Economic Development Department (EDD) on its 2014/15 Annual Report, with Deputy Minister

Meeting report

The Acting Chairperson at the outset of the meeting said that the Committee would not accept apologies from members not being able to attend meetings if such apologies were sent via cell phone short messaging systems (sms). Hence the Committee would not accept apologies sent via sms by Dr Y Vawda (EFF, Mpumalanga) and Mr L Mokoena (EFF, Free State).

Mr W Faber (DA, Northern Cape) said that he was sure that apologies sent to the Committee via email were considered acceptable by Parliament.

Briefing by Economic Development Department

The Economic Development Department (EDD) briefed the Committee on its Annual Report 2014/15. The delegation comprised of, amongst others, Deputy Minister Madala Masuku; Ms Semphete Oosterwyk, Chief Financial Officer; Mr Mahomed Vawda, Chief Director: Investment and Development; and Ms Tanya van Meelis, Chief Economist.

Deputy Minister Masuku undertook the briefing.
The Annual Report covered the period 1 April 2014 to 31 March 2015. The Committee was provided with a performance overview of the EDD for 2014/15. For the financial year under consideration the EDD spent 99.7% of its allocated budget, met all its targets and exceeded its targets for 50% of the indicators included in its Annual Performance Plan (APP) for 2014/15.

For the year under consideration the EDD and its agencies received unqualified audit reports. Members were given insight into SA’s growth prospects and some economic highlights. For instance projected growth of 2% in 2015 was doubtful given the 2015 second quarter contraction of 1.3%. An economic highlight was that jobs grew by 405 000. Institutional highlights included that by March 2015 the Presidential Infrastructure Coordinating Council (PICC) monitored infrastructure projects spending had reached R1 trillion.

The Committee was also provided with a comprehensive overview of EDD Interventions 1-8 i.e. infrastructure, industrialisation and investment, trade measures, competition measures, working with provinces, social dialogue, coordination and lastly equitable growth. It was believed that large scale infrastructure spending boosted growth and jobs. On industrialisation and investment the Industrial Development Corporation (IDC) was the principal investment institution of the state and approved investment projects with private investor partners worth R36.8bn, with the IDC committing R11.5bn of its own resources. The EDD provided oversight and strategic guidance to the IDC during the 2014/15 financial year. Trade measures were used to back South African manufacturers in tougher global conditions. The EDD published a paper on trade measures and it was shown that SA was the third largest exporter of catalytic converters in the world and in 2012 sustained thousands of direct and indirect jobs.

Competition measures aimed to challenge monopolies and cartels in the economy. A total of R880m was received from the Competition Commission for fines and penalties imposed by its Tribunal. The aim of working with provinces was to enhance their capacity and increase their impact on local economies. The EDD provided strategic support to KwaZulu-Natal, Mpumalanga and Limpopo. The EDD helped identify how provincial plans could be better aligned with the New Growth Path and also how to take advantage of national programmes, including the National Infrastructure Plan and the Spatial Development Zones. The EDD also received requests from provinces to provide capacity building on township economy initiatives and locations, spatial planning alignment support and green economy implementation support. The EDD furthermore assessed five provincial Annual Performance Plans (APPs) i.e. Gauteng, KwaZulu-Natal, Eastern Cape, Free State and Mpumalanga. Amongst other things it was found that provincial APPs did not have many practical targets for inclusive growth. Deputy Minister Masuku had engagements with provinces and municipalities, which covered economic development frameworks, alignment of provincial and local economic development priorities to the National Development Plan (NDP), social accords and unblocking constraints to economic development at provincial and local levels.

The EDD believed in supporting social dialogue to strengthen support for national priorities and to build a broad consensus in addressing key challenges. Efforts included social accords, engagements at the National Economic and Development Council (NEDLAC) on the national minimum wage and industrial conflict; work in clusters to contribute to the development of sectors and employment and workplace dialogue.

The EDD completed its Draft Annual Report on progress towards the implementation of the Green Economy Accord.  On coordination the EDD participated in a number of forums that aimed to improve coordination of economic strategies across the state. These included participation in the Industrial policy Action Plan (IPAP), the Outcome 4 processes, the Economic Sector, Employment and Infrastructure Development Cluster (ESEID Cluster). Equitable growth was supported through the integration of marginalised groups into the economy. The EDD hosted a conference on “Manufacturing-led growth for employment and equality”. This was in line with the EDD’s mandate to encourage a broad discussion on how to foster economic growth. The EDD had even compiled a progress report on Broad Based Black Economic Empowerment (BBBEE) with specific reference to the impact of the transformation policy on ownership and procurement. The progress report had shown that R600bn worth of BEE transactions had taken place up to 2013. Black owned Small Medium and Micro Enterprises (SMMEs) were supported to the tune of R451m in the 2012/13 financial year.

