State Diamond Trader & South African Diamond and Precious Metals Regulator on their 2013/14 Annual Reports

Meeting report

South African Diamond and Precious Metals Regulator (SADPMR) 2013/14 Annual Report

Mr Gabatsholwe Levy Rapoo, Chief Executive Officer, South African Diamond and Precious Metals Regulator (SADPMR or the Regulator) noted that this body had received an unqualified audit, with matters of emphasis.

The Regulator was addressing performance challenges identified by the Auditor-General (AG) in the report. He noted that there had been a restatement of figures for 2012/13, after discovery of an error in the 2013/14 accounts. He spoke to the achievements in relation to realising predetermined objectives; ensuring equitable access to resources for local beneficiation; legislative compliance; competitiveness, sustainable development and job creation in the diamond industry (see attached presentation for full details).

He said 60% of the world’s diamonds came from Africa and research was being conducted on the possibility of establishing a diamond Bourse in South Africa. The research findings were currently with the board of directors and still needed to go to the Minister and Cabinet, and from there through the legislative phases.

SADPMR had no disabled people in the organisation, but it was working on recruiting disabled people.

It did not have a high staff turnover.

The challenges SADPMR faced and interventions it made to address them were outlined. The SADPMR grant had been capped for the past three years, while the cost of operations had increased. Funding from Department of Mineral Resources (DMR) had not increased to match operational costs. Access to funding for emerging businesses remained a problem. Access to rough diamonds was dominated by financially strong buyers. Access to markets by small beneficiators was limited. Finally, he noted that transformation of the industry remained a challenge.

Discussion

Mr J Lorimer (DA) asked if there was an increasing deficit, and, if so, whether the Committee should be concerned about this. He said all regulatory authority was based in Johannesburg, and wondered if any consideration had been given to moving these bodies to other centres, such as Cape Town.

Mr M Matlala (ANC) wanted clarity on slide 14, and asked if there were any plans for the future to address the challenge of employment statistics. Noting the comments on the intentions, he asked what guarantee there was that the plans would be in place. He wanted clarity on the mention of warnings given to a number of people. He asked how many of the staff had resigned for greener pastures.

Ms M Mafolo (ANC) said that, like Mr Lorimer, she believed that the State Diamond Trader (SDT) should cater for the whole country, not just Johannesburg or Cape Town. She also asked for an indication of whether transformation was actually happening.

Mr H Schmidt (DA) wanted further clarity on the restatement of figures. He was not impressed with the number of beneficiation licences issued, and asked how long it took for such licences to be issued. He noted that there were still problems with the emerging businesses, and said it appeared this initiative "was going nowhere, slowly". The shift in the regulatory framework should have resulted in better figures. He also wanted to know the actual figures for local beneficiation, and said that a great concern for local beneficiation was the Chinese industries and influence, and he asked whether the Chinese buyers were not forced to support local beneficiation.

Mr S Jafta (AIC) was concerned by the fact that there had been a regression from a clean audit to an unqualified audit. He asked about the situation in regard to vacancies in the organisation.

Nkosi Z Mandela (ANC) asked how posts were advertised. He wondered whether there had been outreach to rural areas. In relation to the disciplinary matters, he asked what kind of misconduct the warnings were issued for. He felt there were too many warnings, and no dismissals. Apart from the internal bursaries, he asked also if there were any other bursaries available so that transformation of the industry could occur.

The Chairperson wanted clarification of the term ‘bourse’ and of the involvement of the Chinese diamond traders. He said that finding disabled people to employ was the responsibility of the entity.

Mr Rapoo said there were no people with disabilities working at SADPMR.

Mr Rapoo explained that the bourse was to be established to enhance the trade in diamonds.  Africa was only "waking up" now to beneficiation and South Africa was the only country where there was beneficiation in Africa. It would be necessary to counteract the advantages enjoyed by established diamond beneficiating countries like Israel and India through improved technology. Botswana had attracted a lot of beneficiators from South Africa because of a relaxation of regulations.

He said there was an endeavour, in the previous year, to establish a Diamond Exchange and Export Centre (DEEC) in the Western Cape. The Regulator had considered partnering with a private licensee. It had looked at statistics, and the travel and employee costs for this office, and had considered that it was not possible to find space for it in the budget. The Western Cape, statistically, was the lowest in the trade of diamonds. The applicant was not a producer but a diamond dealer. The SDT was now dealing with a second application from the same applicant.

