The Economic Development Department (EDD) explained its contravention of the 8% limit on virements by 48% and by 54% in two of its programmes. It noted that Treasury had to be told within seven days about virements. The EDD explained that after the election in May 2014, thes new administration had to table a new Annual Performance Plan (APP) for 2014/15. EDD used this opportunity to re-craft its indicators, refocus its work and properly align its work to its six strategic objective. The Committee was presented with performance on Key Performance Indicators (KPIs) for the first and second quarters, and expenditure performance per programme. Details of and motivation for virements were presented. A virement of 48.5% was proposed in favour of small business competitiveness and support package, in the programme of Economic Policy Development. A virement of 54.9% was proposed in favour of small business competitiveness and support package, in the programme of Economic Development and Dialogue. These funds were initially intended to fill posts. Posts would be filled in line with the revised strategic objectives. The HR turnaround strategy prioritised appointments to critical posts to ensure delivery of core business, including provincial and local initiatives, economic regulatory bodies and job drivers.
In discussion, the Chairperson remarked that the EDD was already more than five years old, and that it had to start to stabilise. The Department was asked if it was going to hold on to the Small Enterprise Finance Agency (Sefa), given the establishment of the new Ministry and Department of Small Business Development. The EDD affirmed that it would do so. EDD was asked how its policies could contribute to a higher economic growth rate, and job creation. The Committee was interested in the impact that the shifted funds would have. EDD was questioned about entities, especially the Industrial Development Corporation (IDC), Sefa, and the DFI. There was a question about links to agriculture, especially small farmers, and training for farmers. There was interest in the Chic shoe factory; soya production, and assistance given to a perfume manufacturing initiative. EDD was interrogated about vacancies, and doubts were expressed about unfilled posts used as a saving mechanism. High virements caused concern, because it strengthened the perception that EDD had to make changes because of poor initial planning. It was noted that funds were not always moved to core business areas. There were doubts about the restructuring of EDD after the election. A DA Member felt that money used for EDD tenant installation was wasteful expenditure. The wisdom of spending money on labour saving devices was questioned. There was a question about revenue generation as well as about lack of support for the shoe factory at Dimbaza, Eastern Cape. The Chairperson asked that displeasure with mid-year virements be conveyed to the Director General and the Minister. The Standing Committee would support the virements, but it had to be avoided in future. EDD was asked to respond in writing to the unanswered questions.
Economic Development Department: 2014 Adjustments Estimates of National Expenditure
Mr Mahomed Vawda, acting Director General, and Ms Sempette Oosterwyk, CFO, briefed the Committee. EDD had to table a new Annual Performance Plan (APP) for 2014/15 after the elections. The exercise was intended to sharpen the work of the Department, for increased service delivery. The Committee was presented with performance on Key Performance Indicators (KPIs) for the first and the second quarter, and expenditure performance per programme. There was low spending on four of the eight programmes. Details of and motivation for virements were presented. The revised objectives and APP necessitated a review of the organisational structure and skills sets required. It had 166 funded posts. The targeted number for the new APP was 146. As at 30 September 2014, EDD had 116 filled posts. EDD believes it is able to meet its targets through overtime and assistance received from entities and this has contributed to the cost saving measures. R30.895 million from the current largely core unfilled posts and the envisaged vacancies for the remainder of the financial year were identified during the AENE. A virement of 48.5% was proposed in support of the small business competitiveness and support package, in Programme 2: Economic Policy Development. A virement of 54.9% was proposed in favour of small business competitiveness and support package, in Programme 3: Economic Development and Dialogue. These funds were initially intended to fill posts. Posts would be filled in line with revised strategic objectives. The EDD was still in the process of reviewing and finalising its structure, and care would be taken that objectives and targets were achieved and even exceeded. The HR turnaround strategy prioritised appointments to critical posts to ensure delivery of core business, including provincial and local initiatives, economic regulatory bodies and job drivers. Hence the biggest amount of the generated savings were recommended to support small businesses as an additional transfer to Sefa in order to augment the budget cut of R50 million to the Economic Competitiveness Support Package.
Secondly, funds (R3.5 m) were reprioritised for the tenant installations required to house EDD in one office block on the dti campus. (Currently EDD officials occupy 3 different building within the campus which is inefficient). Funding was reprioritised for phase 2 of the innovative building technologies project commission to the CSIR: (R1.6 mil.)
