Deputy Minister and Economic Development Department on MTEF budget, infrastructure initiatives and New Growth Plan

Meeting report

Chairperson’s Opening Remarks
The Chairperson acknowledged and welcomed the Deputy Minister of Economic Development, and guests from the German and Japanese consulates, since both countries had a good relationship with South Africa.

Minister and Department of Economic Development: 2014 Medium Term Expenditure Framework and budget allied to government infrastructure initiatives, Progress Report on New Growth Plan implementation
Mr Madala Masuku, Deputy Minister of Economic Development noted an apology from the Minister, but said that he and the Minister had agreed that one or the other must be present at all engagements between the Department of Economic Development (the Department or EDD) and the NA or NCOP committees. He also noted an apology from the Director General who had been called to attend to other matters. The delegates who accompanied him were experts on the issues being discussed today.

Mr Masuku noted that the New Growth Plan (NGP) was developed to address the legacy of inequality in relation to access to resources, skills, investment, economic growth and development in the country. It set out the vision for socio-economic development in the country, dealing with strategic focus areas such as job creation and poverty. The NGP aimed to bring together both the private and public sectors towards a common goal, which was the creation of 5 million jobs.

In the process of development, there had been certain areas that all relevant players had agreed to focus on, and change where necessary to improve the economy and lead to achieving the hoped-for  5% growth. A focus was put on certain “job drivers”, because it was believed that they were most likely to facilitate growth, and these included infrastructure, in particular energy, transport, communications, water and housing. The main economic sectors to which priority was given were agriculture, agro-processing, mining and beneficiation and manufacturing (the latter to be a greater area of focus in future), as well as tourism. These were very important to South Africa’s growth. Finally, new economies would also receive attention, and that encompassed areas previously unexplored, such as the Green Economy and the Knowledge Economy, and he also mentioned that another key emerging area was the ocean. Finally, social capital comprised the social economy and the public sector, covering township economies, social delivery and collective working. There was also a need to look into spatial opportunities such as rural development and African regional development.

Mr Masuku then described what had actually happened since the launch of the NGP. In the first quarter, there was increasing unemployment, but this must be seen against the overall context of a rise in employment generally. Falling figures would be seen from time to time, but that did not imply that nothing was being done, for there had been serious interventions made by both the public and private sectors to address the drop, particularly by way of investments. There had been increased trade with Africa, especially in manufactured goods, over the last two to three years, and the EDD wanted to build on that. There had also been a substantial increase in industrial financing through the Industrial Development Corporation (IDC). Challenges faced included a reduction in mineral prices, volatile capital flows and over-reliance on imports of consumer goods, as well as workplace conflict linked to inequality and poor supervisory management.

Mr Masuku noted that the troubles in the global economy were worrying to South Africa, because its largest economic allies, such as the US, Germany and countries in the Eurozone were suffering, causing ripple effects on the South African economy. The fragility of the EU economy affected South Africa’s exports and there was also continued stagnation in commodity prices. Whilst South African growth was relatively high, compared to other low income countries, the Gross Domestic Product (GDP) growth was still quite low. The South African economy was fairly resilient but was not moving upwards as had been hoped. The BRICS countries were all dependent on the US and the Eurozone, so anything that happened there also affects them all.

After the adoption of the NGP, there had been some further development in the industries and an upward trend of employment, which showed that a positive intervention could really steer the country in the right direction. Other things still needed to be done but a good start had been made. Public investment was starting to increase and helping the economy to grow, and it was also hoped that the private sector would also start to increase its investments.

One key focus for the Department was to foster social dialogue with social partners. The National Skills Accord was one example, as it set targets for government and the private sector to expand training and internships and to support the Sector Education and Training Authorities (SETAs) and the Further Education and Training (FET) College sector. Another partnership agreement was the Basic Education Accord, which attempted to address some of the areas in education over which there was contention between government and the private sector, through a collective effort. The Local Procurement Accord committed government and the private sector to expanding procurement of locally produced goods and services, so as to maximise employment creation and deepen industrial capacity, and this had a target of 75% local procurement. Agreed interventions into the Green Economy had been set out in the Green Economy Accord, which covered areas including increased production of renewable energy, the installation of solar water heaters on a mass scale, and energy efficiency through the appropriate interventions such as regulations and investments. The October 2012 Social Accord focused on strengthening confidence in labour market institutions, addressing income inequalities and building cohesion, as well as the taking of action to combat violence during industrial disputes that were linked to the infrastructure build programme. The Youth Employment Accord had resulted in an increase in youth employment following the interventions initiated by Cabinet and National Economic Development and Labour Council (Nedlac). There had also been an increase in women employment, but this may be due to the fact that most of the newly-created jobs had been in the service industry. Overall, since the implementation of the NGP, 1.41 million people hade been employed and inequality was starting to fall. However, new challenges were faced through the rising costs of electricity and other service costs, the worsening global environment, and workplace and community conflicts.

