SABS, National Lotteries Board on their 4th Quarter Reports; Operation Phakisa: Trade and Industry perspective

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Trade and Industry

17 August 2015
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee received presentations from the South African Bureau of Standards (SABS) and the National Lotteries Board on their fourth quarter reports, and from the Department of Trade and Industry on the achievements and future plans of Operation Phakisa.

The SABS said it had 1 100 employees who assisted in training, design, certification, and laboratories. The value chain included testing, certification and training, with the focus on standards development. The SABS had had a clean audit for three years, including the current year. There was a need to prevent companies from looking just for certificates for state tenders, as this undermined the standards process. Youth unemployment was very high, and the SABS needed to engage with them through the Design Institute.

Growth in revenue had been 8% annually, while expenditure had increased by 5% each year. Employee benefits had increased by 12% during the year -- double the inflation rate -- due to union pressure. Net profit had been R32.2 million, which was 48% higher than prior years. Total assets had increased by R44 million. The challenges it faced were parliamentary budget cuts, revenue pressures and rising employee costs.

Members asked what the SABS was doing to curb expenditure, as it was not sustainable. What types of standards were accepted by the SABS? What measures was the SABS putting in place to ensure that it was not a hindrance, but a help to economic growth.

The National Lotteries Board said the new Lottery Act had been launched in June this year. The NLC regulated the national lottery and helped with its distributions. Charities now received 47%, arts 23%, sports 28%, and others got 2% of the allocation. Distribution agents would be full-time going forward, appointed by the Department of Trade and Industry (DTI). The NLC had distributed more than R18 billion during its 16 years of existence. There had been an education and awareness drive, with offices setup in the nine provinces. The NLC was looking at establishing satellite offices now. Total allocations had been R1.4 billion out of a budget of R2.2 billion in 2014/2015. There had been 1 921 approved beneficiaries.

Members asked what criteria the NLC used to establish if a project should get the go-ahead. Why were there no white males and disabled people working at the NLC? Why had more money been given to art than to charity? Why were Mpumalanga and the North West Province not represented enough? Why had there been a large number of declined applications? It was commented that the NLC had recently issued a new call for applications, the first time in more than two years, which was reason for congratulations. What was the new target for the processing of these applications?

The Department of Trade and Industry said that Operation Phakisa was a fast results methodology to turn around entities. A syndicated, concentrated process had been needed to get everyone together to develop fast-tracked, integrated programmes. This particular Phakisa covered four areas -- oil and gas, marine transport, aquaculture and maritime protection -- and had already succeeded in clearing several blockages to development in these areas. The maritime sector would increase its contribution to gross domestic product (GDP) from R14 billion to R23 billion in the next four years. Total jobs would increase to 50 000 and the market share of SA companies would be 30%. The challenge to achievement of this goal was the inadequate infrastructure, lack of skills and limited flagging of SA ships. Transnet had set aside R7 billion for public sector investment in ports. R9.2 billion had been set aside for a Saldanha Bay oil rig development. There had been a R1.4 billion tender for tug boats. The DTI was waiting on the finalisation of the Mineral and Petroleum Resources Development Amendment Bill to set minimum targets. In aquaculture, ten projects had been developed, and R305 million from the private sector and R105 million from the government had been set aside. Direct jobs were projected at 2 584 from this investment. By 2033, there was potential for over R177 billion towards the GDP, and over one million jobs, through utilising Phakisa and the country’s marine wealth.

DA Members of the Committee acknowledged the good intentions of the programme, but were sceptical about whether it could deliver what it promised. Their ANC counterparts, on the other hand, were confident that Operation Phakisa was good news, and suggested that the sceptics should go to Saldanha and see for themselves.

