The Jobs Fund: Finance Deputy Minister & National Treasury progress report

Standing Committee on Appropriations

22 September 2015
Chairperson: Mr N Gcwabaza (ANC)
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Meeting Summary

National Treasury gave the Committee a progress report on the activities of the Jobs Fund. It gave a brief overview on the level of unemployment in the country and how it was being addressed. It then spoke to the mandate of the Fund and its objectives, how disbursement was managed and monitoring and evaluation mechanisms. It moved on to discuss the Fund’s budget, its performance, what value for money was derived and what was learnt through its operations.

The Deputy Minister of Finance, said that in previous engagements on different platforms there had been some confusion in wanting to see the Jobs Fund in isolation and not as part of a range of government initiatives to grow the economy and drive job creation. He said the challenge going forward would be how to integrate the model into other parts of government.
 
The Treasury said approximately a quarter of the South African labour force was unemployed while youth unemployment stood at 36.1% in 2014. This challenge needed South Africa to have high levels of economic growth which required long term structural change to the economy. The Jobs Fund was not intended to tackle these challenges, it was a limited and targeted intervention to create jobs in the short to medium term. The mandate of the Jobs Fund was to create 150 000 new jobs, to learn from the innovative models which could contribute towards policy making and to contribute to poverty reduction. The Fund was established by the National Treasury in June 2011 with R9b of funds. The Jobs Fund operated on a “challenge fund” basis, where the allocation of grant funds was open, competitive and transparent. Partners shared risk by contributing matching funds. The focus of the Jobs Fund was on the youth and women. There had been five funding rounds and the target sectors of the Jobs Fund were Business Process Outsourcing, agriculture, construction, the green economy, manufacturing, mining and tourism. Initially the Jobs Fund had been managed by the Development Bank of Southern Africa (DBSA) but had been migrated to National Treasury since November 2014. The increase in the operational expenditure budget was due to 18 new projects from the agricultural funding round. The Fund had a staff of 42 currently, which would later peak at 69. The budget for 2015/16 was just over R1b. It had underspent in the first quarter of the financial year because of staff turnover and there were 35 staff vacancies. To date the Jobs Fund had 108 projects approved of which 86 had been contracted, 2 projects had withdrawn, seven had been terminated and seven projects had been completed. As at June 2015, R4.74b in funds had been committed. And R3.54b in matching funds had been leveraged. Treasury had defined a permanent job as being a job that was held for a minimum of 12 consecutive months.

Members asked what prompted the need to move the Jobs Fund from the DBSA to the Treasury. How serious a challenge was staff turnover and was staff turnover being managed? Members wanted a breakdown of the public sector component because, for oversight purposes, they wanted to know which municipalities and provinces were awarded contracts. How much was budgeted for the 86 contracts and how many permanent jobs were created per contract? Why were projects withdrawn or terminated and over what timeframe was it done and what was the cost to the Treasury? What was the total cost of running all the committees such as the technical committee and the investment committee. Members said the Fund had to assist people to get tax clearance certificates. Members said employee wages were high when compared to operational expenses. Members questioned whether there was an overlap between the Jobs Fund and the National Youth Development Agency (NYDA) and the Small Business Development Agency (SBDA). Members were concerned about Treasury’s definition of a permanent job. Members said they noticed there were no projects in the Northern Cape and the Free State. What criteria were used to determine project acceptance? Members said the Jobs Fund had been established for three years, why was it only gaining momentum now? What was the spread of jobs between the urban and rural areas? How many people with disabilities were employed? Where were the projects of the Jobs Fund located? Why were comparisons made with other countries but never with African countries. What was being done to increase the growth rate of the country? What was the Jobs Fund doing to link with work seekers? What was the cost to create a job? Members noted the presentation presented comparisons with the USA and asked if the USA definition of a permanent job was the same as Treasury’s definition?

