and summarise what the issues were. Its annual financial report gave the impression that there was a duplication of information in the manner in which it was written.

Meeting report

Briefing by State Diamond Trader
Ms Futhi Zikalala, State Diamond Trader CEO, noted that the State Diamond Trader (SDT) didi not receive regular funding from government; it financed its own budget through the selling of diamonds. In 2012/13, the SDT sold a total of 290.449 carats to local beneficiations, which was valued at R411.462.599. The SDT continued to receive a clean audit, making a modest profit of R12.9 million in 2011/12 and R5.2 million in 2012/13. She presented the Committee with the strategic goals of the SDT. 

On goal 1 which was to ensure continued sustainability of the State Diamond Trader, the SDT had not achieved six targets (60%) for the 2012/13 financial year, this included, reducing turnaround time on stocks to below a weighted average of 14 days, this was not achieved, average was 21 days. It was targeted that the gross margin would be maintained at minimum of 4% per trading cycle, it was 2.83%. It was targeted that operating expenses should not exceed budget, this was not achieved and operated expenses totalled R600.000, greater than the budget. The number of Historically Disadvantaged South African clients fell from 26 to 16, also their share in the value of diamonds sold by the SDT declined from 3% to 2%. Only two targets were achieved. The SDT was not able for find ten Historically Disadvantaged South African clients to offer training. The SDT overspent its budget as a result of under budgeting on travel, benefits given to employees and expenses related to the participation in the Mining Indaba trade.

On goal 2 which was to be an efficient and professionally managed organisation, the SDT achieved all four of its indicators. The Human Resources policy manual was approved and its implementation was ongoing. The SDT reviewed its Human Resources Plan and targeted that this plan should respond to SDT requirements. The Human Resources Plan provided for the appointment of critical staff. The SDT targeted to train all diamond trainee personnel, this target was achieved and training was ongoing, included five diamond sorting and valuing trainees. The SDT targeted to identify skill gaps and initiate the relevant training and courses, trainees were appointed within the gaps that had been identified.   

On goal 3, to promote and uphold efficient governance, the SDT achieved all fifteen indicators such as improving the use of admin processes, training all staff on all policies and business processes, maintain asset register and develop and approve Information Technology policies and procedures. Other achievements included sufficient insurance for all stock and assets were acquired and maintained. The SDT held four Audit and Risk Management Committee meetings.

On goal 4 which was to ensure constant and suitable supply and access to rough diamonds, the SDT did not achieve five of the nine indicators but the remaining four indicators were achieved. The SDT in the 2012/13 financial year purchased all its diamonds from six producers. The SDT targeted to obtain an additional 10 producers to trade with the SDT but this was not achieved, as no new producers registered. By 2013 the SDT inspected 90% of sites where rough diamonds were produced. The SDT targeted to purchase 9% total South African production of diamonds, only 4% was purchased. It was planned that supply agreements with three selected diamond producing countries would be negotiated, one country agreement was targeted by 2012/13 but no purchases had been made.

The SDT had failed to achieve 11 of the targets that it had developed for itself in 2012/13. The Auditor General identified 36 targets in its strategic plan and stated that 31% of its planned targets were not achieved.

The SDT, in its first five years of operation had not addressed the distortions in the diamond industry; it had also not corrected the historical market failures to develop South Africa’s diamond cutting and polishing industry. The diamond industry employed few people than it did in 2008; the SDT has barely sold 2% of its diamonds to its targeted Historically Disadvantaged South African companies with fewer than five employers. In 2011/12 the SDT trained 15 Historically Disadvantaged South African clients, but this target was reduced from 20 to 10 for 2012/13.  

The challenges which the diamond industry experienced was linked and affected by the economic crisis in Europe and in the United States, the slowing down of the Asian markets, exchange rate issues in India, as well as the falling prices of polished diamonds and the volatility of demand for rough diamonds. The diamond industry in South African had been weakened since the 2008 global financial crisis. The diamond manufacturing sector had decreased dramatically in size. In three years the amount of diamond polishes declined from 3000 to 300. There was great potential for growth in the diamond sector in South Africa in beneficiation. Training facilities were mostly in-house and were not equipped to provide marketable skills that could be used worldwide.   

