Department of Trade and Industry on Trade, Investment and Exports briefing

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Trade and Industry

11 July 2014
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry made presentations to the Committee on International Trade and Economic Development (ITED), the International Trade Administration Commission (ITAC), the Export Credit Insurance Corporation (ECIC), the Broadening Participation Division (BPD) and the National Empowerment Fund (NEF).   The meeting was attended by the South African Ambassador to the World Trade Organisation (WTO) Geneva and International Trade and Economic Development (ITED) advisor, Mr Faizel Ismail.

The Department told the Committee that it aimed to increase investment and beneficiation in South Africa in order to grow the economy.   The mandate, purpose, strategic objectives and achievements of each division were described.  Challenges and key concerns were raised in both the presentations by the Department, as well as in the subsequent discussion.

The main issues to come under the spotlight dealt with Insufficient funding and resources, the misappropriation of funding at the NEF, capacity constraints, the staffing of overseas offices and inadequate foreign economic representation, concerns about monitoring mechanisms, the duration of negotiations and non-compliance with deadlines, food security being compromised by the emphasis on biofuels production, and the impact of trade policies on local rural communities.

 

Meeting report

Opening Remarks

The Chairperson welcomed the Committee Members and the Department of Trade and Industry delegation. She noted the medical apology of Mr M Oriani-Ambrosini (IFP).

International Trade and Economic Development (ITED)

Ms Xolelwa Mlumbi-Peter, Chief Director: Africa Multilateral Economic Relations, DTI, apologised for the absence of Mr Karriem Abrahams, who was in discussions regarding the Department’s joint partnership.

She described the structure of ITED, listing the various directorates, and indicated that the budget allocation for the ITED division was currently R147.2 billion.

ITED was the policy division in the DTI responsible for trade and investment policy, conducting trade negotiations, managing bilateral trade relations, and advancing Africa economic development agenda in line with the New Partnership for Africa’s Development (NEPAD).  The key policies dealt with trade policy and strategy framework (TPSF), the Africa strategy, the Protection and Promotion of Investment Bill, and regional and country strategies.

ITED’s functions included African economic integration and development – bilateral, regional and multilateral, bilateral trade engagements globally, trade and investment negotiations, policy development research, divisional leadership and support and non-proliferation administration.

Ms Mlumbi-Peter indicated that the South African economy was “moderately” protected by tariffs with regard to trade policy. The simple average Most-Favoured Nation (MFN) applied tariff is currently 7.7%, which was a decrease from 23% in the 1990’s.  56% of duties were set at 0% and the South African tariff regime was transparent and simple when compared to South Africa’s trading partners.  South Africa’s World Trade Organisation (WTO) commitments were in alignment with the Organisation for Economic Cooperation and Development (OECD) countries.  South Africa ranked as one of the most open jurisdictions for Foreign Direct Investment (FDI) globally and provided strong investor protection, in accordance with international standards.

Trade Reformation

Ms Mlumbi-Peter said South African trade reform had resulted in extensive liberalisation regarding tariffs since 1994, and while South Africa had experienced significant increases in tariffs, the basket of exports goods remained unchanged, with notable exceptions.   South African exports continue to be dominated by commodities, with the exception of African markets.  Labour-intensive production had contracted due to imports, with a bias towards capital and high skill-intensive growth.   The National Development Plan (NDP), New Growth Path (NGP) and Agricultural Policy Action Plan (APAP) call for “developmental” trade policies to encourage and upgrade value-added, labour-absorbing industrial production.  Improving South Africa’s export performance required greater attention to exporter development, as well as export promotion and marketing.

The effective promotion of trade, investment and exports required coordination at various levels within the Department.  Apart from coordination between divisions within the Department, there was inter-departmental coordination for trade negotiations – DIRCO, DAFF, NTT, ITAC, and SARS – as well as coordination through the cluster system, sub-committees and task teams.  Other entities involved included NEDLAC and the Agricultural Trade Forum, export councils, and foreign government departments, including South African Customs Union (SACU)member states.

