Minister and Department of Economic Development on its First Quarter Expenditure Report for 2014/15

Meeting report

Briefing by Economic Development Department
Minister Ebrahim Patel, Minister of Economic Development said the first quarterly report was the first opportunity to inform the Committee of the areas of focus the Department had identified. In the past five years it had focussed on integration and the first quarter report would be covering that integration as the Key Performance Indicators (KPIs) which had targets for that quarter was presented.

Briefing on Key Performance Indicators

Minister Patel presented, under KPI 4, a report on trends in inclusive growth was prepared for the Minister. Under KPI 5 the Department hosted a conference on manufacturing.

Under KPI 7 an analysis of employment, migration and growth trends by province was done. Gauteng and Cape Town had high growth rates compared with the national average and the implication was to shift growth away from these metropolitan centres.  It developed recommendations on the program for radical economic change.

Under KPI 8 a research paper for manufacturing companies was produced for the conference on manufacturing.

The Minister discussed case studies for small entrepreneurs under KPI 12.

Under KPI 15 the Department assisted Limpopo and KwaZulu-Natal (KZN) which had requested assistance with their strategic plans.

Under KPI 16 it compiled 18 quarterly Strategic Infrastructure Projects (SIP) reports and conducted five site visits and provided a special progress report to Cabinet on SIPs. It provided assistance to the Presidential Infrastructure Coordinating Commission (PICC) secretariat.

Under KPI 17 the Department assisted in the unblocking of projects.

Under KPI 19 the Department held road shows and developed an integrated approach to small business support and the convening of a small business conference.

Under KPI 20 the target of industrial finance disbursed by the IDC and SEFA was more than the budgeted R1.25 b. R3.7b was disbursed and R2.2b approved. He said development finance institutions had to shift more of their resources to areas where funding was not well resourced.

Under KPI 21, the Minister discussed the evaluating of the impact of its regulatory agencies on job creation.

Under KPI 22, where it had held three meetings with the competition authorities, ITAC had published draft policy guidelines and finalised six investigations.

Discussion
Mr S Tleane (ANC) congratulated the Minister on his presentation and his involvement. He said he approved of the approach to focus on job creation and small business and the Minister’s engagement directly with ordinary citizens.

Mr P Atkinson (DA) asked when the Umzimvubu dam would be completed. What percentage of the total manufacturing sector did the clothing and textile industries represent? He said the interventions were in ‘old’ industries like the clothing industry. He asked the Minister’s view on investment in ‘new’ industries like IT.

Mr M Lekota (COPE) asked if the small business toolkit guidebook could be produced in African languages.

Mr I Pikinini (ANC) said that the type of work that the Department was doing required people with vision of the radical economic transformation as was stated by government.

Ms C Matsimbi (ANC) said the Minister was not wrongly appointed.

The Chairperson said what was still lacking was pulling together the Minister’s narrative report and the KPIs.

She said the Industrial Development Corporation (IDC) funding for women or the youth were not fully utilised. Did the IDC embark on road shows to highlight their schemes and assist access to the funds? She said the location of the case studies should be included in the reports. The Department should work on helping small business by removing blockages and assisting in the marketing of their products.

Mr Patel thanked the Committee members for their positive comments. He said the radical economic transformation would mean that the Department had to look at practical issues and to focus their efforts on entrepreneurship to expand the productive sectors of the economy because a big portion of the GDP could be ascribed to the productive sectors.

Regarding the dam, he said it had been conceptualised in 1962. The Department had tied down implementation and wanted it completed by the end of this administration.  Actual construction had unearthed problems unforeseen in the planning stages. After the dams completion the Department would continue its involvement to ensure that irrigation systems were set up.

Regarding the textile and clothing industries, he said it was 3% of the total manufacturing sector which in turn was 7% of the total GDP. The focus on the clothing and textile industries was because it was so labour intensive. Government had committed itself to increase employment numbers.

He said translating policy into reality required detailed work. The IDC had brought in R5.1b of co-investment.

Some of the focus was on the ‘old’ economy but the Department was also involved in the ‘new’ economy for example the film industry, where it jointly funded the film studios in the Western Cape and the green economy was the fastest growing segment of the IDC portfolio.

The Chairperson asked if the film industry was centred in the Western Cape or was it spread around other parts of the country.

Mr Patel said in the long term the industry would be centred in the north but that in the short term American and Indian films focussed on Cape Town. The Department wanted to tempt companies to South Africa and once here they would be introduced to Mpumalanga and the KwaZulu-Natal (KZN). He noted that all South African movies were integrated and their locations were around the country. He said different location hubs would appeal to different types of movies.

Mr Madala Masuku, Deputy Minister of Economic Development, said the Western Cape had established film offices and put strong marketing in place and that Gauteng started later.

Mr Patel said it was another ‘new’ economy area and the IDC was seeking to get funding flowing for IT as used in the post production phase of movie making. The film industry was also committed to local textiles and clothing designers for film productions. While the clothing industry only made up 3% of the GDP it accounted for 13% of the employment figures.

He said they were working on a Zulu translation of the small business guide and hoped to have published it in one other language by the end of the year.