Meeting report

Briefing by South African Bureau of Standards (SABS)

Dr Boni Mehlomakulu, Chief Executive Officer, SABS, said the removal of the regulatory function from the SABS had taken in 2008. The entity had 1 100 employees who assisted in training, design, certification, and laboratories. It had an international platform, and was funded by government grants (25%) and by leveraging infrastructure put in place by government (75%). The value chain included testing, certification and training, with the focus on standards development. The CEO served on the International Organisation for Standardisation (ISO) platform which governed standards internationally. The SABS was nominated for the chair of CASCO, the ISO committee that worked on issues relating to conformity assessment, which was a first for Africa and South Africa. The SABS had had a clean audit for three years, including the current year. The key for SABS was to use its employees optimally, and to retain them. There was a need to prevent companies from looking just for certificates for state tenders, as this undermined the standards process. Youth unemployment was very high, and the SABS needed to engage with them through the Design Institute.

Ms Elis Lefteris, Chief Financial Officer, SABS, said that standards played a catalytic role in SA. Growth in revenue had been 8% annually, while expenditure had increased by 5% each year. Employee benefits had increased by 12% during the year -- double the inflation rate -- due to union pressure. The number of SMME beneficiaries from the Design Institute had been 58 for 2014/2015, against a target of 45. Overall, 232 home grown standards had been published, against a target of 225. SABS had achieved 81% (13 out of 16) of its target performance indicators in its business plan.  It had reduced the time for the publication of standards to 398 days, against a target of 400. For the modernisation of laboratories, it had achieved nine out of nine. On the implementation of laboratory information systems, 86% had been completed. Targets had been exceeded with graduate and internship programmes, as well as the leadership development programmes, The vacancy rate in the SABS was 3.5%. The net profit had been R32.2 million, which was 48% higher than prior years. Total assets had increased by R44 million. The challenges it faced were parliamentary budget cuts, revenue pressures and rising employee costs.

Discussion

Mr A Williams (ANC) asked about information technology (IT) issues. What was the SABS doing to implement it, and what was it doing to curb expenditure, as it was not sustainable?

Mr B Mkongi (ANC) asked the SABS to explain the dumping effect. Where were these people in the Design Institute? What were the plans for the SABS to use the land optimally so that people did not have to pay higher rent? Why had the laboratories’ target not been achieved?

Mr A Alberts (FF+) asked what types of standards were accepted by the SABS. The review took more than a year for a standard to be accepted, so how did the Bureau help clients into the market during this process?

Mr N Koornhof (ANC) asked why rental income was doing so well. Would the Design Institute budget be cut?

Mr D Macpherson (DA) asked what measures the SABS was putting in place to ensure that it was not a hindrance, but a help to economic growth.

The Chairperson asked the SABS to please clarify property and laboratory issues?

Dr Mehlomakulu said that the focus on modernising infrastructure had been ignored for a while at the SABS. This had now been prioritised. There was an IT migration programme under way. The SABS was leveraging the resources they had, in order not to pressure the SA fiscus. The budget cut did have an impact on the SABS’s performance. The Laboratory Information Management System (LIMS) was about integrating the IT platform into one, and it would take time to implement. The design projects would be presented next week to the Committee, in reference to the impact of the Design Institute. The SABS’s infrastructure gave the right base for credibility and quality assurance. Home-grown standards were a key driver within SA. People often did not follow the right process and used job creation as leverage to short-cut the SABS process, or they did not meet the standards. Everyone had to operate to the same quality and standards. They could not use job creation as an excuse. This was often the complaint that was heard by Parliament. However, if standards were being bypassed, these projects would probably fail in the short term anyway. The SABS would like to get support to engage with the property side. The SABS would respond to the technical issues of the laboratory and rental in writing.

Mrs Lefteris said that even though the SABS had grown by 8%, it had not met its expectations for revenue growth.   

Briefing by National Lottery Commission (NLC)

Prof Alfred Nevhutanda, Chairperson, NLC, said that the new Lottery Act had been launched in June this year. The NLC regulated the national lottery and helped with its distributions. Charities now received 47%, arts 23%, sports 28%, and others got 2% of the allocation. Distribution agents would be full-time going forward, appointed by the Department of Trade and Industry (DTI). The NLC had distributed more than R18 billion through its 16 years of existence. There had been an education and awareness drive, with offices setup in the nine provinces. The NLC was looking at establishing satellite offices now. Proactive funding would be utilised going forward. 