Among South African trade agreements were the SADC Free Trade Area (FTA) -- which South Africa has implemented fully whereas other nations have struggled to meet the deadline for the trade protocol -- and the SA-EU Trade, Development and Cooperation and Agreement (TDCA), which is currently being revised in collaboration with Angola and Mozambique as part of the Economic Partnership.  There was also the SACU-European Free Trade Association (EFTA), the SACU-Mercosur Preferential Trade Agreement (PTA), not yet implemented owing to outstanding ratifications, the SACU-India PTA which is under negotiation, and the SADC-EAC-SOMESA FTA, which is also under negotiation.   Ms Mlumbi-Peter noted that South Africa benefits from the Generalised System of Preferences (GSP) and the unilateral US African Growth and Opportunity Act (AGOA).

International Trade Administration Commission (ITAC)

Ms Mlumbi-Peter presented on the International Trade Administration Commission, outlining its mandate, vision and mission, and noting its core functions.

The core functions of ITAC were described as tariff amendments (increases and decreases in customs duty and rebate provisions), trade remedies (anti-dumping and countervailing measures) and import and export control (measures applied to enforce health, environmental security and safety, and measures applied to enforce technical standard subject to domestic laws and international agreements).

Ms Mlumbi-Peter described the approach of the Commission and South Africa with regard to tariff reform and described the strategic approach followed, with evidence-based, case-by-case assessment.  The International Trade and Economic Development Commission had a critical role, supporting the objectives outlined in the NDP and IPAP.  Tariffs on mature upstream input industries were able to be reduced or removed to lower the costs for downstream industries, while tariffs on downstream industries with employment or value-addition potential may be retained or raised, to ensure sustainability and job creation

Trade Strategy Priorities

The trade strategy priorities for South Africa focused on:

·         African development, industrialisation and integration;

·         A shift in the current consumption and commodity-driven growth path to a more sustainable industrial development path for Africa;

·         Pursuance of “development integration” in SACU, SADC, T-FTA and C-FTA for market integration, industrialisation and regional value-chains in addition to infrastructure development;

·         Maintaining trade and investment relations with industrial economies;

·         Extending the African Growth and Opportunity Act (AGOA);

·         Building industrial complementarities and shift structure of trade with dynamic economies of the South;

·         Ensuring a development outcome to the WTO’s Doha Round;

·         Finalising the post-Bali work programme that prioritised the non-binding decisions of the Bali-Ministerial Conference.
 

Trade and Investment South Africa (TISA)

Mr Yunus Hoosen, Chief Director, DTI, presented on Trade and Investment South Africa (TISA), and described the structure, purpose and mission of the division.

The strategic goals of the division were to increase the quality and quantum of foreign and domestic direct investment; undertake effective investment recruitment campaigns; provide an efficient facilitation and information service initiative to retain and expand investment into South Africa and Africa; develop new and expand existing South African exporters’ capabilities in order to grow exports globally, with reference to goods, services and capital; promote value-added exports to both the traditional and the high-growth emerging markets in support of the country’s industrialisation programme; provide appropriate information, financial support and practical assistance to sustain growth in traditional markets and penetrate new-high growth markets; and effectively manage and administer the Department’s foreign office network

National Exporter Development Programme

Export Development and Support

Export Development and Support is aligned to the National Exporter Development Programme. The aim is to develop South Africa’s export culture, and programmes have been implemented to achieve this aim.

The National Exporter Development programme focused on the enhancement of an export culture in South Africa, through activities entailing outreach campaigns, export awareness and other identified appropriate platforms.   It provided trade information and export advice through an export help desk, as well as export training and capacity building, supported by mentorship and underpinned by the Global Exporter Passport Programme.  Special projects such as export villages were geared to facilitate access to international market through the pooling of resources.