Mr Masuku noted that public investment in infrastructure had grown, and that the construction industry had reported an increase of 116 000 jobs. Most were gained in Gauteng, Kwazulu-Natal (KZN) or Limpopo, but the Eastern Cape had seen a downturn in employment. Overall, employment figures had increased by 10.3% since 2010. In the agriculture sector, employment figures actually showed a shrinkage of around 7.8%, as Limpopo, Eastern Cape and the Free State had shed jobs, which was of particular concern because these were the areas in which growth should have been seen. The government had launched interventions to respond to this, such as the Fetsa Tlala programme in Limpopo, the Eastern Cape, Free State, Northern Cape, North West and Kwazulu Natal. Other interventions were seen in the forestry, aquaculture, small scale milling, the organic food sector and the development of a commercial scale soya-crushing facility in the Bronkhorstspruit Industrial Area.

In the mining sector, Mr Masuku noted a drop in employment, which was attributed to the instability of the platinum sector. Government had launched interventions to move back to strengthening bargaining structures and end violence, and there were also further moves to develop a beneficiation plan with a stronger focus on fabrication, coupled with amendments being made to the Minerals and Petroleum Resources Development Act (MPRDA) to provide security of mineral supply for local industrialisation, in particular iron-ore, manganese, chromium and nickel. Work was under way to finalise pre-feasibility reports for Special Economic Zones (SEZs), which would promote the creation of industrial hubs in under-developed regions of the country, such as the platinum belt in Rustenburg and Tubatse, the Dube Trade Port in Kwazulu-Natal (which was doing very well), a solar corridor in Upington and Atlantis in the Saldanha Bay SEZ.

The manufacturing sector, on aggregate, showed growth, especially in Limpopo and Mpumalanga, whilst the Western Cape and Gauteng were the major contributors to this growth. A key achievement was the launch of the Manufacturing Competitiveness Enhancement Programme, which should pave the way to the creation of 17 721 jobs over the next two years. The draft National Automotive Value Chain had given rise to nearly 40% of taxis being locally assembled presently, compared to virtually none in 2012. An estimated 314 jobs would be created through the Automotive Investment Scheme.

A number of programmes had been launched in the Green Economy, such as the renewable energy Independent Power Producer procurement programme, which had made substantial progress. The National Green Fund had 21 projects under implementation and a total approved budget for current projects of approximately R534 million, of which R188 million had been disbursed already. It was projected that a total of 12 937 jobs would be created once the projects were fully under way. Whilst this was, for South Africa, a new segment of the economy, other countries had made large strides already.

Mr Masuku then outlined the future plans. The NGP had set a target of 5% economic growth and 11 million jobs by 2030. Vigorous action would be required in order to meet these targets. The Medium Term Strategic Framework for 2014 – 2019 set out that the EDD should facilitate the establishment of structures for coordinating and supporting the implementation of the NGP job drivers. These structures were to be fully inclusive of all stakeholders, and would focus on unlocking job creation, inclusive growth, industrialisation and social inclusion. As yet, it was not possible to give a projection on the figures, but the Executive was working on plans to put R1.3 trillion to increasing infrastructure planning. The projects were spread across the various departments, and all of them needed time to respond and act, after which all the information would be compiled in a report, which would be referred to the Presidential Infrastructure Coordinating Commission (PICC) who would then confirm who would be doing what, and where, and this information would be passed on to this Committee in another presentation. Over and above infrastructure, the EDD and Ministry would be investigating, monitoring and compiling information also from other sectors of the economy. Work would be done with the provinces, focusing on their particular areas of growth, to allow for further development that would contribute to the nation’s overall growth.

Discussion
Mr W Faber (DA) (Northern Cape) thanked Mr Masuku for the presentation, saying that it gave him hope despite the current economic downturn. He asked about youth employment, and specifically the increase in youth jobs, asking if the figures excluded jobs created by government, whether the figures reflected private or public sector employees, or a combined total, and if it was a composite figure, then he would like to know the percentages for each sector.