In response to the challenges which the SDT faced in the first five years of operation it had made significant changes to its strategic objectives after the 2012/13 financial year. The SDT had changed its performance indicators. It focuses less on the SDT as a successful business but on its role in assisting the local diamond beneficiation industry. The SDT would align its goals and outcomes with the approved Beneficiation Strategy of South Africa. There was a concern that clear performance baselines were not given in the strategic plan for the percentage increases which were planned for 2013 to 2016.

The African Romance company in early 2013 provided an indication of the difficulties which new entrants into the diamond beneficiation business faced. The African Romance company was launched in 2007 and had 120 employees. It received funding from the Industrial Development Corporation and the Gauteng Enterprise Propeller, but when the financial crisis hit this company was unable to recover. The absence of a reliable supply of rough diamonds caused this company to close. The SDT did not supply polished diamonds at competitive prices.

Mr L Gololo (ANC) said he had noted the quantity of goods not preferred for beneficiation in South African rands. He asked what were the challenges regarding beneficiation and how the SDT positioned itself within the globally competing environment.

Ms Zikalala replied that when it was discussed that goods are not preferred for local beneficiation, this referred to goods that were smaller than three grainers in the rough. The local industry preferred from five grainers right up to 10.8 carats. There were goods that were not at gem quality which the local industry did not want to manufacture. The skills were available to process diamonds; the manufactures may not have had the right markets which they could sell these diamonds of certain quality and size. Regarding the smaller diamonds, less than 3 grainers, India had the capacity to cut and polish smaller diamonds. Most South African’s wore imported jewellery that was cut and polished outside South Africa. India had managed to perfect the skills of cutting and polishing smaller diamonds.

Ms Zikalala stated that at the end of the five years the SDT looked outward to do more to promote the industry. When the SDT would present its strategic plan to the committee, their marketing strategy both locally and internationally would be shown. The SDT was assisting business to access markets outside South Africa. The SDT and the Department of Trade and Industry would implement South Africa’s first national pavilion in one of the biggest gem and jewellery shows (the Hong Kong show), 20 cutters and polishers and jewellery makers would be invited to the show to promote South Africa as a beneficiation destination, but also to provide network opportunities outside South Africa.

Mr S Mohai (ANC) asked what the capacity of the SDT was in terms of job creation andwhat type of jobs was being created.

Ms Zikalala replied that the SDT was providing training opportunities for young people, some had been absorbed into a six month intensive course, and they also received on the job training and further skills up to two to three years, but this was a small number of people. The SDT did not create jobs directly but through manufactures that buy from the SDT it was able to see how big the company was and whether it could provide more jobs, they monitor these companies whether growth was taking place. But growth in terms of jobs created by the industry has been low. Growth in the industry has been low, due to access to markets, funding, as well as the supply of diamonds. The SDT created a platform where diamonds would be sold, but often bidders from outside South Africa acquired diamonds, there was an issue of completion for large diamonds. She stated that in its market strategy, the SDT wanted to grow small enterprises, there was potential for small enterprises to grow. Exhibitions were meant to promote small enterprises, to address challenges in the South African industry.  

Ms K Khunou (ANC) said the SDT mentioned that they had lost people which they trained to other departments, had the cause of this problem been identified and what would the SDT do to correct this matter.

Ms Zikalala replied that skills had been lost to the mining industry. She stated that on the one hand this was a good development as people did not lose jobs, they shifted to another area. The SDT had lost on its investments made, those previous trained by the SDT left for better prospects, prospects which the SDT could not meet, for example paying individuals more money. She noted that the SDT had developed its own retention strategy, but it was difficult to address issues where employees left for more money. For this reason using the retention strategy may keep people in the SDT for the sole purpose that they would earn more money. She was proud that the SDT developed skills for others, but this was expensive, she would continue to train people and take people that could be retained within the SDT.  