Export Development Service Offerings

The Export Development Service offered matching trade opportunities with exporters, with the emphasis on exploiting opportunities in BRICS, Africa and high growth markets, provided and sourced business intelligence and trade information, and led and coordinated stakeholders involved in the export development value-chain, aligned with a common vision.  It also provided export training and capacity building for potential and established exporters through the implementation of the Global Exporter Passport, underpinned by five phases -- Domestic Enterprise, Explorer, Export Aware, Export Ready and Start-up Exporter.

Export Promotion and Marketing

Mr Hoosen indicated that the aim of the programme was market diversification.  The key pillars of the National Export Strategy were improving and enabling export environments, strengthening the export institutional framework, increasing the demand for South African goods and services through diversification, enhancing the country value-proposition and sector branding, broadening the export base, as outlined in the National Exporter Development Programme, enhancing export incentives and trade financial instruments, facilitating export sales of R10.5 billion over the following three financial years, on-going implementation of the product and marketing diversification strategy through national pavilions, group missions and other export-promotion tools, and conducting studies to determine the integration of South African value-added products and services into these networks.

The services and offerings being provided by the unit included gathering market intelligence, identifying markets with potential and export opportunities through the market diversification strategy, matching  potential exporters with foreign buyers and providing in-market support, providing export advisory services and export market information, providing market access through national pavilions, outward selling missions, inward buying missions and investment and trade initiatives, and providing financial assistance through the Export Marketing and Incentive Assistance (EMIA).

Export Credit Insurance Corporation Soc Limited (ECIC)

The Export Credit Insurance Corporation (ECIC) Soc Limited had the following six key strategic objectives:

1.     To facilitate export trade and investments outside of South Africa;

2.     To create strategic alliances;

3.     To raise the profile of the ECIC;

4.     To promote a professional, competitive and customer-focused workforce that ensured an effective and efficient service to customers;

5.     To foster risk orientation;

6.     To promote effective stewardship.

Mr Hoosen described the planned impact of each of the six programmes.

Investment Promotion and Facilitation

Mr Hoosen said this programme facilitated the increase in the quality and quantity of foreign and domestic direct investment by providing an investment recruitment, problem-solving and information service in order to retain and expand Investment in South Africa and into Africa. The sub-programme is promoting South Africa as an investment destination, with a target of R135 billion over the next three years. The target for the investment pipeline for 14/15 is R 40 bn.

National Investment Promotion and Facilitation Strategy Phase 2

The objectives of the project were to  develop an investment strategy and methodology for investment;  align TISA’s investment strategy with all government programmes,  develop investment-related offerings, to design and develop as customised investor services, develop sector-specific promotional strategies, improve the investment climate, develop a three-to-five year operational plan to achieve the objectives of TISA, develop a strategy for outward investment into South Africa (Phase 3), and develop a strategy for the African gateway concept (Phase 3).

Key Targets for Investment Promotion and Facilitation

Mr Hoosen noted that South Africa was currently number 13 of the 25 leading export destinations, and was voted the best investment country in Africa for 2013/14.

The following key targets were indicated:

To make South Africa a top ten investment destination;

To make TISA a top five world-class investment promotion agency;

To seek and attract an investment pipeline of R135 billion within the next three years;

Promote a targeted and coordinated investment drive;

To diversify and increase investment flows from emerging markets;

To retain and expand investment flows from developed markets;

To reduce business costs and administrative barriers;

To improve the South African investment climate and investment attraction;

To create a common messaging system and brand identity;

To provide marketing and facilitation support for the Special Economic Zone (SEZ) programme;

To host the annual Africa Dialogue Conference;

To capacitate the unit to provide dedicated investment promotion, facilitation and aftercare.

Investment promotion and facilitation opportunities included investment and export, manufacturing, advanced manufacturing, mining and mineral beneficiation, services and the green economy.  Service offerings included investment recruitment, investment information, facilitation and aftercare.

Mr Hoosen indicated that various handbooks and brochures were produced to communicate the information to foreign and potential investors.  A substantial proportion of investment was as a result of reinvestment.

