Economic Development Department, with Deputy Minister: 2nd Quarter 2014 Performance Report

Economic Development

04 November 2014
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Economic Development Department (EDD), with participation also from the Deputy Minister,  gave two presentations on the 2nd quarter of the 2014/15 financial year, the first highlighting its key performance indicators and the second presentation focusing on the financial performance. . The Deputy Minister led the first presentation and explained some of the KPIs, noting that there had been 37 originally. It was also highlighted that unemployment had declined nationally. New jobs came from the construction sector between the last quarter and now. The Free State and the Northern Cape remained the highest for unemployment, with Limpopo the lowest.

Committee members of the DA and ANC both wanted more details from the Department on the various economic programmes, particularly on how to quantify and measure their progress. They raised a number of questions asking for more clarity on particular indicators.  The Chairperson raised the concern that not enough was being done in rural areas to create jobs and develop those areas economically. These areas had potential and failure to face the challenges in these areas was very problematic. It was important to sustain and build on the provinces that are currently growing, but the rural areas could not be left behind. Members asked several pointed questions on the energy supply and what was being done to address the load-shedding that was likely to have severe effects on small business. They suggested that more unified provincial workshops should be arranged, and asked how the Presidential Infrastructure Coordinating Committee (PICC) secretariat was functioning. Members wondered if, in respect of the Industrial Development Corporation in particular, there should not be a re-think of the financing arrangements and asked if more thought should be given into attracting local investment. The import of the credit rating was discussed. Members also wondered if the EDD would be maintaining its current number of KPIs, since it had changed in the past. They also raised questions about cable thefts, numbers of jobs, whether it was possible to quantify these in any way, and the extent to which change was actually happening, and whether the EDD was capable of achieving this.

The second presentation was a brief explanation of the financial statements for the second quarter. The EDD had managed to spend 94% of the projected amounts in this quarter, but did note that there had been some shifting of funding. However, Members were not happy with the presentation. The Chairperson pointed out that a very important slide on the budget was not discussed, and reminded the Committee that during discussions on the first quarter spending, some pertinent points were raised, particularly around adjustments, and the Committee was assured that there would not be a problem. Only now did the Committee see that adjustments were in fact made. This raised two important principles. The first was that the Committee should have been apprised of the problem at that time, not given conflicting reports now, and the second was that if the Committee had been aware of the potential problem, something could have been done to avert it. Overall, she, supported by other Members, expressed her strongest concern and dismay and said that this must not happen again. Other Members asked the Minister to look into whether the financial division was adequately staffed, pointed out that there was overspending on administration but under-spending on core functions, which was not correct in principal, and that there was not correlation between the objectives and the spending. They were also concerned about the fact that money intended for salaries was shifted elsewhere and the salaries not paid on time. 
 

Meeting report

Department of Economic Development (EDD) Performance against 2014/5 Annual Performance Plan (APP); Second quarter 2014/15 results
Mr Madala Masuku, Deputy Minister (DM) of Economic Development , took the Committee through the presentation on performance, against the key performance indicators (KPIs) highlighted in the APP.

He noted that , amongst the key highlights, was the fact that unemployment had declined nationally. New jobs came from the construction sector between the last quarter and now. The Free State and the Northern Cape remained the highest for unemployment. Limpopo had the lowest unemployment rate.

The Deputy Minister took the Committee through the other KPIs (see attached presentation for full details), noting that there were 18 that he would focus upon, because they had specific targets. On all of these, except for number 22, the targets were exceeded. Altogether there were 37 targets to which the EDD was working.

Discussion
Mr P Atkinson (DA) asked about the conference on youth, and wanted to know where the conference was held. Secondly, he asked about the Presidential Infrastructure Project. Given the current challenges with Eskom, he asked how much work on electricity was being done as part of that project. Mr Atkinson said this was becoming a more critical issue and would like some background as to what is being done to develop electricity.

Mr S Tleane (ANC) asked about KPI 1 and wanted Mr Masuku to share more information about the report for the Presidency and what it contained. Mr Tleane then asked about KPI 4, asking whether it was possible for the Department to get all the provinces together in one workshop and sell an idea at the same time. If the Deputy Minister was, for instance, based in Free State and the Minister was in Gauteng, it would take so long for them to visit the provinces one by one. On KPI 8, Mr Tleane expressed appreciation for the hard work done by the Department, especially with the Department’s secretariat work on the Presidential Infrastructure Coordinating Committee (PICC), but noted that it seemed to be holding more meetings than expected. He asked if there was anything the Department required to strengthen the secretariat performance. This meeting was productive.