The Acting Chairperson said the diamond trade was supposed to be bright, but every time the SDT appeared before the committee they remained gloomily. She asked if the Kimberly Process Certification Scheme (KPCS) had not made a difference in terms of the SDT performance and was it not a space where there would be improvement in international trade.

Ms Zikalala replied that the results of the SDT were bright and that she felt bright about them, she may not have given a bright face, but was happy with its progress despite all the challenges. She noted that the SDT traded more locally, they do not export. The Kimberly Process had impacted the diamond trade by making it cleaner and more in line with best practices. But for the trader, this had a minimal impact, in that the SDT bought and sold goods to local manufactures and it was expected for them to grow, when goods were exported then the Kimberly Process would be more useful for the SDT. The Kimberly Process had improved the trade in diamonds globally.    
She requested that the committee should visit the SDT to see how it was performing and the challenges it experienced.

The Acting Chairperson asked what the SDT’s areas of trade in South Africa was, to understand whether trade would improve in terms of the scales shown, or would trade not improve depending on the availability of diamond mines in South Africa.

Ms Zikalala replied that the SDT traded with a number of companies in the North West, in the Northern Cape, mostly in Johannesburg in Gauteng. She stated that the SDT has tried to expand its clients; in 2013 it placed an ad in the national newspaper for a month inviting more companies to join the SDT as clients, more companies were drawn only from the North West.  

The Acting Chairperson said in the client segment of the report, how the SDT differentiated between large and medium size beneficiaries and the niches, or were they included in the niches. The Acting Chairperson noted that the niches used its goods as a hobby, did this not indicate that they were smuggling profits out of South Africa.  

Ms Zikalala replied that some niches were involved in cutting and polishing. When she referred to the fact that they were doing it as a hobby, she meant that businesses did not desire to grow, as if they were content with being medium enterprises. The amount of diamonds this group bought from the SDT had not increased, it was rather small. She said there had not been any indication of illegal activities by this group.

The Acting Chairperson asked if any of the young people trained ended up in jewellery making, and whether the SDT had a relationship with Mintek and encouraged people into jewellery making.  

Ms Zikalala replied that the SDT had relationships with Mintek, through the Ministers national jewellery forum, in October 2013; the SDT has worked with a number of stakeholders to promote the fabrication of jewellery in South Africa, to show that this was another career opportunity for young people. The skills that had left the SDT had not moved to jewellery making, some had gone to geology, others went into mining. The SDT would look further into this issue.    

Ms Dolly Mokgatle, Chairperson, State Diamond Trader, said if large scaled job creation was desired then large scale manufacturing processes was needed, given the capability of the SDT to patches given what was available to it in terms of rules, 10% run of mines, aspirations from an annual 2013 target of 4%, this made it unlikely that the SDT would have a great impact. She stated that the manner in which the SDT was structured significant results would not be achieved; significant capital should be invested into the market, not necessary in the SDT, as the SDT was not involved in manufacturing. There may be a need to establish a manufacturing and processing area, which would capture the skills lost. She noted that Government tried to diversify the system, but small enterprises had collapsed. Small enterprises lacked access to rough diamonds, economic realities also affected the ability of small enterprises to access capital, the SDT also lacked funding other than its own commercial funding. The SDT had a limited amount of resources and for this reason change was minimal in the industry.

Mr S Mohai said if the Chairperson of the SDT was saying that the SDT needed restructuring, what had it been doing for all these years. There had to be clarity if there were problems.  

Ms Mokgatle replied that there had been support from the Government, especially by the Department of Mineral Resources. The Minister convened a jewellery summit in 2013 which was in support of trying to ensure that this industry could grow in South Africa. She stated that the legacy and the history of this industry limited growth which could be achieved. She said South Africa was not short of skills, was not short of an urge to break new ground, evident in the beneficiation of diamonds to historically disadvantaged South Africa’s, which was new ground. There were structural problems that needed to be resolved as a country to enable small enterprises to grow and create the necessary jobs.