Foreign Economic Offices

Mr Hoosen indicated that TISA manages the Department’s Foreign Offices overseas.  The DTI currently has 27 Foreign Economic Representatives (FERs) and 48 marketing officers in 37 countries.  Where countries had not been allocated an FER, engagement between TISA and the Department of International Relations and Co-operation facilitated this process on their behalf.

Discussion

Adv A Alberts (FF+) requested an explanation from the Department regarding the increase in exports, but the lack of change in the figures relating to the ‘basket’.  He asked about the status of the agriculture market in Europe, and South Africa’s access to this market.  He indicated that during the visits to Geneva, that there were insufficient trade representatives for the economy.  South Africa needed more trade representatives than other representatives abroad, in order to boost our economy.

Mr D Macpherson (DA) indicated that TISA should be promoting trade and investment in South Africa.

Mr Macpherson enquired as to how many potential exporters and investors are aware of the information that had been presented to the Committee.   He said he and Mr Hill-Lewis (DA) had questioned the budget and expenditure context.  He asked about the mechanisms for reform, in addition to the tangible targets which had been established to improve export performance.

Mr Macpherson expressed dissatisfaction with the status of the South African Trade Agreement, as it was still currently under negotiation.  The Committee required a deadline or else the negotiations would continue with no finality being achieved.

He was concerned about the structure and said that the budget allocation for Export Development and Support, amongst others, was insufficient to achieve the Department’s desired outcomes. There was a need to engage with Appropriations to ensure more capacitating funds.

He said that one of TISA’s goals was to ‘develop new and expand existing South African exporters’ capabilities to grow exports globally,’ and enquired as to the Department’s proposed mechanisms to achieve this outcome.

He referred to the Export Development and Support programme, and asked how many exports the programme had benefited, and the results in terms of exports.

The Chairperson asked Mr Macpherson to conclude his engagement.

Mr Macpherson referred to the Department’s five-step programme, and enquired as to how many local exporters had been exposed to this programme and what their success had been.

Dr Z Luyenge (ANC) said that as a rural boy originating from the Eastern Cape, the successes that the global standing of the national economy could contribute to the rural poor was critical for sustaining the nation.

He asked about the source of funding for the Department, and indicated that it was undesirable for the Department to have insufficient resources to achieve its goals.

He suggested that the Department should assess how best it could utilise local and indigenous knowledge to assist rural communities.

He enquired if the Department’s capacity-building workshops and programmes are readily accessible to the general public.

Mr G Hill-Lewis (DA) said that resources were inadequate and that the R300 million allocation to the Department was insufficient.  He acknowledged that the Department’s presentation was impressive, but indicated that very few South African business people and foreign investors were aware of the programmes being offered by the Department.

He said that the Foreign Office programme was critical and required expansion. The work the representatives undertook needed to be revised to seek customer opportunities and arrange contracts, instead of general systemic work and market niches, and the number of representatives needed to be increased.

Mr Hill-Lewis said that the exportation of South African wine to China had declined by 5.5%, and enquired as to the role of the Department with regard to this, as China presented a great opportunity for South Africa.

He commented that the presentations were focused on improving the investment climate.  The “enemy” of investors is policy uncertainty, and the current legislation was not sufficient to create investment certainty.  The cancellation of investment treaties occurred as a result.

Mr Hill-Lewis referred to the negative South African trade balance, and indicated that R150 billion was insufficient.  He recommended that the programme be “ramped up” in order to avoid losing current exports.

Ms P Mantashe (ANC) enquired about the Department’s proposed plan of action to make the rural areas of the country attractive.  She had a concern regarding the large volume of dumped goods and enquired as to the Department’s plan to address this concern.

Mr F Shivambu (EFF) requested figures on the extent of foreign investment compared to the size of the GDP in South Africa.  He indicated that FDI and relevant figures needed to be contextualised.

Mr Shivambu noted that the NPD required cheaper labour to encourage investment, but there had not been compliance with this stipulation.