Mr Faber noted that the Saldanha and Northern Cape corridor developments could allow for “a new Industrial Revolution from the Western side of South Africa” and asked how far developments on the corridor had gone.

Ms E van Lingen (DA) (Eastern Cape) thanked the Deputy Minister for the presentation, but wanted to raise two issues. Firstly, she reminded him that she had, during previous meetings, asked for a summary of all the Strategic Integrated Projects (SIPs), to allow this Committee to do its oversight better, and although that was promised, it was not with the Committee. Secondly, the rail corridor had been spoken about for a long time but Members needed to know exactly what the status of this was, and she noted that if Members could see what was being spoken of, it would have a better idea. Members in the Select Committee represented provinces, and it was at municipal level that these projects had to be implemented, although the presentation did not appear to appreciate this point.

Ms van Lingen said the unemployment figures made it clear that in certain provinces the employment rate had dropped drastically, and, according to the research done for the budget vote, the Eastern Cape was the worst affected province, probably due to the closing of mines. Members needed to be told exactly where projects were being implemented to create employment. She said that the Department must give a specific presentation including everything taken into account when reaching the inequality ratio, because she thought that this was a debatable point. Mention was made of some very important agricultural projects, such as ploughing 230 000 hectares in five provinces, but more details were needed. The Committee needed to know how the small scale milling industry worked. The presentation seemed to suggest that 130 farmers were trained in organic farming, but it was not possible to train people organically. Aqua-culture was an interesting concept, but again, Members needed to know the status of the projects to be able to follow up on them. She asked why there was a loss of jobs in the agro-processing fields, such as dairy products.

Mr E Makue (ANC) (Gauteng) commented that Members of this Committee welcomed the indication that the EDD was responsible for the coordination of all economic initiatives. He wanted to know if the informal business sector was included in the figures on slide 8, for there were various employment opportunities there. He asked about the issue of inequality, and mentioned that it was particularly important, in view of the country’s history, to expand on this.

Mr Makue said, in relation to local procurement, that Members recognised that one of the challenges in implementing local procurement came from the SIPs, and asked if the EDD had any influence or relationship with any of the SETAs. Mr Makue noted that the provinces cited as shedding the most jobs were in fact those where the initiatives were based, and he asked if there would be opportunities to verse the progress of these initiatives.

Mr Makue asked if the truck and bus assembly plant mentioned in the presentation was the same one that the Department of Trade and Industry (dti) had referred to, because the dti had noted that it would be in Pretoria West, but Rosslyn (mentioned here) was in the east.

Mr Makue wanted more information on the Monetla programme, and lack of experience by the youth, and said it would be desirable to see a dramatic increase in experience because this was a nationwide, large scale programme. He asked how there could be engagement with relevant parties, such as the Minister of Education, to address this issue. He says he knew of people who had undergone training and had then been offered work opportunities so they could become self-employed, but instead of making good on the opportunities, they often sold the resources given to them, because they had not in fact been properly trained and actually did not know how to use the resources. There was a need to better coordinate this training so the youth could truly benefit from it.

The Chairperson commented on the targets for R1.71 million and 1 359 jobs over a period of three years, and said that the numbers seemed small, especially given the population of South Africa. He hoped that more information would be given on that point.

Mr B Nthebe (ANC) (North West) asked the Deputy Minister to expand on the economic opportunities to be unlocked in the North West. It was correctly identified in the presentation that one of the issues was over reliance on imports, particularly that South Africa was a net importer from Taiwan, and another issue was that of beneficiation. He says there was a strong emphasis on local content, beneficiation and other issues in theory, but the presentation failed to state specifically how this would be planned, and he asked when beneficiation and localisation would actually be put into effect. He also noted that a project in Ekurhuleni, which was to create 1 500 jobs, had not been mentioned in the presentation. He also noted that in Pretoria, a company was producing train carriages, at a cost 30% lower than the Chinese imports, and there did not seem to be enough support given to these kinds of home grown initiatives.

Mr Nthebe asked why figures were given from age 15, and not from the age of adulthood.

Mr S Mthimunye (ANC) (Mpumalanga) asked about the Moloto Rail Corridor, and whether it was regarded as of economic significance. If not, then he wanted to know the reasons. He cautioned that the EDD should not be placing too much priority on new projects, to the detriment of older projects that were equally important to the growth of the country.