Mr Tleane added that in respect of KPI 9, there was a company that requested a loan from IDC. In the end there was an expansion of local productive capacity, but he wondered if the EDD had any idea of how many companies had benefited from this arrangement.

Mr Tleane agreed that there was a major problem on load shedding, and many businesses faced the risk of closing because of this. He asked if there was anything to be done in the short term. Lastly, on KPI 15, he noted that 215 farmers had benefited from the development fund. However, he wanted to know if any particular target had been set up.

Mr S Marais (DA) said that in June there were 22 KPIs in June, as opposed to the 34 KPIs in March. In the future, he asked whether the EDD would be sticking with the current 34 KPIs? There seemed to be a lot of administration to deal with the KPIs. There was a large vacancy rate and challenge of employment, so he enquired what the situation was on that, pointing out that quality was more important than volume. On the administration programme, he asked why a target had not been set, and how that could be dealt with, moving forward. He believed that what was most important was the core function of job creation. It was important to know more about what was going on in the job driving sectors. He would like information on those areas, on what had been done, if the problems had been identified or resolved, the structural problems facing the future, and whether or not these were permanent problems, or if it was a problem linked to a lower GDP. In terms of the National Development Plan (NDP), there was not really a qualitative report on how the NDP objectives had been supported.

The Chairperson interjected and asked Mr Marais to specific what details he wanted Mr Masuku to comment on.

Mr Marais responded that he wanted information on economic growth and stimulation. It was a broad question, but from an economic development perspective, it was important to what were being identified as targets and how these could be measured.

Mr Marais finally asked about KPI 6, and wondered what the Department had actually done with the Rustenberg Bus Rapid Transport.

Mr I Pikinini (ANC) asked about KPI 12 on job creation and impact of jobs. He also wanted more information on hubs in Alexandria. The rural questions and concerns should also be looked at.

Ms C Matsimbi (ANC) asked about KPI 4. She appreciated that the Department conducted the assessment, but asked when was it done and completed, and when the Department would finalise the remaining provinces that had not been assessed.

Ms Matsimbi commented that KPI 9 and KPI 6 seemed to her to be very similar, and asked for Mr Masuku to clarify the difference between the two, and why they could not be combined and fall under one KPI. In respect of KPI 14, she asked why was police oversight done by EDD, and not Draft Tariff Investigations.

The Chairperson wanted to clarify, in regard to Ms Matsimbi’s last question, that it was agreed during the establishment of the Department that part of the work of the International Trade and Administration Commission (ITAC) would be done by the EDD, although the main implementation would be done by the Department of Trade and Industry (dti) . The functions were delegated by the President. The Chairperson did not think the Deputy Minister would be able to answer that question, but she said that oversight was done both ways.

Mr A Cele (ANC) commented on the issue of the cable thefts. It was good that the Department initiated the meeting, but in the future it was suggested that it must also involve SAPS. On the issue of new jobs created, he enquired where they were created and asked that future reports should be more specific on such points.

The Chairperson then asked about the economic outlook, and said that it was a disturbing phenomenon when looking at trends to see that there were no jobs created in the rural areas. Interventions were normally done in the urban areas and that is a disturbing issue that needed attention. Clearly, the rural provinces were still facing challenges and the Chairperson was happy that rural areas were a part of the assessments. However, it is important that the Committee would be given a synopsis of what exactly was happening in the areas that the Department had looked into. This was very important in terms of alignment. She noted the comment that the actions were aligned to basic national documents, but what did that actually mean? If the departments were truly aligned, then trends should show change for the better. However, if the alignment was done only for compliance sake, rather than in actuality, it was very disturbing because that meant the current situation would be perpetuated. There needed to be change in rural areas. It was important that economically active provinces were growing and sustained, but the Department should be also building the provinces that were falling behind, like rural areas. These areas had a lot of potential. There were a lot of improvements in terms of initiatives from the national government, but she wanted the EDD also to speak to these issues, such as illiteracy. The Free State showed much potential and there were grand plans for the province but she was worried that there was not enough support for this province. The Department seemed to be serving national interest areas and not provincial areas.

The Chairperson said that her main question was thus - to what extent is that change? Are there enough search officials? Does the Department have what it takes to really face these challenges? This might be an unfair question, but it was a very necessary one.

The Chairperson then mentioned that she was excited about the heads of mission, especially because of the Committee’s participation. She asked about the brief for the heads of mission, for they had to support domestic economic development. She asked if this mandate was included as a part of their assessment or performance monitoring.