He wanted to know the exact quantities of value-added exports being promoted, aside from natural and agricultural commodities.

Ms Mlumbi-Peter replied to Mr Alberts that the structure of trade had remained the same, but the exportation of commodities had increased.  The “basket” represented the trade structure.  The greatest gain had been in agriculture and the European Union (EU) had agreed to eliminate export subsidies on agricultural products to the SACU market.  There was an automatic safeguard on approximately 20 products once they reached a specific import threshold.

Ms Mlumbi-Peter replied to Mr Macpherson that the challenge related to trade representatives and the number of representatives, was resources.

The Chairperson said that the Ambassador, Mr Faizel Ismail, was also at the World Trade Organisation (WTO) in Geneva.

Mr Ismail said that the Geneva team consisted of three members, in addition to a member from the Department of Agriculture.   The team had been effective and that the process to deploy an ambassador to replace him was under way.  The Department did not have a strong case to increase representation with regard to the current state of negotiations.

Ms Mlumbi-Peter replied to Mr Macpherson that deadlines for negotiations are beyond the Department’s control owing to the nature of the undertaking. Ms Mlumbi-Peter also acknowledged various external factors such as capacity issues for smaller member states which pose challenge for the establishment and implementation of deadlines.

Ms Mlumbi-Peter replied to Mr Macpherson, saying that various issues had arisen with regard to the Partnership Agreement, and this had resulted in the extended time of conclusion.

With regard to the Investment Bill, bilateral investment treaties had given the government more obligations and investors more rights.  Investors were able arbitrate governments as a result of this.

Ms Mlumbi-Peter noted that different terms of reference existed for each council and that a global revaluation was required to find a balance. She also indicated that there were challenges regarding regulations. The bill ensured that SA was open to investment, with protection from FDI, but maintaining a balance.  The process was subject to three months of public comment and the Department would present to Parliament on the conclusions made.

Ms Nomonde Somdaka, Senior Manager: Import Tariffs (ITAC), replied to Ms Mantashe that it was critical to understand that the instrument for anti-dumping aimed to identify unfair trade.

She said that the challenges in China were due to its competitive standing resulting from economies of scale and low labour costs.  The current rising local costs posed a challenge with regard to competing with China economically, but the duties which had been applied had been effective.

Mr Joe Lesejane, Chairman of the Board, ECIC, said that South Africa’s economic strength was in agriculture and natural resources. Manufacturing and engineering associated with mining had developed. Companies with the capabilities, such as Bell Equipment, had participated.

He also noted that telecommunications companies had required risk insurance to support their expansion and the programme had assisted them in their growth path and consequently benefited the South African economy through the dividends stream.

Mr Lesejane also indicated that construction companies with engineering capabilities had required plants associated with manufacturing and mining projects, which required sizable loans.

The expansion of infrastructure such as water treatment plants and electrification, had taken place with the support of the division. South African electrification was far more advanced when compared to other countries, which had resulted in metering.

Mr Lesejane said that South Africa did not have oil and gas resources, but opportunities in the value chain, in countries such as Mozambique and Namibia, existed.  The budget was a constraint which was limiting the possible levels of growth, and competitiveness relied on the cost of funding and various offerings.

Bell Equipment had supply chain arrangements with smaller providers, creating participation across provinces.  The Small Enterprise Development Agency (SEDA) was also contributing to exporter development and the Department’s Enterprise Development programme aimed to include exports which may not have been involved previously.

Mr Hoosen replied to Mr Macpherson and Mr Shivambu, that there had been growth in the automobile sector and that the National Association of Automotive Component and Allied Manufacturers (NAACAM) had reported that South Africa had reached R1 billion in exports as part of the emerging trade portfolio.

Targeted programmes with China had been established as South Africa and China celebrated 15 years of trade relations.  South Africa had held exhibitions in China and a 60 to 100 company delegation was being sent to China as part of a strategic partnership arrangement.