Members disagreed with the definition of a permanent job, however if that was the case, what was the definition of a short term job? Was Treasury enabling its partners to assist them in making the jobs created more viable? Could Treasury give a definition of “cost per job”? What was the overlap factor for the figures quoted for women and for youth? Who set the 80% target for projects to attain and on what basis? What incentives were there for the private sector to provide matching funds? At what stage would staff peak at 69 and at what cost? Members said there were 35 vacant positions, was this in relation to the 42 staff currently or to the peak staff of 69? What was the IT equipment for? Members said the mandate of the Fund was to create 150 000 jobs and they wanted clarification on whether 55 000 of the 150 000 jobs had been created. Members said a total of R30.4m was spent on the compensation of employees - was this paid to only 42 staff members? Members commented that the R9b investment in the Jobs Fund was a small drop in the ocean for the challenge of unemployment South Africa faced.

Meeting report

Deputy Minister of Finance, Mr Mcebisi Jonas, said that in previous engagements on different platforms there had been some confusion in wanting to see the Jobs Fund in isolation and not as part of a range of government initiatives to grow the economy and drive job creation.

Ms Najwa Allie-Edries, Head of the Employment and Social Security Management Unit in National Treasury, said approximately a quarter of the South African labour force was unemployed while youth unemployment stood at 36.1% in 2014.

This challenge needed South Africa to have high levels of economic growth which required long term structural change to the economy. The Jobs Fund was not intended to tackle these challenges, they were being addressed by other government initiatives. The Fund was a limited and targeted intervention to create jobs in the short to medium term.

The mandate of the Jobs Fund was to create 150 000 new jobs, to learn from the innovative models which could contribute towards policy making and to contribute to poverty reduction. The Fund was established by the National Treasury in June 2011 with R9b of funds and operated on a “challenge fund” basis, where the allocation of grant funds was open, competitive and transparent. Partners shared risk by contributing matching funds. The focus of the Jobs Fund was on the youth and women. There had been five funding rounds and the target sectors of the Jobs Fund were Business Process Outsourcing, agriculture, construction, the green economy, manufacturing, mining and tourism. Ms Allie-Ederies then spoke to the disbursement process and the challenges encountered in the process and how the Jobs Fund intended to address the challenges.

Initially the Jobs Fund had been managed by the DBSA but had been migrated to National Treasury since November 2014. The increase in the operational expenditure budget was due to 18 new projects from the agricultural funding round. The Fund had a staff of 42 currently which would later peak at 69. The budget for 2015/16 was just over R1b. It had underspent in the first quarter because of staff turnover and there were 35 staff vacancies.

To date the Jobs Fund had 108 projects approved of which 86 had been contracted, two projects had withdrawn, seven had been terminated and seven projects had been completed. As at June 2015, R4.74b in funds had been committed. And R3.54b in matching funds had been leveraged. Ms Allie-Ederies then spoke to the value proposition of the Jobs Fund and to key earnings from the business support and work seeker support initiatives. She said the Fund had defined a permanent job as a job that was held for a minimum of 12 consecutive months.

Discussion 
Ms C Madllopha (ANC) asked what prompted the need to move the Fund from the DBSA to the Treasury. How serious a challenge was staff turnover and was staff turnover being managed? She wanted a breakdown of the public sector component because she wanted to know, for oversight purposes, which municipalities and provinces were awarded contracts. How much was budgeted for the 86 contracts and how many permanent jobs were created per contract Why were projects withdrawn or terminated and over what timeframe was it done and what was the cost to the Treasury?

Mr M Figg (DA) said that not enough information had been given to assess the Jobs Fund. What was the total cost of running all the committees such as the technical committee and the investment committee. The fund had to assist people to get tax clearance certificates. Employee wages were high when compared to operational expenses. He questioned whether there was an overlap between the Jobs Fund and NYDA and the SBDA. He was concerned over the definition of a permanent job being that of a job held for one year. He said he noticed there were no projects in the Northern Cape and the Free State. What criteria were used to determine project acceptance? He said the Fund had been established for three years, why was it only gaining momentum now?