The Chairperson wanted to know what exactly the Industrial Development Corporation (IDC) credit rating meant and what the importance of it was.

Mr Masuku responded to the questions. Firstly, he said that the Harambee youth conference was held in Stellenbosch.

In response to the questions about the Eskom challenges, he noted that the PICC, with the Secretariat, made assessments in the major areas, and assessed current projects in terms of the reports given to the Department, to see if there was consistency. The Department identified the gaps to understand and face the particular challenges. The Department worked with Eskom and other departments to fast-track and make sure things were connected. There was still a problem with Eskom because what was happening now needs substantial maintaining. What was really needed was alternative energy. South Africa had said this was a last resort, but he noted that the time for that "last resort" was actually upon the country already. Given the current state of load shedding, there was work being done on all these areas, through
maintenance, green economy, and work that was used to fast track.

Mr Masuku noted the question of migrants, and questioned whether there were perhaps alternative processes. The EDD would look at options used in different countries to see if it could use their examples. One challenge was that if it was required to shorten the time for all these programmes, this could place strain on the budget and other alternatives might have to be looked at. For electricity, the private sector option did not look very attractive.

The Chairperson interjected and asked if the rebate system was working to encourage people to use alternative energy, and if this was still being encouraged at the same time as the Department of Energy was revamping its infrastructure?

Mr Masuku responded that the rebate system was being followed up, but a major point that came up in assessment was that there were areas where there were parties willing to put energy into the grid, but there was not enough infrastructure to connect it; that was a challenge from the Eskom side.

In relation to the assessment on migrant labour, Mr Masuku noted that there was a cost of transport from home to work, and social labour plans. The issue of allowances also came up. Those were the highlights that had emerged, but when the final report was done, they would be addressed in more detail.

In regards to the hub in Alexandria, Mr Masuku said that Gauteng had been very active in terms of coming up with solutions on local economy and township economic issues. Kwa-Zulu Natal was stronger in dealing with rural municipalities.  In Freestate it was decided to put in hubs related to milk and dairy products.

Mr Masuku noted the question on KPI 18, and the question whether the Secretariat needed additional strength, and explained that the Secretariat consisted of two minsters and deputy minsters from various areas. When the need arose for the Secretariat to be called, the Department also pulled in other agencies. The other agencies have their own responsibilities and they looked at a particular area. Currently, the Secretariat was able to carry out its work.

He said that potato-processing was an example of the other industries that had benefited. There were others, because once one area was unlocked, others would similarly follow.

Mr Masuku responded to the question on cable theft. He agreed that SAPS involvement was important. There was a continuing discussion in the justice cluster, and the justice system was involved.

Responding to the question on the number of KPIs isolated, Mr  Masuku agreed with the issue of volume and quality. The Department had the opportunity to put in 34 KPIs, but that was before the new term. When the new term started, more time was taken to assess this again, and based on what had been see, steps were taken to improve performance. Dropping from 34 KPIs to 22 KPIs was a decision based on quality assessment. The Department was continuing to review them.

In response to the question on targets on administration, he said that the EDD had realised that it was mostly trapped in the administration targets. The EDD did not want to put it as an external target. It wanted to make sure what it was doing was being done, in an efficient manner. In every meeting, discussions were held on all these points. The managerial staff commented on how administrative staff had been assisting, and where areas of weakness were found.

In response to the question on other job drivers, Mr Masuku said only some areas were highlighted in the presentation, but in its next report the Department will have dedicated time to all the issues and various areas. There had not been many changes on mining since the last discussion, even with costs. That was why that sector was not talked about in this presentation. The Department would be reporting on the In agriculture sector in the future.

In relation to the National Development Plan (NDP) qualitative report, Mr Masuku said that outcomes focusing on growth and job sector could not be dealt with outside the requirements. Energy was the key issue in the NDP that must be followed.

On KPI 16, he explained that in Rustenberg, there were a number of projects, and throughout the country several projects had already been unlocked, with the help from the Minister responsible for sanitation.

In regard to the provincial assessment, Mr Masuku said that the ones done already were the first the Department had assessed. It would continue to assess the rest and see it could assist. When the Department was in the provinces, issues around alignment were debated. The Development Finance Institutions (DFIs) agreed and they were working now together to discuss how they were going to line up funding assistance. Sometimes provinces overlapped, and the ideas must be shared.