Mr Mthimunye noted that, according to the consumer price index, the credibility of borrowers in South Africa had dropped over the last nine quarters and banks were being more conservative in their lending. This seemed to be contrary to the notion that the financial sector was supposed to help more during economic downturn than during economic booms.

Mr J Londt (DA) (Western Cape) agreed with Mr Faber’s comments on the need to get a breakdown of all employment figures, with the comparison between private and public sector job creation. He said it was clear that private investment had stagnated and there was a need to revive and escalate it and thus wanted to know what the plans were to achieve that.

The Chairperson asked the Deputy Minister if National Treasury and the EDD communicated, especially when it came to infrastructure development, since it was important to have good communication when the first had the money and the other was coordinating the projects.

The Chairperson asked how far the Mthombo Project had gone, in the Eastern Cape. He commented that most of the projects raised emanated from the 2013/14 year, and he requested an updated status report on them, and for the EDD to be consistent and systematic with its reporting.  Committee members were concerned about their provinces, and would soon need to interact with their constituencies, so they needed to be able to report on progress made. The progress reports would also help with the oversight visits.

Mr Londt suggested that the Committee should set deadlines for the information that Members were requesting, to allow for further follow-up.

The Chairperson agreed, and said that the Committee would set up a monitoring system to ensure a follow up on information requested.

Mr Kaemete Tsotetsi, Chief Director: Economic Policy, Department of Economic Development, responded that the delegation would not be able to attend to all of the questions raised at the meeting. He further noted that the presentation had needed to be very concise on some topics, lest it run into hundreds of slides of finer detail. He emphasised that the EDD was focused primarily on coordination, monitoring commitments made and addressing challenges raised.

Mr Tsotetsi said that the EDD could give information on the specific provinces, but a more specific provincial focus at this meeting would have taken up twenty slides on its own, which is why EDD chose rather to summarise the information. It could, however, be provided in more detail to the Committee later.

Speaking to the questions on youth employment, Mr Tsotetsi said that the figures did not make any distinction between private and public sector employment.

Mr Tsotetsi said that in relation to the Northern Cape Corridor, the Department of Trade and Industry had  identified nine or ten projects, some of which had already been launched, while others were still in the planning stage. There had been pressure from national government to the provinces to get these projects going. SEZ managers were to be appointed in all provinces to start dealing with the work and that should lead to further action. R9 billion had been set aside for these projects and EDD would like to see them move forward.

The Strategic Integrated Projects (SIPs) were now covered under the new Act, which gave the Minister power to appoint SIP coordinators, which would lead to much more detailed information being presented on blockages and challenges faced in the SIPs.

The country as a whole was still indeed facing challenges such as poverty and inequality, and although there had been some improvement, the inequality figures were high against international standards.

Mr Tsotetsi said, in line with his earlier remarks, that not all information had been included on the agricultural projects, because this would have been simply too much, but EDD would provide the information separately. The EDD was monitoring progress and had introduced the Agricultural Policy Action Plan which would help it to monitor implementation of projects, on a quarterly basis, to determine how much progress had been made. However, there was a difficulty in that sometimes the interventions alone were not sufficient and job losses would still occur despite them. Sometimes this related to issues of coordination, but the EDD would start to zoom in on the problematic areas, to determine how best to assist and rectify the problem.

Mr Tsotetsi noted that the EDD would also be making a more concerted effort to address the issues of local procurement and skills, by implementing all the accords that the Department had signed, and he reminded Members that one of these spoke directly to local procurement. In relation to the Skills Accord, the EDD was working with the Department of Higher Education and Training, to address some of the issues, particularly lack of skills in the youth.

In relation to beneficiation and localisation, he noted that amendments had been made by Parliament to the MPRDA, but EDD was not waiting for the Act to be implemented, but was already working on beneficiation and had developed tight timelines to ensure that work was done and progress would be made. The Medium Term Strategic Framework made it very clear what had to be done, and concentrated effort would be put into this.

Mr Tsotetsi conceded that proper oversight had perhaps not been given to the projects in Ekurhuleni.

Ms van Lingen interjected at this point to complain that the EDD seemed to be “dodging” the questions posed by Members. The Committee needed to know what and where the projects were, in order to do oversight, and that information was not forthcoming from the Department. The Committee had now asked twice for the information, and it seemed clear that the EDD did not know what it was coordinating, if it could not name the SIPs and the various projects, and give specific answers on them.

