Economic Development Department on its 2014/15 Annual Report, with Minister present

Economic Development

15 October 2015
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Minister of Economic Development introduced the Department’s annual report, and told the Committee that jobs in South Africa had grown by 405 000, and total employment was 15.5 million as at March  2015. The number of jobs for youths had increased by 233 000 to a total of 6.2 million. Investment had grown by R48 billion, government infrastructure spending had been R254 billion, agricultural value add had increased by R5 billion, while manufacturing value add had declined by R1.1 billion. The Industrial Development Corporation (IDC) had made investment approvals totalling R11.5 billion, while the Small Enterprise Finance Agency (SEFA) had approved funding of R1 billion.

He said the Department’s job had been to mitigate the context of a slowdown in global economic growth and the developing countries’ markets showing lacklustre growth, while contending with energy shortages and the impact of industrial action domestically. It had done so through eight key interventions: spending on infrastructure; supporting industrialisation and investment; using trade measures to back South African companies; using competition measures to challenge monopolies and cartels; working with provinces to increase their impact on local economies; supporting social dialogue to build consensus in addressing key challenges; coordinating efforts in the State to enhance outcomes for the economy and to catalyse projects; and supporting equitable growth through integration of marginalised groups into the economy.

The Department had spent 99.7% of its budget and had obtained an unqualified audit opinion.

Members asked how many of the 405 000 jobs that had been created were temporary jobs created in the public sector, related to the elections in May the previous year. They sought a report back on the Department’s engagement with Department of International Relations and Cooperation (DIRCO) heads of mission. It had been reported that R14 billion from the IDC had gone to renewable energy generating 750MW -- how did this tally with the EDD’s commitment to adding 13 000MW by 2025? Regarding industrialisation and investment, did the R100 billion committed to industrial development by the IDC for the following five years include the R23 billion for the black industrialist programme, and what was the status of the policy document on that? Members asked for an update on the progress made by the industry panel of steel experts who were to advise on a competitive steel price for downstream users. How was this related to recent developments around applications for protection, and what reciprocal commitments would be required from companies in future requiring tariff support? How would the Competition Commission investigation into collusion by the major steel players affect the approach to steel pricing for downstream users?

Members queried the appointment of employees without a proper process being followed. When would the project to eliminate the bucket system in Hobhouse, Free State, be finalised?  What were the chances of having the conference on manufacturing held on an on-going basis?  Regarding the alignment that the Department was doing between the provinces and local government, what had been the response of the provincial government of the Western Cape? How much cooperation had been received from the province as far as coordination was concerned?

Members asked how many interventions had been made and what their impact had been, to ensure that growth and development continued. They asked the Director General to clarify the irregular expenditure, even though the amount appeared minor. What had the impact of the Department’s interventions been on the interaction between provinces and local government, to promote local economic activity? When would outstanding members of the Competition Tribunal, as well as the position of Deputy Commissioner of the International Trade Administration Commission (ITAC) be appointed? 

Meeting report

Briefing by Department of Economic Development

Mr Ebrahim Patel, Minister of Economic Development, said the annual report set out the activities of the Department and the presentation focussed only on the highlights. Jobs had grown by 405 000 and total employment was 15.5 million as at March 2015. The number of jobs for youth had increased by 233 000 to a total of 6.2m. Investment had increased by R48 billion, government infrastructure spend had been R254 billion, agricultural value add had risen by R5 billion, while manufacturing value add had declined by R1.1 billion. The Industrial Development Corporation (IDC) had made investment approvals of R11.5 billion, while the Small Enterprise Finance Agency SEFA had approved funding of R1 billion.

He said the Department’s job had been to mitigate the context of a slowdown in global economic growth and the developing countries’ markets showing lacklustre growth, while contending with energy shortages and the impact of industrial action domestically. It had done so through eight key interventions. These had been:

  • spending on infrastructure;
  • supporting industrialisation and investment;
  • using trade measures to back South African companies;
  • using competition measures to challenge monopolies and cartels;
  • working with provinces to increase their impact on local economies;
  • supporting social dialogue to build consensus in addressing key challenges;
  • coordinating efforts in the State to enhance outcomes for the economy and to catalyse projects;
  • supporting equitable growth through integration of marginalised groups into the economy.

His presentation then provided examples of how the Department had intervened in the eight key areas.

Finance and Human Resources
Mr Kumaran Naidoo, Director General, Economic Development Department (EDD) said the Department had implemented a new staffing model that allowed the mobilisation of resources using permanent appointments, part time appointments, contracted staff and secondment of staff employed by other agencies. The Department had spent 99.7% of its budget and the Financial and Fiscal Commission had said that spending performance had improved across major programmes. The Department had obtained an unqualified audit opinion.