The Chairperson had a follow up comment. The last time the Committee met with the Department, it was told that all provinces should provide at least one project, and projects were identified. In terms of financing, the Department seemed to have its provincial development agents. She asked when there would be alignment on how funding was channelled to projects, or was there another approach to follow.

Mr Masuku said that when looking at project alignment, the EDD would look at how the services areas could be used for everyone, not just the province.

On the question about the contract of the commissions, Mr Masuku said he would check with the Minister.

The EDD had done an assessment into whether there was indeed a bias to the rural areas, and the Department would be looking into how it could better assist the areas.

In response to question on the rationale of the heads of missions, Mr Masuku said this was in fact an update, and was given to give information to the new Members. There was the same thinking about how to respond.

The Chairperson asked if there would be an assessment.

Mr Masuku said he would check again, but in the past assessment was based on the performance in relation to the interests of the country.

He explained that the credit rating of IDC was important because it must be seen in the context that a number of the other agencies were rated negatively, but the IDC and Transnet allowed space for development.

Mr Tleane had a follow up question. It was impossible to get the number of jobs created, but he wondered if the Committee could get a list from the IDC of jobs created through its efforts. Mr Tleane also wanted to thank the Department for providing the Committee with a list of acronyms.

The Chairperson asked further about the credit rating of the IDC. She wondered if the State Owned Companies (SOCs) would be utilising IDC as a funder and start investing internally. Transnet had just borrowed from a bank in the USA that was not regarded as performing well in the USA, but the fact that Transnet was able to raise funds through that bank said something. She wondered if money could not be raised through the DFIs, rather than taking it somewhere else. There needed to be improvement on their international rating, but she pointed out that charity began at home.

Mr Mahomed Vawda, Chief Director of Investment and Development,  Economic Development Department, responded that the IDC had a capital base of R100 billion. The amount was not huge in the scheme of things, and its mandate lay in industrial development. What was usually done was that when there were huge loans, they shared the loan with other institutions. Also, while an institution had this credit rating, there was enticement to borrow from abroad, but with exchange risk, it was necessary to look internally. The institutions would not borrow any more than 20-30% from abroad.

The Chairperson asked if the country had increased the capital base.

Mr Vawda replied that the way the IDC was structured meant that the money lent out was generated from the dividends received, and the return flow on interest. It borrowed around 30 % of the value of total funds it allocated.

The Chairperson clarified that she was focused on investment, not borrowing. Investment was something that could be spread around locally, so that these institutions could grow, and as they grew they could entice foreign investment. She wondered why this could not be done inside the country, and questioned whether thought was given to the capacity of joint institutions?  The Chairperson wanted to emphasizes that the meeting was a forum that was an opportunity to learn, so that the Committee would be more informed on matters. She asked if any other members from the Department wanted to add to what the Deputy Minister had shared.

Mr Kaemete Tsotetsi, Chief Director, EDD, added a comment on the NDP. In the next five years, in terms of the Medium Term Strategic Framework (MTSF), there would be some first steps toward implementation of the NDP. There was alignment. All those plans were currently in the MTSF.

Mr Vawda responded to the question on alternative energy. The IDC had approved R12 billion for renewable energy.

Mr Vawda also answered the question regarding the difference between KPI 6 and KPI 9 and explained that KPI 6 only dealt with unlocking infrastructure. KPI 9 dealt with everything else.

The Chairperson clarified on her question on alternative energy. She wanted to know about the commitment from various spheres. She wondered if the EDD was able to quantify what had been done thus far in terms of rebates. That would quantify performance. She asked what the provinces were committed to, and that was the specific answer that she wanted to hear discussed.  When discussing the green economy, the country had to talk about such issues, especially in terms of tracking and compliance.

Mr Oupa Bodibe, Chief Director, EDD, wanted to raise the issue of increasing tariffs in the potatoes industry, in response to the question on how many companies benefited. The companies that benefited were McCain, Lamberts Bay Food, and Nature’s Choice Produce. McCain was known as one of the biggest companies in South Africa that produced packaged vegetables.

Mr Masuku commented on the rebates, and said that there was work done in relation to that.

The Chairperson questioned how the EDD could really assist not only the poorest of the poor but the middle class, because energy was too expensive.

The Chairperson then said that if the Committee was really to go into all the aspects of economic development, there must be more time. Time should be apportioned for various topics that the Committee wanted to pursue. The meeting was running late, and she had to bring short this discussion because she wanted to leave sufficient time to do justice to the presentation on the financial statements.