It was pointed out that China procures wine through the State, and that there had been a ban by the government.  For this reason, it was said that South Africa required relations with the private sector to increase wine in South Africa. It was noted that the government had made a statement regarding procurement and wine features.

It was noted that Treasury had declined the proposal for a budget increase. It was further noted that the Department “does more with less” and that missions to target buyers and investment had increased.

With reference to the questions raised by Mr Macpherson and Mr Hill-Lewis, it was said that the Exporter Development Programme had assisted 900 companies. It was also noted that R10 billion was the value-added allocation from the Department for diversification, as a mechanism for intervention.

The Department was collaborating with all government departments to increase trade and investment, with the provision of aftercare forums and appealing to new and existing investors.

The Chairperson said that Members had raised concerns regarding insufficient information, and also noted that the time was not sufficient for rigorous engagement.

She referred to the challenges of inadequate resourcing, capacity, staffing overseas officers and the ongoing challenge of languages, in addition to countries with low GDPs having more foreign officers compared to countries with higher GDPs.

She recommended that the Department re-presents the introduction, and for management to be more in-depth, including a realistic and practical account of how the DTI operates.   The Committee hoped that the WTO would be dealt with far more effectively during this term.

The Members adjourned for tea and were requested to return for the joint meeting with the Small Business Development Portfolio Committee, for the consideration of the budget.  Thereafter the Committee reassembled for the presentation by the DTI on Broadening Participation and the National Empowerment Fund.

Broadening Participation Division

Mr Mojalefa Mohoto, the Acting Deputy Director-General of the Broadening Participation Division (BPD) briefed the Committee on the Division.

The Division was responsible for outcome four of the 12 national outcomes, specifically to provide “decent employment through inclusive economic growth”.  Its strategic objectives were to create an enabling environment conducive to the development and growth of small, medium and micro enterprises (SMMEs) and cooperatives; the creation and expansion of economic opportunities for enterprises, previously disadvantaged citizens and underdeveloped regions; to foster entrepreneurship and innovation through skills development and business support services; to enhance the competitiveness and productivity of enterprises through promotion of access to appropriate technologies and enabling infrastructure and skills; and to improve the efficiency of organisational and institutional arrangements

The sub-programmes of the BPD division were enterprise development, equity and empowerment, and regional economic development.   They included Black Economic Empowerment, skills for the economy, innovation technology, economic infrastructure and logistics, and regional industrial development.

Key challenges to the division were insufficient funding, and “fronting” affecting progress in the implementation of Broad-based Black Economic Empowerment (B-BBEE)

The priorities of the Division for 2014/15 were to:

Implement the Broad-Based Black Economic Empowerment Act and the Code of Good Practice;

Implement the Regional Industrial Development (RID) Strategy;

Finalisation of the Industrial Cluster Framework;

Implementation of the Innovation and Technology programmes;

Implementation of the Skills for Economy programmes;

Implementation of the Economic Infrastructure Programmes.

Mr Mohoto said that the BPD was reliant on various pieces of legislation and national departments, creating dependency.

National Empowerment Fund

Mr Rakesh Garach, Acting Chairman of the Board, National Empowerment Fund (NEF), gave the presentation on the organisation.   He described the mandate of the Fund and noted the outputs of the Fund, illustrating the achievements and high performance levels of the organisation.

He said that the Board had decided to discontinue new lending and focus on the health of the portfolio.  The reputation of the fund had been compromised in 2013, and the organisation had made improvements with regard to its public image.

Mr Garach described the recapitalisation initiatives involving the MTEF, reclassification and limited borrowing rights and the NEF/IDC Fund, leading to a temporary moratorium.   Up to 11 scenarios were developed that were meant to explore funding options available and that would be viable for the NEF in the short to medium term.  These were narrowed to a few options that were presented to the Board for final decision.  The monthly unencumbered cash position was tracked, and culminated in the proposal made in both January and April 2014 for the moratorium to be lifted.  However, it was indicated by Mr Garach that there had not been any conclusive successes with regard to the sourcing of new capital.