Mr Mohai asked Ms Mokgatle if she was saying that after 20 years there had been no transformation in the diamond industry.

Ms Mokgatle replied that the SDT provided a platform and a foundation to grow and improve; it was a mistake to state that the SDT has not achieved anything. She said the SDT has grown; as the SDT developed further it would be able to identity gaps and then develop strategies to address issues, however slow they may be. The SDT was not only supplying goods, it was also acted as producer to beneficiate. Growth was slow but it was happening. One of the structural challenges was sustainability of the SDT, as they had to compete for funding with commercial entities, this would affect growth. She stated that much improvement was needed in the SDT, but it had reached a point of stability, based on the Auditor Generals view.

The Acting Chairperson said the SDT had relations with De Beers and Petro Diamonds and they were the main suppliers of diamonds, but they were also producers. What has been done with these suppliers to raise awareness on and ensure improvement in the production trade? She noted that in terms of performance the SDT had not increased or declined. The Acting Chairperson asked for an indication of what was in South Africa in terms of diamond mining.

Ms Mokgatle replied that some producers continued to take some of already open operations as opposed to Greenfields, that could be looked at in the future. Investment strategies around producing more diamonds as a country could be engaged and looked at in the future.   

Ms Zikalala commented on the issue of SDT’s relationship with producing companies. She stated that there was initially much distrust between the SDT and producers, overtime relationships had improved, the major issue now was commercial trading. There were disputes around the price of diamonds between these groups. She noted that some producers allowed the SDT to buy the amount of diamonds that its clients wanted, this was a big improvement from previous years.  There had been pilot programmes between the SDT and producers. There had been developments after its annual report with the SDT and producers, producers had shown commitment to developing small and medium enterprises, the SDT board was involved in agreeing with such arrangements. This would ensure that resources were pulled together to support small and medium enterprises.    

A Member of Parliament said that he understood the mandate of the SDT was to overtime develop a democratic industry, an all-inclusive industry. Those who were not previously involved in the industry should be empowered. He asked how big of a problem the illicit trade in diamonds was. He noted it was clear that the SDT would take time to address the challenges it faced. It should be ensured that this industry was all inclusive, in particular to those who were previously disadvantaged such as African women. He stated that every sector had structural problems, but entities driven by the state should progress to address its structural problems.

Ms Zikalala said it was part of the SDT’s mandate to ensure empowerment and transformation. The board of the SDT had taken a decision that focus needed to be placed on historically disadvantaged South Africa’s and on new entrances, they needed the support. The historically disadvantaged South Africa’s and the new entrances were at the centre of the new marketing and promotional strategy of the SDT, in the next few years growth would be established. The SDT would continue to introduce diamond skills and careers to the youth.  

Mr Mohai was concerned whether the poor benefited from diamond resources and asked if these resources enhanced the fight against poverty.

Ms Mokgatle replied that she hoped what was discussed brought comfort to Mr Mohai that the SDT had a solid foundation. She stated that however young the SDT was, within the 20 years of democracy, it had provided an opportunity to understand the scale of the problem, the SDT had the ability given its resources to identify and address the challenges it faced with its relevant support, not only from stakeholders but also from Government. She stated that the SDT has a good story to tell, if there was no SDT then it would not be possible to take people to the global arena to have their skills shown. She mentioned that the SDT would receive legislative support or other strategic initiatives.

The Acting Chairperson stated that when the SDT appeared before the committee its strategic report should be very robust. There was not an indication of robust action taken by the SDT to promote turnaround in the industry. The SDT was more concerned with trading and completing business deals, it needed to ensure that the diamond trade was changed for the better in terms of the economy. The Acting Chairperson noted that there has not been any significant change shown by the SDT in terms of transformation. The Acting Chairperson congratulated the SDT for its award from the Auditor General.
Briefing by the South Africa Diamond and Precious Metals Regulator (SADPMR)
Ms Mukondeleli Irene Tshifura, Chief Financial Officer, SADPMR, said that the Regulator, received a clean audit for the 2012/13 financial year and that there were no audit issues that needed to be addressed. Its performance information audit report did not show any instances of material non-compliance, no deficiencies were identified as well.  