The Chairperson suggested that the Committee listen to the remainder of the answers, as the EDD may well address those issues later.

Mr Tsotetsi continued that the EDD had  decided to start working with the provinces to provide oversight, and to look at the non-financial performance of all the provinces, particularly with respect to key projects. Some of these projects may not be overseen at the moment, and he looked forward to hearing what assistance the Committee might be able to offer.

Mr Nyika Gwanoya, Director: Economic Policy, EDD, stated that the employment figures had included the formal and informal non-agricultural sectors, and had also included the agriculture sector as well. Following up on the response of his colleague, he agreed that whilst the GINI coefficient figures for inequality had dropped from 0.67 to 0.65, this figure still showed that, by international standards, inequality remained too high. The EDD had specifically chosen to use age 15 when compiling the employment figures, because this was a conventional statistical indicator. The figures on the breakdown of employment in the private and public sectors could be sent to the Committee; they were excluded from this presentation only because of the huge amount of other information to be presented.

Mr Gwanoya commented that the CPI and credibility of borrowers ratings were based on the fact that the financial sector was in the business of making money, which explained why it was acting conservatively.

The Deputy Minister repeated that in future presentations, statistics would be disaggregated. He apologised for not bringing the information on the SIPs to the Committee, saying that he thought that this issue had been attended to. EDD would get back to the Members with specifics and details, as requested.

The Deputy Minister made the point that EDD had been advised by Parliament that, when presenting on a project, it should concentrate on what had been done, and not what was planned, which explained the focus of parts of the presentation. The EDD and National Treasury were working together as National Treasury was included in the collective of departments giving advice to the EDD.

Mr Masuku spoke to the questions on specific projects, and said that the EDD did look in depth into areas of under-performance, especially when there was an expectation of high performance, in order to verify the reasons for that under-performance and determine how to address the problem. He noted that the EDD would be verifying where exactly the Bus and Truck Assembly project was located.

Mr Masuku repeated that the EDD was working with the Departments of Education, including the Skills Forum, and this work was directed to analysing what skills were missing and what was being done to encourage their further development. The system was already in place so it was a matter of coordinating. Equally, in relation to beneficiation, there was a specialised coordination programme at the level of the Presidency, which would inform platinum beneficiation, and there were other areas also being looked at, such as tourism and agriculture.

Mr Londt made the point that in future, the Committee Members needed to be given the documents well in time to work through them, preferably a week. He heard what the Deputy Minister had said about appointing coordinators but stressed that the Committee would want to check that they could actually do their jobs and the projects would be assessed for successes and failures, to determine where assistance might be needed, or where a person might need to be let go.

Mr Makue stressed that, in order to keep track of issues, it was very important to have them specifically minuted, with a projected date for the response, and he agreed with his colleagues that Members needed to get documentation in sufficient time to read through it and be prepared for the meeting. He appealed to visitors to ensure that the names and positions of Members were recorded correctly, and to make a proper distinction between “contributions” and “decisions”.

The Chairperson agreed with both Mr Londt and Mr Makue. He pointed out that any information could be forwarded on mobile devices to Members. It was indeed vital to provide accurate accounts of what was said in meetings. He thanked the Deputy Minister and Department for their candour during the presentation and questions.

Other Committee business
The Chairperson asked that the minutes of meetings should be sent out by the support staff in PDF format, because the current format was not compatible with mobile devices. He pointed out that all documents must in future be numbered. He then asked Members to make suggestions on the minutes.

Minutes of 9 July
Mr Makue pointed out a correction to be made to the minutes.

Ms van Lingen said the information must be checked; it could possibly be correct because every Department could have more than one Deputy Director General, but this could also be stated more clearly.

Members agreed to the adoption of the minutes, subject to correction.

Minutes of 15 July
The Chairperson noted that no corrections were needed, and the Minutes were adopted.

Minutes of 22 July
The Chairperson noted that no corrections were needed, and the Minutes were adopted.

Mr Londt made the general point that the manner in which the Committee had voted must be recorded in the minutes, and decisions actually reflected in terms.

Mr Makue asked that a check be done on whether this Committee could vote on budgets. He thought that the vote was done in the House.

Mr Londt said that it would be a poor reflection if, in the House, a Member were to stand up and say that something had been voted on, when it had not, so it was vital to reflect accurately in the minutes what had happened at the meeting.

The Chairperson thanked Members for raising these points, and said that the Committee staff would look into the matter.

The meeting was adjourned.