Ms M Manana (ANC) asked what the spread of jobs between the urban and rural areas were. How many people with disabilities were employed? She wanted details of where the 90 projects of the Jobs Fund were located?

Mr A McLaughlin (DA) wanted to know where the Jobs Fund stood within the bigger picture of a budget of R9b to be spent over three years. He asked why there were comparisons made with other countries but never with African countries. He said his biggest bugbear was the issues of compliance and red tape. He said the country needed a big growth rate to create jobs. What was being done to increase the growth rate of the country. He said the presentation was mainly theoretical statements and he wanted to know what practical implementable things were being done to attain the theoretical statements. What was the Jobs Fund doing to link with work seekers? What was the cost to create a job? He said the presentation presented comparisons with the USA. Was the USA definition of a permanent job the same as Treasury’s definition? He did not agree with the definition of a permanent job, however if that was the case, what was the definition of a short term job? Was Treasury enabling its partners to assist them in making the jobs created more viable? He said he did not buy the assertion that a once off injection by the Jobs Fund would create sustainable jobs. Could Treasury give a definition of “cost per job”? What was the overlap factor for the figures quoted for women and for youth? Who set the 80% target for projects to attain and on what basis? He said it appeared there was a concentration on the nuts and bolts of the project rather than on the outcome. What incentives were there for the private sector to provide matching funds? He said staff was set to peak at 69. At what stage would this occur and at what cost? He said there were 35 vacant positions, was this in relation to the 42 staff currently or to the peak staff of 69? What was the IT equipment for? Give the details for the withdrawal of two programs and the termination of seven programs.

Mr Figg said the mandate of the Fund was to create 150 000 jobs, he wanted clarification whether 55 000 of the 150 000 jobs had been created. He said a total of R30.4m was spent on the compensation of employees. Was this paid to 42 staff members?

Regarding the move from DBSA to Treasury, the Deputy Minister of Finance said it was in the context of the DBSA going through a restructuring process to turn DBSA around so that it was a more focussed bank. DBSA was supposed to be giving loans, not grants, so the Jobs Fund was moved to Treasury. There was no major cost other than what was planned and it had led to improved efficiency in the Jobs Fund.

He said the detail that was asked for in the Committee’s questions would be provided to the Committee. The Jobs Fund was an innovative fund, a ‘challenge fund’, where it sought to attract the private sector and NGOs to invest, therefore the success of the Jobs Fund also depended on these partnerships and hence the Fund sought partners with a successful track record. Sometimes the objectives of government initiatives did not match with the private sector and civilian organisation objectives and vice versa. This was an attempt at matchmaking the government requirements and private sector and civilian organisation sector requirements to create sustainable jobs. A permanent job had to be a job held for a minimum of 12 consecutive months. Most of the jobs ran beyond the period of the contract which was two years. The 12 months was a minimum that was used as a yardstick to claim whether the job was permanent or not.

The Jobs Fund as an innovation had to generate learning for the NYDA and the SBDA and hence the research component became more critical. There was therefore no contradiction in having the Jobs Fund and the other agencies. He said the analysis of the Jobs Fund was based on the practical experiences and not theoretical abstract presentation and that the detail of the projects should be forwarded in writing to the Committee. The partners had funded over R3b and they would not risk this huge amount of money on something that was regarded as a waste of time. They took the risk because it met their objectives and was sustainable in the long term.

The Jobs Fund was one in a range of interventions. To turn the economy around would require the energy sector to be stabilised and the industrial policy performance to be increased while the turnaround of the agricultural sector would become a critical sector. The President’s Nine Point Plan was what underpinned most of what the Fund was doing. He suggested members look up the Harambee Youth Employment Accelerator Project, which had created 10 000 job placements in the Western Cape and 2 000 placements in the Eastern Cape where it had just started. He said the presentation did not go into the nitty gritty details but was rather an analysis of what the Jobs Fund was doing. Experts were brought in recently to assess whether the model was working. The discussions by the experts showed that the model was gaining appreciation. The challenge going forward would be how to integrate the model into other parts of government.