Discussion
Mr J Cardo (DA) referred to the claim that 405 000 jobs had been created, and asked how many of them had been temporary jobs created in the public sector related to the elections in May the previous year. Could the Department report back on its engagement with the Department of International Relations and Cooperation (DIRCO) heads of mission? It had been reported that R14 billion from the IDC had gone to renewable energy, generating 750MW. How did this tally with the DOE commitment to adding 13 000MW by 2025? Regarding industrialisation and investment, did the R100 billion committed to industrial development by the IDC for the following five years include the R23 billion for the black industrialist programme, and what was the status of the policy document on that? Could the EDD give an update on the black industrialist programme? Regarding trade and competition, he wanted an update on the progress made in the work of the industry panel of steel experts who were to advise on a competitive steel price for downstream users. How was this related to recent developments around applications for protection, and what reciprocal commitments would be required from companies in future requiring tariff support. How would the Competition Commission investigation into collusion by the major steel players affect the approach to steel pricing for downstream users?

Addressing the DG, he queried the appointment of employees without a proper process being followed and wanted more detail on the matter.  

Mr S Tleane (ANC) said he noted that R254 billion had been spent on infrastructure and this had led to job creation, which was appreciated.  360 000 houses had been electrified. When would the project to eliminate the bucket system in Hobhouse, in the Free State, be finalised?  What were the chances of having the conference on manufacturing held on an on-going basis?  Regarding the alignment that the Department was doing between the provinces and local government, what was the response of the provincial government of the Western Cape? How much cooperation had been received from the province as far as coordination was concerned?
 
The Chairperson asked how many interventions had been made and what the impact had been, to ensure that growth and development continued. Could the DG clarify the irregular expenditure, even though the amount appeared minor? What was the impact of the Department’s interventions on the interaction between provinces and local government to promote local economic activity? When would the outstanding members of the Competition Tribunal, as well as the position of Deputy Commissioner in the International Trade Administration Commission (ITAC) be appointed? Were there any challenges?

Mr Naidoo replied that before an employee was taken on, the council checked the qualifications, and employees had been appointed subject to these processes. All employees had cleared these checks and the Department had engaged with the checkers to expedite the checking process.

The Department had not incurred irregular expenditure. The irregular expenses referred to were outstanding matters from the previous financial year. Money had been transferred to entities and irregular expenses had been incurred. The Department had engaged on the matter and would submit, on a quarterly basis, the corrective action they would be taking. Once implemented, they had to submit this to their internal audit committee who would verify that the corrective actions had been implemented and provide assurance to the Department.

Mr Madala Masuku, Deputy Minister, EDD, said the President was the inspiration for the Department to focus on matters that would make changes happen. The Department of Trade and Industry (dti) had been a diverse department with 20 agencies from which the Department had emerged, to give focus to particular aspects of the work that government wanted to achieve.

He was happy with the concern around the quality of the jobs created. It was a critical area to look at. One needed to look at how one could build a pipeline of work. The matter of the casualisation of work, as well as the labour broker aspect, was important because it was creating instability within communities.

Regarding the question on the 405 000 jobs, Mr Patel said one should look at it from a fact-based analysis and secondly, to lift the economic conversation of the country so as not to undermine the national projects of reconciliation and transformation.  This was because he had seen public comment on the 405 000 jobs, claiming they had more to do with the elections. The 405 000 jobs had come from a growth of 183 000 jobs in the agricultural sector up to March 31 2015, 139 000 in business services, 12 000 in the construction industry, 58 000 in the domestic workers sector and 22 000 in the category of community and social services, which included the Expanded Public Works Programme (EPWP). Agriculture was the biggest contributor, so drought was the biggest risk the country faced looking forward. Therefore any inference that the jobs growth had been linked to the elections was unfortunate.

The DIRCO meeting with the ambassadors had been quite constructive because it had given ambassadors a series of talking points and actionable points they could implement. It had been a worthwhile investment in time and thought, as there had been a need to give ambassadors better material to identify and promote trade abroad.

Regarding renewable energy, he remained convinced that South Africa could achieve could achieve the broader vision the Department of Energy (DOE) had set out, which was to massively expand renewable energy. Renewable energy was currently cross-subsidised by coal. It was hoped that technology innovations would result in equivalent or cheaper cost for renewable energy. This was important from a climate change point of view. South Africa was urging nations to co-invest in renewable energy, and South Africa was developing platinum fuel cell technology. The extent to which South Africa would achieve its targets would be determined by the price path of renewable energy. At the start, South Africa was prepared to pay a premium. For a developing, poor country like South Africa this was commendable, in that the country was contributing as a global citizen to secure a sustainable climate change path.

Regarding where the renewable energy programme was currently, he said South Africa had approximately
2 000MW of renewable energy entering the grid via wind, hydro, photovoltaic and concentrated solar power technology.

Regarding the opportunities in renewable energy, he felt South Africa could do better in the localisation of component manufacture, and was trying to make it an export industry. This was possible because South Africa was paying a premium for renewable energy. The aim was to develop the industry so that it became an export industry. It would be challenging, because countries such as China, Denmark and Spain were competing in this space.