It was estimated that for 2012/13 its budget would be R62.521 million to the National Treasury, but the final allocation amounted to R41.601 million, with a shortfall of R20.920 million.

The revenue which the Regulator generated increased by 37% (R28.653 million), compared to the amount budgeted of R20.920 million.

The expenditure for the 2012/13 financial year was R72.351 million, which included non-cash items such as depreciation and other provisions. A number of areas were responsible for high expenditure, which included compensation of employees (R48.706 million), other operating expenditure (R19.211 million) and non-cash expenditure (R4.434 million).

Transfer payments had been capped at an average of R40.500 million for 2010/11, 2011/12 and 2012/13 financial years. There was an increase in the amount of revenue generated by the Regulator for the various financial years, in 2010/11 R8.811 million, in 2011/12 R7.978 million and in 2012/13 R28.653 million.

There had been a steady increase in compensation funds, in 2010/11 R34.270, 2011/12 R40.912, in 2012/13 R48.706. The increase of expenses was attributed to the increased head count; due to the expansion/review of the organisational structure in order to align human resources. Other operating expenses increased for the last three years and in 2012/13 amounted to R19.174 million. Payment for capital expenditure in 2012/13 amounted to R3.059 million.

As at 30 September 2013 the Regulator projected it would spend R17.785 million, while it spent R21.580 million, with a variance of R3.795 million. The Deficit of R3.795 million was attributed to non-cash transactions such as depreciation and armotisation, capital expenditure and other provisions. The Regulator projected to collect R17.632 million, while in reality it collected R19.658 million, with a surplus of R2.026 million, as a result of levies, license penalty and public service fees collected.  

Mr Simon Sikhosana, General Manager, South Africa Diamond and Precious Metals Regulator , as at 31 March 2013 staffing ratios stood at 96% Black, 4% White, 59% Women, 41% Men, 51% Core Function to 49% support function staff. The Regulator had 116 employees.

In Human Resource Development, the Regulator trained 38 of its own employees in various divisions, 18 of its employees had been awarded bursaries and 8 internship opportunities were developed. The employees of the Regulator received skills programme training, which included rough diamond and planning training course, jewellery manufacturing basic level, professional diploma programmes in jewellery.

During 2013, South Africa resumed the chair of the Kimberly Process Certification Scheme. The Regulator facilitated four polished diamond tenders against the targeted amount of two planned for the year. The demand for polished diamond tenders increased.

During the 2012/13 financial year the Regulator achieved 100% of all its set targets. There had been an increase in inspections of diamond and in precious metal industries. The Regulator had also worked with the South African Police Service and the South African Revenue Services to target illicit diamond operations. An improvement in engagements with diamond and precious metals clients continued to improve. The Regulator was nominated to receive the trophy for consistently having a clean audit report for the past two financial years.

As a result of caps placed on grants of R40.500 million per annum for the past three years, the Regulator had to find different revenue streams in order to sustain increasing operation cost. Economically strong buyers dominated access to funding and access to rough diamonds, which continued to be a challenge for emerging businesses.  

The Acting Chairperson asked what the Regulator’s relationship with the SDT was and what their key involvement was.

Mr Sikhosana replied that when there was production, the Regulator had a government diamond evaluator which evaluated goods and indicated to the SDT that it should purchase goods at a particular price; the two parties involved would then negotiate the price (a fair market price). The SDT should not buy goods above the price which the Regulator had determined; they could buy below that price.

The Acting Chairperson said that the Regulator and the SDT did not have room for expansion, in the way that they conducted its work, in terms of socio-economic development. The Acting Chairperson stated that those projects were not visible, and it appeared that the Regulator received more money than what it should get.