Ms Thabang Mampane, Commissioner: NLC, said the vision of the NLC was to be a catalyst for social upliftment. The organisation had moved from the name National Lottery Board (NLB) to NLC. The NLC had completed the grant funding business process. It had also successfully piloted a provincial assessment process in Limpopo, and increased its footprint. A risk management framework policy had been developed.

The NLC had achieved 16 of its 17 performance indicators. It had received a negative coverage rate of 12% and a positive rate of 60%. There had been compliance monitoring of the lottery operator, and enforcement against illegal lotteries through letters of demand. The NLC had a monitoring and evaluation unit to make sure the process was easy to follow.

Mr Philemon Letwaba, Chief Financial Officer: NLC, said that an unqualified audit report had been achieved in 2014/2015. R1.5 billion in revenue had been generated from lottery ticket sales. The grant allocation had been R1.1 billion, and interest had amounted to R284 million. The liquidity ratio was 3.11, and solvency ratio was 2.42, operating expenditure (OPEX) was 18% of revenue and employee compensation was 39% of revenue. Suppliers were paid on average within 16 days. Revenue was down by 3% due to player fatigue and the number of illegal lotteries. The grants allocated dropped by 30% due to the late call for sports federations and early childhood development allocations.

Mr Jeffrey du Preez, Executive: Grant Funding, NLC, said that total allocations had been R1.4 billion out of a budget of R2.2 billion in 2014/2015. There had been 1 921 approved beneficiaries. In provinces that were struggling, the NLC would be setting up a research team to explore this. There had been a decentralisation of provincial offices, and education and awareness had been created though workshops to improve performance.

Discussion

Mr Alberts asked what criteria the NLC used to establish if a project should get the go-ahead? Why were there no white males and disabled people working at the NLC? Why had more money been given to art than to charity?

The Chairperson said that Mpumalanga arts and charities had slipped into the Limpopo pages of the NLC booklet, and asked that this be addressed. She asked that all outstanding issues be addressed in writing.

Mr Williams asked why Mpumalanga had not reached the 5% distribution level. Why were Mpumalanga and the North West provinces not represented enough?

Mr Mkongi asked what the value for money of the NLC projects was. How much had been squandered? Why was information given incorrectly on the slides? How did R4.5 billion compared to the revenue from last year?

Mr N Matiase (EFF) said that the NLC’s spreadsheet should indicate who the specific beneficiaries were. Why had it not been completed? Why had there been a large number of declined applications?

Mr G Hill-Lewis (DA) commented that the NLC had recently issued a new call for applications, the first time in more than two years, which was reason for congratulations. He then asked what the new target for the processing of these applications was.

Prof Nevhutanda responded that the winners of the lottery were not revealed -- they were kept hidden to protect the individuals. He said that the wrong information in a slide would be corrected. The NLC wanted to use proactive funding to address the provinces that were not meeting the 5% distribution level. Most of the applications were declined because they did not meet the minimum requirements. The NLC was looking at how to make the application process easier. The worldwide performance of lotteries had declined due to the economic climate. The 2/3 rate of declined applications was due to their not meeting requirements. In January next year, the Committee would be able to see what the uptake had been due to the new call for applications. The problem had been that the majority of applications were submitted in the last week of the deadline. This delayed the process, as it was a case of first in, first out.

Ms Mampane said there was an NGO that identified unemployed graduates and assisted them with the application process. The NLC was looking to address the employment equity issues in the organisation. The NLC took the organisations through a process to address the declined applications.

Mr Letwaba responded that the NLC had been taken to court for declined applications. Currently, 4% had been paid to Mpumalanga, and this would be addressed. The R4.5 billion was compared to R4.569 billion for last year. 240 days were available for submission to payment, according to legislation.