The Chairperson remarked that the EDD was more than five years old, and had to start to stabilise itself. Structures were still being reviewed, and that could take another five years to finalise. The EDD was responsible for economic policy and coordination. There had to be proper organisation and capacity. It was a mistake not to have invited the entities. R534 million had been transferred to Sefa. When transfers to entities were being dealt with, it was good to have them present. The position of Sefa had to be clarified. With the new Ministry and Department of Small Business, the question was if the EDD was going to hang on to Sefa.
Mr Vawda replied that there had been engagement with the Minister of Small Business about Sefa. The EDD would hang on to Sefa.
The Chairperson remarked that to achieve the NDP, there had to be 5% growth for 20 years. He asked if the EDD policies could achieve that objective. Policies had to drive growth and create jobs. When money was shifted, the Committee was interested to know what the impact would be.
Mr Vawda replied that the desired growth rate could be achieved through building infrastructure, especially energy. The Industrial Development Corporation (IDC) had had success over the preceding five years, achieving R56 billion in approved loans. R6 billion was spent on special allocations to crisis interventions. Growth centres were outlined in the New Growth Path (NGP). There had to be viable and strong infrastructure.
The Chairperson asked if EDD was on course.
Mr Vawda replied that there were externalities related to the international economic situation that had an impact. Crisis areas were highlighted.
Mr A Shaik Emam (NFP) asked the EDD to elaborate on monies given away by its entities, to people who had since left the country. Job creation sounded easier than it was. He asked about the relation between the Department, the Eastern Cape Development Agency (ECDA) and the IDC.
Mr Vawda replied that each entity was monitored. Specialised skills were needed to monitor projects like Medupi. Engineers with experience were needed. Eskom was the Strategic Infrastructure Project (SIP) coordinator, and reported what happened in the projects. The EDD did not attempt to build internal capacity, but needed to invest in financialisation.
Mr N Gcwabaza (ANC) remarked that the EDD also had to try to build internal capacity.
Mr Shaik Emam said that Dimbaza in the Eastern Cape was once an industrial hub, and was currently a ghost town. Unemployment was high. He asked what the protocols of the matter were. The only vulcanised shoe factory in the country was there, which employed 2000 people. The project had been approved by the bargaining council, and was set to receive R1.5 million. To date nothing had been recived. There was enough equipment to create two more factories.
Mr Vawda asked if the shoe factory had applied to the Eastern Cape Development Agency.
Mr Shaik responded that the DTI and the IDC were applied to. The bargaining council okayed it. Nothing was received from any quarter. There were contracts with major shoe stores in the country. Shoes were even made for the UK market.
The Chairperson said that the EDD should reply to that question in writing.
Ms R Nyalungu (ANC) asked about links with the Department Agriculture, and with small farmers. She asked when training for chicken production would start, and how many would be trained and for how long. Training was sometimes for only two weeks, and often people did not know what they were being trained for.
Mr Vawda replied that the EDD got a R96 million concession to train small farmers. A book on chicken farming had been compiled.
Ms Nyalungu noted that the Land Bank was not helping small farmers. She asked about the status of the Land Bank.
Mr Vawda replied that there was engagement with the Land Bank.
Ms Nyalungu asked how many people worked for the Chic Shoes shoe factory, and in which province it was situated.
Mr Vawda replied that 300 people were employed. 500 were planned for the following two years. Chic was the largest supplier of footwear to Woolworths.
Dr C Madlopha (ANC) remarked that the Committee would help the EDD to perform well and to get what it needed. She noted that section 43(2) of the Public Finance Management Act (PFMA) placed an 8% limit on virements. EDD had contravened the virement limit by 48% and 54 percent. She asked if higher approval for the virements had been requested.
Ms Oosterwyk replied that Treasury had to be told within seven days about virements. Treasury would say if it had contravened the PFMA.
Dr Madlopha said that the President had called for the filling of vacancies in 2011. Some of the EDD budget had been shifted to small enterprises. She asked why money for posts had been shifted. Money had to be used to achieve job creation. But the transfers were not really to core business areas. She asked if small business had not been budgeted for, and if so, what the reasons were? Alignment had not been done properly. The core mandate was not being achieved.
Mr A McLaughlin asked why money was being moved around and not used to perform in terms of the original purpose.
Mr McLaughlin remarked that the EDD had to address economic development issues. EDD was not addressing core functions. He asked why it had been necessary to restructure since the elections.
Mr McLaughlin asked about returns on investment in Sefa. He asked if there was monitoring and control over the IDC.
Mr McLaughlin noted that there were KPIs missing.
Mr McLaughlin referred to support given to a perfume business. He asked why that particular person had been singled out.
