Development Bank of Southern Africa Amendment Bill: National Treasury briefing

NCOP Finance

21 October 2014
Chairperson: Mr C De Beer (ANC, Northern Cape)
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Meeting Summary

The National Treasury briefed the Committee on the Development Bank of Southern Africa (DBSA) Amendment Bill (B 2 of 2014).The presentation focused on the background and post-restructuring period of DBSA, the main objects of the Amendment Bill, the process of introducing the Bill in Parliament and the clause-by-clause discussion of the Bill. The primary mandate of the DBSA was infrastructure development finance in South Africa and the rest of the continent. In South Africa, the DBSA had 67% risk capital and 33% risk capital in the rest of the African continent. The Minister of Finance signed the Mandate Statement with the DBSA Board as part of shareholder oversight each financial year.

The main objects of the proposed changes to the DBSA Act included the following:
1) To specifically enable and regulate in the DBSA Act extension of DBSA’s operations to African countries outside SADC;
2) To increase authorised share capital of DBSA and to enable further increases to address growing demand for infrastructure capital and enhance the DBSA capital base;
3) To amend the Minister’s regulation making powers.

Committee Members asked questions relating to the funding of infrastructure in big cities by the DBSA and the including of agriculture on the DBSA’s agenda.
 

Meeting report

Opening remarks by Chairperson
The Chairperson welcomed Committee Members and stated that the purpose of meeting was to receive a briefing from the National Treasury on the Development Bank of South Africa (DBSA) Amendment Bill (B2-2014). He read apologies for Ms W Zondi (ANC, KwaZulu Natal) and Mr T Motlashuping (ANC, North West).  He noted that after the briefing and discussion, he will give Ms T Motara (ANC, Gauteng) an opportunity to take the Committee through the programme for the Committee that would run until November 2014.  The committee would be operating as part of a package with the Select Committee on Appropriations and the National Assembly counterparts.

The Chairperson said that by not just looking at infrastructure development but also looking at agriculture, South Africa could go beyond or take a lead in Africa because food security in the continent was a serious issue. He handed over to the National Treasury team to brief the Committee.

Development Bank of South Africa Amendment Bill (DBSA)
Adv Empie Van Schoor, National Treasury Chief Director: Legislation said the presentation will focus on the background and post-restructuring period of DBSA which will be presented by her colleague, Mr Ben Mokheseng, Deputy Director: Development Finance Institutions and she will deal with the main objects, the process of introducing the Bill in Parliament and the clause-by-clause discussion of the Bill.

Background and Post-Restructuring Mandate
Mr Mokheseng presented a brief background of the DBSA, stating that it was listed as a major public entity in Schedule 2 of the Public Finance Management Act. He then outlined the characteristics of a schedule 2 public entity.

The primary mandate of the DBSA was infrastructure development finance in South Africa and the rest of the continent. In South Africa, the DBSA had 67% risk capital and 33% risk capital in the rest of the African continent. The Minister of Finance signed the Mandate Statement with the DBSA Board as part of shareholder oversight each financial year.

Mr Mokheseng then presented the post-restructuring process and operating model to the Committee. This highlighted the lending and non-lending operations of the organisation. The Committee was presented with the details relating to disbursements and the 2013/14 performance.

Main Objects
The main objects of the proposed changes to the DBSA Act included the following:
1) To specifically enable and regulate in the DBSA Act extension of DBSA’s operations to African countries outside SADC;
2) To increase authorised share capital of DBSA and to enable further increases to address growing demand for infrastructure capital and enhance the DBSA capital base;
3) To amend the Minister’s regulation making powers.

Adv Van Schoor presented the process up to introduction of the Bill and took the Committee through the clause-by-clause consideration of the Bill.

Discussion
The Chairperson thanked the National Treasury team for the presentation and opened the floor to Committee Members for discussion. He said he will notify the researchers to prepare documents for the Committee to get explanation on the presentation.

Mr Mohai said he wanted clarity on infrastructure funding and asked if the DBSA funded the infrastructure developments in cities like malls.

Mr L Gaehler (UDM, Eastern Cape) asked if agriculture could be included under the post-restructuring mandate of the DBSA.

The Chairperson said Mr Gaehler must remember the presentation made by Mr Shaik last week where he indicated that he must still go and consult his colleagues within the bank but looking at the realities of the continent, the agenda of African Union and operations of the African Development Bank that was the route to take in the future and it had to be addressed as matter of urgency.

Mr Mohai in a follow up question indicated that agriculture was a major concern and it was very important to address it because it affected the poor people.

The Chairperson said if you look in the corporate plan of DBSA, water and energy was the agenda and along the way came agriculture.

Mr Mokheseng said that with regard to agriculture, government had to recapitalise the DBSA because its capital structure was very weak and the major reason for that was because DBSA was funding other projects outside its mandate like property development. For any bank to be more effective in effecting its mandate, it should be focused and needed to be clear in infrastructure development such as water, energy, transport and ITC.  The Land Bank of South Africa was responsible for agro-processing and the IDC’s core mandate was industrial development, but also partly responsible of agro processing. He also indicated that there were cases where the IDC and Land Bank overlapped with the DBSA’s mandate and that lead to wastage of government resources. He said for the last two years, DBSA had worked very hard to refocus its mandate in infrastructure development. He agreed that agriculture was top priority alongside infrastructure but at the moment the right institutions to deal with the issue was the Land Bank of South Africa.

In terms of funding of the development infrastructure in the cities, Mr Mokheseng said municipalities including Metropolitan cities were the top priority markets of DBSA, and in addition to that he said looking at the loan book of DBSA, 30 to 35% of its loan book was the assets of the municipalities. In conclusion he said that DBSA did fund municipalities but not top building like malls.

Adv Van Schoor said the statement indicated that the share capital of the bank was R5 billion and the issue checkup bill was R2 billion. The current reversion indicated that the Bank comes anytime to shareholder and requests the shares to be fully paid up. The bank could inform the shareholder without any approval and what the DBSA wanted now was the Bank to go to the Minster for approval to request the shares.

The Committee adopted the minutes of the previous meeting

The meeting was adjourned.
 

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