Ms Allie-Edries said a lot of the questions had asked how jobs were made a reality. She said the Jobs Fund did it through the support of projects. These projects arose from an open call for proposals in which civil society, the private sector and public organisations responded by submitting an application to the Jobs Fund.

She said another question had been that the Jobs Fund was so compliance driven that many people would be excluded. She said that if the creation of new jobs was to be accelerated, then the applicants needed to have some level of experience. The Jobs Fund worked through intermediaries and therefore would not work directly with a start up company. The intermediary would be the one marketing their services to job seekers and have a network of employers they engaged with. So the training would be targeted at what the employers' needs were. This resulted in a lower attrition rate because there would then be a better match between employer and employee,

When a project applied to the Jobs Fund, the Fund did a financial assessment on the implementing partner and the financial model for that project and looked for indicators of sustainability, because if the initiative was sustainable then the jobs created would be sustainable.

On the question of value for money, she said the Jobs Fund believed it got value for money. It was not a simple calculation of the money spent versus the number of jobs created. It was almost impossible to calculate the true cost of a job. It was a complex exercise and not just simple arithmetic. The inputs by partners for example was not costed.

On the question of staff turnover and its impact on the Jobs Fund, she said the Fund was moved from the DBSA in November 2014 and a new funding round on agriculture was opened in January 2015. The assessments on the approximately 200 applications received in this round as well as the allocations was done in a record nine month period. While there was a high staff vacancy rate, it had not impacted on the operations of the Fund. The Jobs Fund was very cautious about filling all vacancies as the Fund had a finite period of existence. The vacancies were filled to the extent that additional people were needed and to the extent the Fund expanded. One project manager oversaw seven projects.

On outsourcing, she said it was because the Jobs Fund did not have in-house agricultural specialists and the Fund did not need these specialists on a full time basis. They were contracted as and when needed and then also to do quarterly site visits.

On the question of slower growth in the portfolio, she said this was a function of the number of projects that were successful.

On the question of why there were no projects in the Free State and the Northern Cape, she said the Jobs Fund had recognised this and the Fund went to the various provinces prior to a funding round and connected with departments, cooperatives and stakeholders and a project manager was allocated to work with applicants to assist them in packaging their project.

On the details of the breakdown showing the private sector, NGO and public sector split in the Jobs Fund’s projects, she said most projects had been with the private sector and the NGO sector whose projects were more competitive than the public sector applications.

On the issue of how much was budgeted per project, she said she would provide a written document to the Committee.

On why projects were withdrawn or terminated, she said that sometimes when projects reached implementation, it became apparent the model was not working. Projects got terminated when things changed, when foreign investors did not invest money they had promised, for example. An evaluation was then done with the partner on whether the project could be rescued or not.

On the cost of staff, she said that of the R9b allocated to the Jobs Fund, 87.6% went to grants, 8.5% was operational expenditure and 4% was spent on project support costs.

On the spread of jobs between urban and rural areas, she said this was a function of the types of projects supported. The agricultural round would have mostly rural jobs whilst enterprise development projects would create mostly urban jobs. An exact breakdown would be provided.

On the question of overlap regarding gender and youth, she acknowledged that it was a global figure which did not have a breakdown of the overlap.

The Deputy Minister of Finance said that operational expenses of 8% compared favourably with the norm of 10%.

Ms Madlopha said it was important to see that the project was working.

Ms Shope-Sithole (ANC) said she was impressed with the report and would like to get the written document containing the details of the project.

The Acting Chairperson spoke to the Jobs Fund’s impact on tax collection and skills development, to the rigour with which Treasury had to exert in allocating public funds. He said the R9b investment in the Jobs Fund was a small drop in the ocean for the challenge of unemployment South Africa faced and the impact of the Jobs Fund would be felt by other state departments.

The meeting was adjourned.

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