Mr Vawda replied that a politician had met a young lady with two children who bottled perfume. She was very young, possibly 25. She used to sell to neighbours. The politician referred her to the EDD, whereupon she spoke to Maxmart and Walmart. Here was an example of an informal trader who could become a formal trader.
Mr McLaughlin asked that the Soya project be unpacked.
Mr Vawda replied that Noble soya producers had access to land, water and electricity. R650 million was received from the provincial Minister of Finance. A by-product of the soya produced could be used as chicken feed. R200 million had been invested. It brought the cost of chicken production down.
Mr Mclaughlin referred to the Nestle intervention. He asked if Nestle had called for assistance.
Mr Vawda replied that there were challenges around Nestle at Babelegi. The DTI was contacted. Due to power cuts, Babelegi lost R42 million in production. There were 127 factories, and all were affected. The EDD worked with the Presidential Infrastructure Coordinating Council (PICC) and approached municipalities. The problem was stolen cables. Circuit breakers were installed. There had to be more active policing through early warning systems. Production time was lost, but the problem had not been serious.
Mr McLaughlin referred to the R2.2 billion cited on slide 9 [IDC approved R2,2 billion and disbursed R1.9 billion; sefa approved R163,7 million and disbursed R164.9 million]. The Committee was interested in what the EDD entities were doing with the money, and what it had been approved for.
Mr McLaughlin referred to research into local boat manufacturing. He asked why that had been done, and with what result.
Mr Vawda responded that there was great potential in boat manufacturing. There was a demand for fishing boats and major vessels. However, there were problems with the Admiralty Act. Banks were reluctant to finance ship building. There was ample capacity in Cape Town and Durban, if the Admiralty Act could be amended. There was huge potential, especially for the building of small boats.
Mr McLaughlin referred to frozen unfilled posts, and plans to fill them.
Mr McLaughlin remarked that the tenant installations required to house EDD (slide 16) amounted to wasteful expenditure.
Mr McLaughlin noted that R2.2 million had been allocated to labour savings devices, which could take jobs away from people.
Ms Oosterwyk replied that the term referred to technology like photocopiers.
Mr McLaughlin referred to the HR turnaround. There was unspent money originally intended to fill posts. He asked if the intention had been to budget for possible future needs.
Ms M Manana (ANC) asked if the posts were really needed during the planning stage, or whether it was used as a saving mechanism to be used as a virement later on.
Mr McLaughlin noted that the EDD budget had been decreased, when it had to grow. The budget was down by R75 million. He asked if it was because of poor performance.
Mr McLaughlin referred to the decrease in revenue. He asked what created revenue. There were fewer penalties, but the budget was not raised from that.
Mr Vawda replied that the Competition Commission had had a successful five year period, and had raised R5 billion in fines. He noted one source of fines, saying that construction cartels had not trusted each other, and had cooperated with the Competition Commission, which had reduced construction costs. There was a R1 billion fine from the bread cartel. Treasury gave the EDD R250 million from the money generated by fines, which was used for loans to the agro processing sector.
Mr M Figg (DA) referred to the compensation of employees. There were 146 posts, and 116 were filled (slide 15). In a later slide, posts were said to be frozen. He asked why there was talk of filling them on slide 15.
Mr Figg asked about funding for the Department of Small Business, from the EDD. He noted that there was no evaluation of the performance of the Administration programme.
Ms J Fubbs (Chairperson, Trade and Industry Portfolio Committee) remarked that the challenge with transfers was that it was difficult to have robust oversight. EDD had to assist in that regard.
Ms Fubbs asked with reference to KPI 19 [Minister launched the concept of the Green Skills Hub in Alexandra], if training would provide a green skills tool kit.
Mr Vawda replied that the toolkit to small business was access to information.
Ms Fubbs remarked with reference to KPI 22 [ITAC published draft policy guidelines on scrap metal for comment and finalised 6 investigations] and said that draft policy guidelines on scrap metal were to be welcomed. Scrap metal required only 50% of the energy needed to process raw metal. She asked if investigations had only begun.
Mr Gcwabaza noted that the KPIs covered a wide range. EDD was doing its best. The two critical issues of economic development were job creation and actual economic growth. Outcomes were not visible to justify the budget. The Committee wanted to see more outcomes from the budget.
Mr Gcwabaza referred to slide 9. It stated under KP11 that the IDC had approved R2.2 billion and disbursed R1.9 billion. He asked if the funds were achieving outcomes.
Mr Gcwabaza noted that four programmes showed underperformance. He asked about causes, and plans to step up performance.
Mr Gcwabaza asked about engagement with the Development Finance Institutions (DFI), towards development of small enterprises and cooperatives. There had to be constant contact with the DFIs. It was the backbone that drove the Department.