Briefing by Operation Phakisa

Mr Lionel October, Director General, DTI, said that Operation Phakisa was a fast results methodology to turnaround entities, copied from South Korea. A syndicated, concentrated process had been needed to get everyone together to develop fast-tracked, integrated programmes. This particular Phakisa covered four areas: oil and gas, marine transport, aquaculture and maritime protection.  The DTI had unlocked the port potential at Coega for a manganese terminal and the other at Saldanha for oil and gas offshore activities, such as rig repair and maintenance.  It had managed to clear the blockages through Phakisa, and R9 billion had been unlocked. Coega had received a licence for a manganese terminal. The upgrading of the rail network from the Northern Cape to Port Ngqura will follow. Ship-building blockages had also been resolved due to Phakisa, with 60% local content in the manufacturing process. The Navy would be a major customer going forward.

Ms Pumla Ncapayi, Chief Director: Investment Development Division, DTI, said that the maritime sector would increase its contribution to gross domestic product (GDP) from R14 billion to R23 billion in the next four years. Total jobs would increase to 50 000 and the market share of SA companies would be 30%. The challenge to achievement of this goal was the inadequate infrastructure, lack of skills and limited flagging of SA ships. The Maritime Laboratory had developed 18 initiatives to address these challenges. These included the establishment of an SA-flagged fleet for coastal shipping, private sector partnerships and increasing skills through workplace-based systems. The programmes aimed to train 2 550 college graduates and 18 172 learners as artisans.

Transnet had set aside R7 billion for public sector investment in ports. R9.2 billion had been set aside for a Saldanha Bay oil rig development. There had been a R1.4 billion tender for tug boats, which had included a value proposition for investors. The DTI was responsible for developing local content for the oil and gas laboratory.  It was waiting on the finalisation of the Mineral and Petroleum Resources Development Amendment Bill to set minimum targets. In aquaculture, ten projects had been developed, and R305 million from the private sector and R105 million from the government had been set aside. Direct jobs were projected at 2 584 from this investment. By 2033, there was potential for over R177 billion towards the GDP, and over one million jobs, through utilising Phakisa and the marine wealth.

Discussion

Mr Macpherson said little was actually being done in the marine manufacturing sector. Operation Phakisa had the best intentions, but the actual deliverable numbers were very low. The project had high hopes, but would not be as impactful as discussed.

Mr Mkongi stated that the ANC had done a great job with health, and this project would succeed too. He asked whether the DTI saw any potential for a Special Economic Zone (SEZ) along the garden route?

Mr Matiase stated that Operation Phakisa was now sitting under the DTI, and not Environmental Affairs or another department. Why had it changed? Catalytic converters needed to be addressed for job creation -- where was this under Phakisa?

Mr Hill-Lewis believed that Operation Phakisa would also not deliver what it promised. Transnet had stated that the manganese terminal would be delayed, which was not what the presentation had stated -- it would be six years before it was finalised.

Mr Koornhof believed that Operation Phakisa was good news. He asked the two DA members to go to Saldanha and see what was happening there on the ground. His final comment was to watch this space closely, and that the DTI must report progress to the Committee.

Mr October responded that Phakisa had brought the sceptics into the same room. For example, tug boats were now actually being manufactured, despite all the negative comments and attitudes. In South Korea, they had begun to build ships, which had turned their economy around. SA could build ships and aircraft. For industry, they needed a seven-year lead time to prepare for heavy investment -- for example, Mercedes Benz in East London. Phakisa had unlocked log-jams in industry. For manganese, they had unlocked the terminal operation and it was now under way. Aspen had received a tax incentive, and were now the fifth largest company in world, thanks to government interventions. The success would not be immediate, but Phakisa would make a difference in SA. Mossel Bay was an option for a SEZ, and Port Nolloth too. The development of fuel cells for energy had huge potential in SA.

Ms Ncapayi said that there were a number of implementation departments for this Operation. There was Education for skills and Environment for marine issues. The DTI had Phakisa as its driver. Catalytic converters were not part of Phakisa, which was focused on the oceans. The converters would fall under a mining Phakisa.

The meeting was adjourned.

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