In conclusion it was noted that the International Monetary Fund’s (IMF’s) global growth forecast in October 2015 had downgraded growth estimates made in July 2015 by a further 0.2%. The 9 Point Plan announced by President Zuma in his State of the Nation Address identified a series of additional interventions in the current fiscal year that was more challenging than those in 2014/15.

Ms Oosterwyk continued with a brief overview of the human resources and finances of the EDD. The EDD had implemented a new staffing model that permitted mobilisation of resources as required using permanent appointments, contracts and part-time appointments, secondments of staff and using staff employed by other agencies. These measures enabled the EDD to deliver on its strategic objectives through responsive and appropriately resourced project teams. Members were given insight into the financial performance of the EDD per programme. Its total allocation for 2014/15 was R696 860 000 and its expenditure was R694 912 000. There was thus a variance of R1 948 000.

The Committee was also provided with a year on year comparison between 2013/14 and 2014/15 of the EDD’s performance. It showed a year on year decrease in expenditure, which was amongst other reasons mainly due to the decrease in the annual appropriation of the vote by R75m.

Ms Oosterwyk reiterated that the EDD had obtained an unqualified audit opinion. One non-compliance matter regarding verification of employees was reported, as this was not finalised prior to employees taking office. These were however completed prior to the audit. The audit showed an improvement in the management report compared to previous financial years. No material misstatements were recorded. There was a positive conclusion on performance information. The management report issued by the Auditor General of SA for the 2014/15 financial year reflected 25 findings compared to 41findings in the 2013/14 financial year. The EDD had come up with a consolidated ‘heatmap’ to rectify the audit findings, which reflected responsible persons and timeframes to rectify each finding.

 

Discussion

Mr S Mthimunye (ANC, Mpumalanga) commented that the mandate of the EDD seemed similar to that of the Department of Trade and Industry. He asked what the exact number of economically active citizens in SA was. He also asked how many youth were employed. He understood that Eskom had placed a moratorium on the rebate that it offered to persons using solar geysers. When was the moratorium to be reversed? He said that the township economy should be extended to include villages in rural areas. He pointed out that conditions in the former Apartheid Bantustans were still the same. No economic growth was taking place. The EDD was asked why it had not spoken about the oceans economy in its briefing. Non-adherence by government to pay its service providers within 30 days was a concern. He noted that government officials first wished to be bribed before payments were made.

Deputy Minister Masuku said the Small Business Department was dealing with the township/village economy. The Department of Trade and Industry was also dealing with special economic zones. Payment by government of its service providers within 30 days was a challenge that was being addressed. National Treasury was monitoring payments made in provinces and nationally.

Ms van Meelis, on economically active members of SA’s population, said that over the last quarter employment had increased. There was an increase of 712 000 over the last year. A total of 15.8m people were employed and there had been a 4.7% increase. 14.8m were not economically active and this figure had dropped by 2.3%. Discouraged work seekers’ figures had dropped from 2.5m to 2.2m.

Ms E Van Lingen (DA, Eastern Cape) pointed out that for the financial year 2014/15 if the Gross Domestic Product was R3.8 trillion and the growth rate was 1.6%, were these figures taken into consideration when foreign investment was looked at. The idea after all was to create jobs. She asked if there was a report that the Committee could be given regarding the Presidential Infrastructure Coordinating Commission’s (PICC’s) monitoring of infrastructure projects that had reached spending of R1 trillion. She was glad that the EDD had unblocked many infrastructure projects. She asked what it was that had to be unblocked. She asked what the function of the EDD was. On assistance by the EDD of farming activities, she asked whether there was formal training and development. She furthermore asked whether capital assistance was also given. The EDD was asked how it was involved in the Solar Water Geyser Programme. She understood it to be the baby of Eskom and the Department of Energy. If the EDD contributed in the development of the five point plan of the Electricity Technical Implementation War Room to address challenges in the energy sector, what had it done to speed up the coming online of Medupi and Kusile power stations? The power stations were over budget and were well over their timeframes for completion. Of the 25 audit findings how many were employment related?