Mr Setlakalane Molepo, Divisional Executive, NEF, said the NEF Invested Process consisted of enquiries, applications, approved transactions, committed facilities and disbursements.  He described the mandate of the Strategic Projects Fund (SPF) and indicated that the unit was established to increase black participation opportunities in early-stage projects.  Its development and economic impact was geared towards the creation of new manufacturing and industrial capacity; the creation of new jobs, as opposed to replacement capital finance; the investment of new fixed capital, not economically depressed areas or poverty nodes; the creation of an inclusive economy; an increase in South Africa’s export earning potential; a reduction in import dependency; an increase of co-investment and linkage with foreign direct investment

The focus of the SPF was on enterprises in the following sectors: renewable energy; mineral beneficiation; agro-processing; business process outsourcing; infrastructure; and tourism.

Mr Molepo described the renewable energy projects of the organisation, which included KC Energy and Mabele Fuels to produce biodiesels, but the project still required consent from the Minister.  Mr Molepo added that Busa Med would be the first black-owned hospital, with over 600 beds. The last project described was Link Africa, which would provide fibre optic cables across the country within the existing sewer system, making it a faster process.

Mr Molepo said that the organisation had complied with its mandate through its Fund Management and Asset Management divisions, and described the achievements for 2013/2014, despite the limitations on resources.

R1 billion had been collected from loans disbursed to black-owned and managed businesses from all sectors of the economy. R350 million had been received thus far in 2014 alone.

Discussion

Mr Shivambu said that a designer clothing store had been allocated R20 million by the NEF.

He asked for a list of MECs assisted by the NEF, and said that the achievements may not correspond with the realities and follow-ups were required.

He asked why the Fund was optimistic about biofuels as these projects threatened food security, as arable land was scarce in South Africa.

He enquired about the recycling of tyres by the Recycling and Economic Development Initiative of SA (REDISA)

He asked about the background to the Special Economic Zones and their link to beneficiation.

Mr Shivambu enquired as to the scope of the Codes of Good Practice, and the enforcement of the Empowerment Charters. He said there was a lack of accountability, as Ministers benefited from the com-compliant entities. He asked what the interventions were relating to compliance.

Dr Luyenge emphasised the necessity for rural individuals to benefit from these programmes. He agreed that the Committee should follow-up on the progress of the organisation.  What were the implications of expansion to improve the lives of the poor?

Mr Mkongi expressed concern with regard to the students in the Technology and Human Resources for Industry Programme (THRIP) and requested information on their progress and the duration of their course.

He observed that the successes of the organisation had been primary in KwaZulu-Natal, and expressed concern regarding selective reporting.

He asked about the common offences which required penalties with regard to compliance with the BPD, and what the nature of the penalties was.

What strategies did the organisation intend to implement in order to counteract fronting?

Mr Macpherson asked if the transaction funding was on a singular or cumulative basis, and enquired as to the Division’s current vacancy rate.

He asked why the NEF’s unapproved applications percentage was so high.

He was concerned that no further funding had been made and that the application made to Treasury had been denied. The current funding model of the NEF needed to be reviewed.

Mr Macpherson recommended that the Division explore joint relationships to ensure that adequate funding was made available.

Ms S Sithole (ANC) requested that information be relayed in areas such as Limpopo through radio, as illiteracy rates were high.  She was also concerned about the implications of promoting biofuels instead of agriculture.

Mr Mathale enquired about the rationale behind the NEF’s contribution per province, as it indicated the contribution to the GDP and conveyed a contradictory mandate with regard to national demographics. What was the exact funding represented by the 1% allocation in Limpopo?

The return on loans was acknowledged,but the funding of businesses was conducted on the basis of viability and the returns were therefore to be expected.  What was the number of businesses which were still operating without any returns?

The Chairperson asked what the non-financial support, provided in terms of the mandate of the division, was.