He said there were a number of bursaries, but the industry had to offer bursaries and learnerships as part of their transformation initiatives.

Mr Llewellyn Delport, Board member and Chairperson of the Finance Committee, SADPMR, said the surplus of the SADPMR was ring fenced so management had to apply for it to be  used for capital projects.

Mr Rapoo had said the warnings were for small violations like going above cell phone use limit, but these matters had to be reported.

He explained that posts were filled internally, if possible, otherwise advertised nationally and people were recruited from around the country.

Commenting on the transformation issues, Mr Rapoo said that the Board had realised during the previous year that very little was being achieved, and so had established a transformation unit which went to licensees to do verification. Beneficiation licences took two months to process.

He explained that the reference to the misstatement meant it was corrected

Mr Delport said he was involved in the private sector, and the scrutiny the Regulator faced by the AG was similar to that faced by corporations in the private sector, being quite tough.

State Diamond Trader (SDT) 2013/14 Annual Report briefing

Prior to the SDT presentation being given, Mr Lorimer said he was still awaiting the names of the biggest clients of the SDT, which he had asked for two years ago. More recently, he had asked how many customers SDT sold to, and what quantities were sold to each of them. He requested that the SDT must produce these figures by the end of the week. He said it appeared that the SDT was hiding information, and this raised the question of what it might be hiding, and why.

Ms Mafolo said the SDT should do its presentation now, because of time constraints and also because Mr Lorimer had not raised the matter when the agenda was discussed. She suggested that the SDT could then make research on the law about making peoples names available.

Mr Matlala welcomed Mr Lorimer’s comments and said it was the duty of the Committee Secretary to follow up on questions that Members posed in meetings.

Mr Schmidt said the SDT should be asked this question now, as it was possible that it might have the information available.

Mr Lorimer repeated that he had been waiting two years for the information, and either the SDT was hiding information or it was not taking the Committee seriously. In either event, the entity had no credibility, and this would leave him with no alternative but to leave the meeting at this point.

Mr Schmidt agreed, and said that whilst he apologised for this, he would have to follow suit.

Ms Dolly Mokgatle, Chairperson of the SDT Board, said the legal issues regarding the divulging details of business transactions had to be taken into account.

Ms N Nyweba, Chief Financial Officer, State Diamond Trader, tabled and went through the attached Annual Report presentation (see document for full details). She spoke to SDT inspections, diamond purchases and sales. The SDT received an unqualified audit report, with findings on the audit process and internal controls, and this was in respect of a one year contract which had been extended without getting new quotations.

Discussion

Mr M Matlala asked what the reasons were behind two people resigning. He requested whether the on-the-job training was done only in Kimberley.

Mr I Pikinini (ANC) said he had heard of a client who had been assisted by the Industrial Development Corporation, and asked for more details on exactly what form the assistance took.

Nkosi Z Mandela said the presentation indicated the total number of clients sold to were 46 for the year while the Sales to Mandate clients increased to 18. He asked for clarity whether this was from one list or from two different lists. He wanted to know how government funding was justified, when SDT was reported to be making gross sales of half a billion rand.

Ms N Sibeko, Legal Officer, State Diamond Trader, said, in response to comments made earlier, that the SDT had nothing to hide but was constrained because other parties were involved and for this reason the SDT had to be mindful of their rights. It was difficult to get the clients' permission if the SDT did not have the reasons why the information was wanted. The DA member could have given a reason why he wanted the information.

Ms Nyweba said the reasons for the resignations were that those staff members had been made other, more attractive offers. She explained that the training was done in Kimberley because it was offered by De Beers when the programme started, and it was comprehensive.

Ms Nyweba said the IDC issue related to an applicant who wanted to increase its revolving credit to purchase rough diamonds.

The SDT had grown its equity to more than R50m.

Ms Nyweba confirmed, in answer to Nkosi Mandela, that the lists cited were in fact combined in one list.

The Chairperson said that the SDT had created problems for itself because a Member had asked it a question and it had agreed to provide the information, yet had not responded for two years. He said the Committee wanted that information and insisted that the SDT must answer that question, in writing, to the Committee, within the next two weeks. If necessary, it had to seek legal opinion to accompany its letter.

Ms Mokgatle apologised for the undesirable start to the presentation and urged that the Committee should not see the SDT as showing disrespect to the Committee. She said that after the information was requested, they had sought legal opinion. The information was owned by the customer, who had rights in the law and in the Constitution. She left it in the hands of the Committee to take the next step.

The meeting was adjourned.