Minister Patel said there was a need to look at all job drivers. It had taken three years to bed down the proper infrastructure systems. Integration was the key requirement and this needed a different mind-set. The Department would continue to integrate entities and the IDC had doubled its investment flows through sweating its equity.

He said he noted the Chairperson’s comments on the report’s format and would strive to make a tighter connection between the reports.

The Minister said the IDC investment funding amounted to R59b from which it made a return which was ploughed back into financing investments. When it publicised funding for youth development the funding had to meet legal tests and have merit. It had approached National Youth Development Agency (NYDA) requesting that they use their funds to screen and support applicants prior to their approaching the IDC.

Minister Patel said there was always scope for more road shows by the IDC instead of passive newspaper advertisements.

He said the Department was using competition policy to assist smallholder grain farmers to get a 40% discount at AFGRI grain silos.

He said the biggest area for clothing and textile manufacture was KZN with footwear centred around Pietermaritzburg and the midlands.  The Western Cape was second as it had struggled against imports and thirdly it was in Gauteng in Jeppe/Doornfontein and Babalegi/Mogwase. In the period between 2009 and 2014 government had been able to stabilise the rate of loss of jobs. South Africa needed to maintain its clothing and textile industry because of its capability to absorb jobs.

Mr P Atkinson (DA) asked if the Committee could also be sent invites when conferences were held, such as the one on manufacturing.

The Chairperson asked if the distressed fund was still available to businesses. Were companies accessing it and what were the challenges? Would it be ended or be recapitalised?

Mr Patel said invitations would be sent to the Committee in future. He said the distress fund was instituted in 2009 when the economy was in recession. It was used to maintain investment into infrastructure through a countercyclical fiscal policy. In this period the public sector rescued the banking sector. The IDC started a R6.1b distress fund. Companies like Bell, which manufactured earthmoving equipment in Richards Bay, was able to get access to finance because it could not get access to funds from the private banking sector.  The facility was still available but scaled down.

Ms Jennifer Schreiner, Director-General, said the department’s budget was R56m lower than the previous year. She said the Department was paying more attention to demand planning. It had done extensive work on the Annual Performance Plan (APP) and prioritising KPIs. It had a complex staffing model which included contracting staff for periods of time and the part time secondment of staff from other entities. It had implemented systematic cost containment measures. She said the second, third and fourth quarter reports of 2013/14 would be submitted on 4 September.

Ms Sempethe Thobejane, the CFO of the EDD, said R177m had been budgeted for expenditure but only R161m (91%) was spent. Variances were mostly due to decisions not to fill posts while restructuring was taking place, the use of personnel drawn from public entities, funding obtained from the EU for a conference on manufacturing, delays in receiving procurement invoices, the Minister’s request to effect savings so as to support key projects for small business. The demand plans would be finalised in two weeks and any savings would be used to support Small Enterprise Finance Agency (SEFA) whose budget had been slashed.

Ms Schreiner said many functions had been consolidated which had resulted in the redesign of the staff complement and led to the position of issuing staff contracts until the redesign was finished.

The Chairperson asked how far the restructuring of the organogram had progressed.

Ms Schreiner said the Department had worked on its service delivery model and it was in the final approval stages and were in the process of designing the concept of the structure and it should be finished by the end of the calendar year.

Mr Atkinson asked whether the Department had been able to do their work, given the fact that they had underspent on staff budgets especially in the program on economic planning.

Mr Tleane said the variances should not necessarily alarm the Committee but checks should be made in the following quarter. He said there was a typing error regarding the conference where it was stated that the grant was R1.8m when it should read R1.5m.

Mr Lekota asked if it was a regular occurrence that budgets were requested but then underspent and was it replicated in many other departments.

Mr Pikinini asked how many vehicles the Department had.

The Chairperson said the filling of posts needed to be fast tracked.

Minister Patel said the spending on staff in the planning program was low not only because of the restructuring of the department. It was because the PICC was located in the Department and he had asked that public agencies to second experienced staff to work on infrastructure projects and pay them. The underspending on staff salaries would instantly disappear if the Department had to pay them but the people were of such a high level that the EDD would not be able to afford them. This was why the Department was showing a surplus. The biggest benefit of using these contracts and seconded staff had been in integrating these agencies and helping them understand the problems. However the Department was starting to carry more of this salary cost as it was not sustainable in the long term.

Ms Schreiner said it was correct that the conference cost was R1.8 while the Department had budgeted R1.5 for it. She said monies not spent in one quarter needed to be spent in other quarters. The Department would not allow savings to be dumped in frivolous issues but was rather given to SEFA. The Department was working on the restructuring and filling of posts and were managing it as they were aware it cascaded into the goods and services item in the budget.

Ms Thobejane said the underspending was not a trend. The Department had 12 cars.

She said accruals were with regard to services rendered but not invoiced by the supplier and the payment beyond 30 days was not caused by the Department.  Regarding costs of accommodation, the invoices had been delayed by the service providers.

The Chairperson said the Department needed to look at fast tracking the finalisation of vacancies. She said she wanted to get a better understanding of demand plans and their relation to expenditure trends. She said the Committee had requested from SEFA a document on intermediary review but had still not received it.

The meeting was adjourned.