Regarding the IDC’s success, he said the IDC was taking an additional policy risk. The Department had told the IDC that when they had entered the market, investors had been reluctant to participate, but now the private sector had grown confident about the renewable energy programme, and was pouring in investment. Now the Department had told the IDC it did not need to maintain the same growth rate in the renewable energy programme, because investment was pouring in and the IDC could invest in developing other sectors of the economy.

Regarding industrialisation, investment and the policy regime, he said he had finalised a framework for the IDC to use in managing the R23 billion black industrialists programme. The IDC was putting on a road show to put forward the programme to potential users. It had co-hosted a conference together with the Premier of Gauteng in the current financial year, where a number of small industrialists who could scale up had been brought together to highlight the programme. The IDC would be publicising it in the coming few months. It would be linked to other programmes promoting industrialisation in government run by the dti. The outcome would be to strengthen blacks to be part of the core productive sectors of the economy and contributors to wealth creation as black industrialists, rather than as passive shareholders.

The Department was involved in careful negotiations regarding the steel industry issue and the regulators were applying themselves.  As a policy approach, the Department had said to the main steel maker that it recognised the challenges it faced, but that this needed to be balanced by consideration that the steel price for downstream users should not be distorted to effectively shift the problem to downstream users. Secondly, so that the Department did not solely have to rely on protection, there had to be additional fresh investment to improve the performance of factories. A number of steel mills had been historically neglected. In this context, the Competition Commission’s enquiry into the steel companies’ conduct and the work that government did was well meshed, and sought a competitive industry and competitive prices. He was confident that this would be found.

Mr Patel wanted to underline the importance of efforts to combat cable and metal theft. The Criminal Matters Amendment Bill had arisen from a Presidential Infrastructure Coordinating Council (PICC) initiative to deal with cable and metal theft, which caused widespread harm to national infrastructure and the provision of services. In December the previous year, the PICC had adopted a number of measures which had been transformed into a draft bill. All the provinces had supported the bill. This was an example of cooperation across the three spheres of government.

He said that while the public works programmes were very helpful, the category of young people from 18-25 who were not in education, employment or in training needed to be integrated more and more with technical training. This would be the next challenge for government.

President Zuma had been designated by the African Union to be the champion for infrastructure development on the continent. In the Democratic Republic of the Congo (DRC), the Grand Inga Dam was capable of producing an enormous quantity of hydroelectric energy which would require a key set of long term political stability factors, engineering and technical requirements, and solutions to funding issues if it were to be achieved. The President had said that South Africa would act as an anchor from the finance side and as a purchaser of electrical energy.

Regarding the Hobhouse project, he said the bucket system had been eliminated but the informal settlements had grown subsequently, so there were additional challenges. The challenge would be to deal with the operation and maintenance around sanitation in Hobhouse.

The conference on manufacturing had been an example of the kind of thing that the Department did. He was trying to find a good balance between ideas generated at conferences and ideas implemented. The Department was shifting its focus to the implementation capacity of the Department.

While he was very happy the EDD had received an unqualified audit, this measured that things were done in the right way but did not measure that the right things were done.  The Department had to remain constantly focussed on doing the right thing. The government had been elected to deliver and civil servants had to be trained to deliver while being in compliance with the law. The Department had to shift to thinking primarily about delivery, rather than merely for compliance sake.

On the issue of inequality, he said there was a big policy debate in economics on inequality, because one could not maintain social cohesion if one had rising inequality. South Africa had to deal with issues of inequality as much as it dealt with issues of growth and employment. There were a number of measures that could be taken to help reduce inequality within society. If the reality of the glaring inequalities in South Africa was not addressed, then the social cohesion necessary to sustain a national project would not be built.

On the question on the provincial government of the Western Cape, he said that when one worked in intergovernmental systems everybody realised how interdependent the three spheres of government were. There had been many instances of initiatives by the national government that had created jobs in the Western Cape which underlined that South Africa was one country and the Western Cape was not independent. The three spheres of government had to work together. The public commentary on some of these matters had not been particularly helpful. There were huge opportunities for the Northern Cape and the Western Cape regarding iron ore. Saldanha’s existence would be enhanced and supported by iron ore coming from Sishen. To see provinces as competing entities did not reflect the huge synergies between provinces.

Regarding the appointment of additional members to the Competition Tribunal, he said he would seek to do that by the end of the financial year.

Referring to the Department’s limited budget, he said it had the smallest budget --R150m, excluding transfers -- but was able to achieve a lot more because of coordination within government. The Department wanted to leverage more from agencies’ functional use of resources.

He said future annual reports had to look at the impact of interventions, as this was not generally measured by the state. The Department wanted to do some preliminary work, measuring the impact of some of the competition measures that had been put in place on issues like mergers and acquisitions. This was an important part of the future work programme of the Department.

Overall, the Department had achieved some successes, and the current year was a tough year to work in.

The meeting was adjourned.

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