EDD Financial statements for the 2nd Quarter 2014/15
Ms Semphete Oosterwyk, Chief Financial Officer, EDD, took the Committee through the presentation (see attached document for detailed figures).

The highlights were set out as follows:
-The Department had spent R157 317 000
-This was 94% of the quarterly allocation of R167 963 000
-The spending making up this financial performance included compensation of employees, goods and services, and capital
-The Economic Policy Development Software approval was granted in October, for R360 000
-Some remedies for under-spending included reprioritised savings, invoices received in October for services rendered before and during September, and filling of critical core posts

Discussion
The Chairperson said that on principle, it should be noted that there was a very important slide in the presentation, that was omitted from the oral presentation, that dealt with the budget. During the 1st quarter discussion, there were heated discussions on certain topics. The 8% issue was discussed and the Committee was assured that it would not be a problem. The Chairperson expressed surprise when looking at the adjustment estimates. This was a matter of principal. The Committee needed to be told about these issues before they become public, so that Members could either support or not support the Department. In the first quarter, the Members were not told there was any shortage. But on the issue of accruals, the issue was raised whether the Department would be able to use up the amount it had. The Committee was assured that the money would be used up. However, based on this report the money was actually shifted to other programmes and the Committee was not told that before. This was a very worrying point. The Department seemed not to have been transparent with the Committee, and that was not fair to the Committee. The Chairperson was not satisfied with this, and believed this was something that would have to be corrected, going forward. It was also an issue of compliance. This must be taken seriously, because next time the Committee would not tolerate mismatched information.

Mr Marais shared the concerns of the Chairperson. Looking at the figures given to the Committee, he had a lot of concerns about the spending. The Department could not overspend on administration, and underspend on the core functions. Economic planning and coordination, social and economic development, social dialogue, and economic policy development were the core functions of the Department, but when looking at this spending, one must argue about the KPIs. The EDD should not report only on the KPIs that looked really good. When looking carefully at these figures and the budget, it was clear the money was not spent. There should be a direct correlation between the KPIs and the money spent to achieve the KPIs. This correlated with questions on what had been done, how much intervention there was, and how many jobs have been created. Looking at the goods and services and administration accruals, he asked why were accruals made for one of them but not another, and why were they not provided for at that stage. He said that these were major concerns.

Mr Tleane raised his concern and disappointment. What was said in the finances presentation negatively impacted on the presentation that the Deputy Minister had just given. If the Department did not spend what it had, it created a poor impression. That was problematic. The Deputy Minister and the Minister should look at this matter and try to see if they needed to strengthen the division in the Department that dealt with these matters of finance. Some of these concerns have been registered previously. This was "not good enough". The Department should know that the Committee was not happy with this. The Deputy Minister should try, in the future, to ensure that reports of this nature did not have to be presented, because they exposed the Committee and Department to criticism. Mr Tleane was not undermining everything that has been done, but was pointing out that these issues sent the wrong signals. The Committee was optimistic that the Department would now look into these matters. 

The Chairperson asked why the software for economic development and dialogue was only approved in October. The cost was a variance, and this is a challenge. If something took that long to be approved, that cost must be known. She also noted that another very serious concern was that Acting Managers were not paid for over six months; the money owed to them was put into other programmes. That was illegal, and the Committee could not condone the Department breaking the law. Those people must be paid. ,The Department must work according to the books, and must be consistent with what was reported to the Committee. The Committee wanted the Department to be open, honest and transparent. The Committee was spending time and energy to talk on the issues presented, and the Department must afford the Members the same respect. The Chairperson assured the Committee that these things would not be repeated. The Department assured the Members of certain things and that did not happen. She reiterated that she was not happy with this.

Mr Masuku responded that was a work in progress. The EDD had perhaps been over-zealous, and the information that was incorrect arose as a matter of oversight, not deliberate misleading. The Ministry was committed to working to meeting those goals. The EDD still assured the Committee that it would conclude these areas and it would complete work. Meetings were held, and he would convey the concerns.

The Chairperson asked if EDD would hold meetings with their managers in a structured way.

Mr Masuku responded that this did happen. In some areas, there may be disagreement, so there was a delay. That dialogue took longer than expected. On adjustments, he agreed with the Committee. The financial division did not know how to present and he had indicated those challenges. The EDD was still learning, and it was not intentional.

The Chairperson said the issues started in the first quarter, and should have been highlighted to the Committee before now. She noted that, in the interests of time, she would not expect the Chief Financial Officer to respond now.

The meeting was adjourned. 

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