The Chairperson expressed concern over empowerment, and asked what the mechanisms for providing empowerment were.  She further enquired as to the proportion of the budget which had been allocated to the enterprises being discussed.

She said it was undesirable to compromise food security, and it should be avoided.

The Chairperson enquired as to how the division would fulfil its priorities.

Mr Garach indicated that the Luminance transaction and retail store investment had been debated in 2013, with justification provided to members of the Committee.

Mr Macpherson indicated that the response from the Department was “inappropriate”.

Mr Mathale stepped in as Chairperson, as Ms Fubbs stepped outside, and reiterated to the Department that the Members were new and required a response which may include submissions.

Mr Garach offered to return and re-present to Members of the Committee on the issue.

Mr Molepo said that the Division was willing to take the Committee to funded businesses, and present a list to the Committee for a follow-up.  The information was available to the Committee.

The Department responded that identified Industrial Development Zones (IDZs) had been proposed by the provinces, and that a feasibility study would be conducted.

The Department said that the list of THRIP students could be made available, and indicated that Science students were prioritised.

The Department replied to Mr Mkongi that the Amendment Act dealt with offences that included fronting, misrepresentation and falsification of information.

Mr Molepo replied to Mr Mkongi that a Commission would be established to monitor performance and compliance, with penalties being applied by this Commission.  The penalties would include a loss of 10% of the business turnover and 10 years of imprisonment for fronting.

Mr Molepo referred to the concern over Mabele Fuels, and said that the team responsible for the programme had submitted it to the Department of Agriculture, and the Department had approved the use of sorghum instead of maize, as it did not adversely affect water security.

The NEF had been approached by promoters of tyre recycling, and the role of the organisation had been to establish the viable technologies. There were individuals wanting to benefit from the recycling experience and challenges faced by REDISA, and the organisation was evaluating solutions.

Mr Molepo said that the rural and community development fund had been established five years ago and said that the organisation was willing for the Committee to follow-up on these programmes, noting a collaborative programme with Clover. A list would be made available to the Chairperson.

Mr Macpherson requested a response to his question.

Mr Garach said that multiple borrowing by the same borrower was not allowed, and that a single tracking system was utilised.

He said that there was currently a 12% vacancy rate in the Department, and that efforts had been made since April 2014 to fill the vacancies.  However, not much progress had been made.

Mr Garach said that the Auditor-General was auditing NEF, and the NEF would present the results to Committee.

Mr Shivambu asked that the lists from the Department should be sent soon.   He also questioned the validity of the facts regarding single borrowers receiving multiple loans.   What were the qualifying criteria for NEF loan applications?

Mr Macpherson enquired as to the impaired loans from previous years and the calculation of the interest rate being offered.

Mr Garach said that the impairment ratio was 19%, including the provision for write-offs, and the Department would present on the R4 billion figure illustrated in the presentation.

He said that a department within the NEF post-investment unit performed mentorship and support around management accounts, site visits and assisting with turn-arounds.

Mr Molepo said that this department monitored performance, with the NEF absorbing the related costs of mentoring.

Mr Molepo noted that incubation services were provided with a data base from various departments for training.

Mr Molepo replied to Mr Mathale that the intention of the graph indicating the NEF’s contribution to the GDP was to ensure that regional offices provided exposure in provinces other than Gauteng.  He said that there had been 135 transactions in 2012/2013, and that a large percentage of transactions had emanated from the other provinces owing to the presence of the regional offices.

Mr Molepo replied to Mr Macpherson that the NEF did not have a minimum contribution or interest rate which was stipulated, and that the return was tailored to the borrower’s available resources.

Mr Molepo said that a cross-subsidisation model had been established to decipher the impairment dividend.

Mr Molepo replied to Mr Mathale that the Post-Investment department collected the loan returns and communicated with the entrepreneurs, to hold them accountable. Litigation helped the Department to recover misappropriated funds.

The Chairperson requested that the materials from the Department be submitted to the Committee by the middle of the following week.

The meeting was adjourned.

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