Mr Sikhosana replied that the grant which it received was capped at R40.500 million, but the Regulator generated its own income, its grant remained unchanged. It was stated that producers should increase production of diamonds; the SDT was entitled to 10% of the production which would translate into production moving to cutters and polishers. It was noted that for the past four to five years production has decreased from 10 to 7 million, this has a negative effect on the industry.

The Acting Chairperson said it was a pity the SDT left the meeting; there should be contingency programmes and projects in place that could complement the work of the Regulator and the SDT. It would appear that the Regulator was just operating day-to-day without addressing challenges in the diamond industry. The Acting Chairperson stated that De Beers recently pulled out to go to an outside country; they were making big profits which sparked questions about the situation as compared to De Beers plans in South Africa. The Regulator and the SDT should assist and support small scale miners, so they could become established, especially in the Kimberley area, which has an abundance of diamonds, but if enterprises are not supported then no significant change would be seen, and the focus should be on historically disadvantaged South Africans.

Mr Mohai asked what the Regulator was doing towards empowering people and addressing poverty.

Mr Sikhosana replied that in 2013 its board requested that it develop a transformation plan, which was being implemented. The Regulator has looked to financial institutions to assist small enterprises who had trouble accessing capital from banks. The Regulator had been in contact with the Department of Trade and Industry, Gauteng Development agencies and other agencies that could offer financial support to small enterprises, these matters were being discussed. The Regulator looked to draw on those that had completed their studies, offer assistance to small enterprises, to undergo internships in those areas of opportunities, then encourage them apply for licenses so they could be independent businesses. Financial support remained a big issue for small enterprises.   

Mr Mohai asked where the progress was after 20 years of democracy and what has been achieved.

Mr Sikhosana replied that the more detailed information of what it had achieved was in its annual report. The number of licenses it had issued since 2007 had increased; more black people had participated in the industry in terms of licenses issued. The major challenge was sustaining operating businesses, this gap needed to be closed. More black people became cutters, polishes and dealers, and the Regulator targets black students from universities and colleges, to turn them into entrepreneurs.

There Acting Chairperson said the Regulator should clearly explain what ‘other expenses’ were and on what page in its annual report did this information appear.

Ms Tshifura replied that the other expenses were detailed on page 82 in its annual financial statement. The other expenses included, advertising, subsistence and travel amounted to R19.174 million (2012/13).

Mr Mohai asked for more clarity on the other expenses.

Ms Tshifura replied that advertising and marketing amounted to R33.830, audit fees was R1.9 million, computer expenses R1.1 million, consulting fees R146.000, electricity and water, inspection compliance and evaluation expenses R882.000, insurance R1.5 million, motor vehicle expenses R254.000, postage R40.000, refreshments R104.000, repair maintenance R9000, software development and licences R708.000, staff rallying recruitment R143 000, staff training and development R444.000, staff welfare R273.000, medical expenses R85.000, workshops R34.000, leases: rentals and operating leases R1.9 million, telephone and fax R1 million, subsistence and travel (domestically) R611.000 and R2.5 million (internationally).

The Acting Chairperson said staff recruitment should not fall under other expenses; this should fall under Human Resources.

Ms Tshifura replied that staff recruitment was linked to the advertisement of positions.

The Acting Chairperson said that labour issues, staff recruitment and staff welfare were given; it should fall under Human Resources and not under other expenses. The Acting Chairperson noted that under its strategic planning no funds were spent in 2013, this could not happen. This indicated that the Regulator was simply operating and following routine on a daily basis, but it had no planning in terms of programmes. The manner in which the other expenses were group created the understanding that there were areas of wasteful expenditure.

Ms Tshifura replied that the Human Resources cost shown separately related to salaries, this was reported separately so that there was transparency instead of dumping non-salary items into the pay-roll related issues.

Ms Tshifura stated that there was no strategic planning outside the office, during the 2012/13 financial year. When the Board was appointed the strategic plan was completed and approved, review processes were done internally, so that cost could be contained. During the current financial year cost would be incurred, as the new Board wanted to be included in the strategic planning, the Regulator had to go out and expenditure was incurred.     