Mr Gcwabaza remarked that the IDC had been around for a number of years. Its work had to be understood. Industrial development and manufacturing were key job drivers.
Mr Vawda replied that the IDC had disbursed R122 billion over the preceding three years. 156 000 jobs were created. R14 billion was invested in manufacturing over a five year period. R15 billion went to green energy; R20 billion to mining and agriculture, and R26 billion to black and coloured companies. R100 billion would be approved over the following five years.
Mr Gcwabaza referred to underspending mentioned on slides 13 and 14. Only 30% had been spent in the programme of Economic Development and Dialogue. EDD said the funds were shifted due to reprioritisation. The question was whether the shifts really contributed to performance. He asked for reasons behind the reprioritisation. It would have been better to have retained the funds in the same programmes, and to have used it to step up performance there.
Ms Oosterwyk responded that reprioritisation asked: "Where did money have to go to fulfill the EDD mandate? Sefa was prioritised, and identified as a beneficiary. Sefa was important because it improved small business. A business plan was approved for implementation. However, Treasury had reduced its funding from R100 million to R50 million. This is why EDD reprioritised as the Minister stated that there had to be reprioritisation for small business competitiveness.
The Chairperson said about the vacancies, that he assumed that the unfilled posts were not critical positions.
The Chairperson said that chopping and changing programmes mid-year showed a lack of proper planning. There had to be proper planning at the beginning of the year, and shifting of funds had to be avoided. The EDD was an important driver of economic development, and the Committee would be spending a lot of time with the Department. EDD had to grow faster.
Ms Oosterwyk replied that there had been a transition to a different way of doing business, and a different kind of research.
The Chairperson asked if hindsight had proven that the posts created were not needed.
Dr Madlopha expressed concern about the filling of posts. The EDD had identified strategic posts after the elections, which had not been filled.
Ms Oosterwyk replied that critical posts were identified, but there were processes to be followed by the Minister and the Minister of Public Service and Administration. EDD currently knew which posts were critical. Concurrence would be obtained from the Minister of Public Service and Administration.
The Chairperson remarked that EDD would be asked about finality with regard to concurrence with the Public Service Ministry. The EDD had to realise that there was a cut-off date. He asked if there was the necessary capacity to do the work. EDD had to position itself and deal with matters within the current financial year. It was understood that outside expertise had to be used, but internal issues had to be finalised.
The Chairperson concluded that the acting DG had to note the displeasure of the Committee about virements in the middle of the year. It gave the impression of improper planning. Too much chopping and changing had to be avoided. That message had to be conveyed to the Director General and the Minister. The adjusted budget would be approved the following week. The EDD had to impress the Committee with its work. The Committee still had to be convinced about virements. The Committee did not want to say to the Mational Assembly that EDD did not know what it was doing. The Committee would meet with EDD again. The Committee was interested in the role and status of the Strategic Infrastructure Projects (SIPs), and whether the EDD was properly organised for that. The Committee would support the virements, but it had to be avoided in future. The EDD had to adhere to the PFMA and plan coherently. EDD was on the Committee radar screen, and would be watched carefully. There was interest in what the billions approved and disbursed by IDC was funding. The Committee wanted to know what jobs were being created. There were a lot of government agencies with capacity.
Committee programme: visits
The Chairperson asked if Members still wanted to visit National Treasury on 25, 26 and 27 November. Parliamentary sittings would end on 21 November. The request for the trip had been approved. Treasury still had to indicate if it wanted to receive the Committee.
Mr Figg asked how the Committee would benefit from the visit.
The Chairperson replied that it could aid an understanding of the workings of Treasury. He was asking if members wanted to go during the 25 to 27 November period, because normally people left after the joint sitting, which would be on 21 November. Most Committees would be doing oversight.
Mr Mclaughlin asked if the debate on 20 November would be 90 minutes.
Mr Gcwabaza answered that it would.
Mr McLaughlin remarked that the inention had been to visit the Eastern Cape, and then Treasury and the Development Bank, but it had been watered down to the Treasury only. It would still amount to the same expenditure for the quarter.
The Chairperson noted that people usually packed their bags after the joint sitting, but Parliament had allowed oversight until 28 November. The question was if Members would rather have the visit postponed until the following year. The visit to Treasury was approved, if members wanted to go. But the mood had to be right.
Mr Figg said that he had something else to do.
Ms Manana said that there were members who were not in good health.
The Chairperson concluded that the visit would be deferred until the following year. The draft programme for the following year would be presented on 19 November.
The Chairperson adjourned the meeting.