Mr Mohai asked what the content of the workshops was and what type of workshops.

The Acting Chairperson asked what the workshops were that the committee was not aware of.

Ms Tshifura replied that cost associated to workshops were R34.226, the R1.9 million related to leases, the rentals related to office accommodation in various areas such as the Johannesburg and Kimberly offices.

Mr Dangani said he thought the Regulator received an unqualified audit report. He appreciated the fact that Members of Parliament had the capacity to reflect on the minute details, but Members of Parliament should also reflect on the highly strategic issues, around structural matters. He noted that if there were strategic issues that were not being dealt with correctly then they should be raised. He proposed that the meeting should not be delayed any further.   

Mr Mohai said workshops were expensive and whether this was the expenditure that the Regulator wanted to follow. He noted that the Regulator should assist young people, and that the Auditor General was not a politician so it did not understand that there should be job creation.

The Acting Chairperson noted that in the Regulators annual report from the sector on financial positions and performances moving forward, funds could have been used appropriately and correctly. It was stated that perhaps there was an element of wasting expenditure unnecessarily. Funds could have perhaps been better used in areas such as socio-economic projects, so as to give more meaning to the Regulator.

The Acting Chairperson asked what was happening with capital commitments in the Regulators annual report, and there had been a development of the word admin system. The Acting Chairperson read a passage from the annual report, “this relates to commitments made towards procurement of capital expenditure, goods and services, but the services and goods have not been delivered”. The Acting Chairperson asked what did that sentence mean, it raised concerns, as it was not clear where this money went to and what was doing done about goods not delivered. The Acting Chairperson reminded the Regulator that a 2012/13 report was being reviewed but it stated boldly that goods had not been delivered; this was a concern.

The Acting Chairperson asked that the Regulator should explain capital commitments and the web admin system.

Ms Tshifura replied that capital commitments was linked to the relocation of the Regulators offices, new furniture had to be purchased and equipment so that the office could run. Office furniture and equipment was inherited and became obsolete. The R10.7 million written was commitments, even though the board approved the funds to be used for capital projects, procurement processes were not in place or some projects started but was not concluded. The development of web, the system that was used by the Regulator was not in support of its mandate, as a result it was revamped, and R4.3 million was approved to this system over a period of two years which would end on 31 March 2014. The Regulator stated that progress was good and that the fully developed web admin system would be used to administer licenses and do billing. This system would be used on 1 April 2014.

Ms Tshifura replied that much furniture had been delivered; custom built furniture also needed to be delivered to the new offices, this process was reaching finalisation.

The Acting Chairperson asked what necessitated the change to the new offices from where the Regulator was.  

Mr Sihoha replied that it was growing in terms of services, it had to cater and have sufficient space for exporters as well as those that needed to view diamonds, the previous office was limited.

The Acting Chairperson recommended to the Regulator that it should formulate a more detailed report, and summarise what the issues were. The Acting Chairperson noted that the annual financial report gave the impression that there was duplication or a repetition of the way information has been expressed. The Acting Chairperson doubted whether the financial log of the Regulator was correctly expressed. The Regulator also needed to revaluate its socio-economic developmental programmes and its relationship with the SDT, to see if more programmes could be developed to improve the situation in South Africa. Even though the Regulator mentioned that the diamond industry was on the decline, it needed to improve this situation. Companies such as De Beers had left South Africa, they had benefited greatly and South Africa did not see those profits. In addition, the manner in which the Regulator located its funds needed to be explained in better detail, so that the committee could understand if it was perhaps overspending on unimportant issues, already visible at that time.   

Mr Mohai noted that the Regulator was showing from its performance that Government was spending unnecessarily. The relevance of the Regulator was called into question.

Ms Tshifura noted the comments and would make the necessary changes.

The Acting Chairperson said the Committee required reports before the meeting, to study them. The Acting Chairperson mentioned that in terms of its audit outcomes the Regulator should not regress.

The meeting was adjourned.


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