Deputy Minister Masuku stated that the economic growth trend was moving downwards. The EDD had to emphasise on the nine points. The EDD had to account for its work. Foreign direct investment was taken on board. There were relationships with the Brazil, Russia, India, China and SA (BRICS) Bloc countries as well as with the European Union and the United Nations. The quality of foreign direct investment was important. The EDD provided secretarial support to the PICC. National Assembly was engaging in a discussion on how to treat the work of the PICC. Perhaps a joint committee could look at the work of the PICC. He explained that government’s policies were excellent; the problem lay in its implementation. The EDD tried to identify what caused the blockages and pointed departments in the right direction on how to unblock. The unblocking could be amendments to legislation that were needed. He explained that the solar water geyser programme was an infrastructure programme. The EDD looked at the social and economic impact that the solar water geyser programme could have. Questions that needed to be asked were whether manufacturing of solar water geysers was taking place and were jobs being created. The EDD analysed the solar water geyser programme. The problem was that no new jobs were being created. New factories were not being opened and issues of maintenance were not being addressed. On Medupi and Kusile power stations the EDD had identified what some of the problems regarding them were. One of the issues identified was lack of capacity. He confirmed that the rebate on solar powered geysers was being reviewed. There was an intra-ministerial committee looking into the matter. It was felt that issues of localisation and maintenance had to be taken into consideration. The oceans economy was not covered because the work that the EDD was doing on it did not fall within the reporting period being discussed. It would be covered in the 2015/16 Annual Report.

Mr Vawda added that on competition measures on farming activities there was an Afgri agreement. The agreement required Afgri to undertake a variety of support measures for small farmers. Since April 2014 Afgri had spent R9.8m on training 68 farming entities consisting of 170 people. It also provided 40% discount on storage to 213 farmers who stored below ten tonnes of grain.

Mr W Faber (DA, Northern Cape) noted that if the EDD had visited problematic provinces why had the Northern Cape not been visited when it had the smallest economic growth rate. He was concerned that the budget of the EDD had been reduced. Economic development could only take place if money was invested in it. He said he wished SA to use more green energy. Sun and wind power could be used. The EDD was asked whether it had plans to assist the provincial government of the Northern Cape to grow its economy.

Deputy Minister Masuku responded that the EDD had initially chosen three provinces to assist. Other provinces would also be assisted. The Northern Cape would also be covered. Greater investment would be made in renewable energy. SA had hoped to move away from coal as a source of energy. The reality was that it had to have a mix of coal, nuclear and renewable energy sources. On its budget the EDD was not a department that implemented directly. There were instances where another department could make a better impact. One such department was the Department of Trade and Industry. He added a balance of evidence guided that implementation. There was a need to have outcomes in place.

Ms Oosterwyk noted that the reduction of the EDD‘s budget was a reality and seemed to be the trend at present.

Mr B Nthebe (ANC, North West) asked whether the EDD had looked at ways on how to fast track localisation and beneficiation. He referred to the PICC’s intervention in the North West Province on boreholes. He asked why were boreholes in the North West Province were not vandalised as they were in other provinces. He also asked whether the R5.4m in redirected funds to Programme 3 of the EDD had improved SA‘s ability to negotiate when dealing with foreign countries. On Programme 2, the EDD was asked whether there was a convergence of the National Development Plan (NGP), the New Growth Path (NGP) and the Industrial Policy Action Plan (IPAP). He felt that ordinary people should be benefiting from Small, Medium and Micro Enterprise (SMME) Programmes. The concern was that there was too much red tape. There was apparently a requirement of 10% collateral needed to qualify for a loan. He pointed out that the mining sector in SA was built on migrant labour. The EDD was asked how it intended to bring peace to the sector.

Deputy Minister Masuku stated that it was true that there had been no vandalism of boreholes in the North West Province. The Province seemed to have a strong community bond. The EDD would investigate what made the Province different on vandalism compared to other provinces. He stressed that SA’s negotiating teams were strong when it came to dealing with foreign countries. Of utmost importance was safeguarding SA’s interests. Regarding the NDP, NGP and IPAP convergence he said that there was no disruption. He confirmed that there was a need for collateral on loans. Collateral could even be a person’s intellectual property. The IDC also took intellectual property as collateral.

Ms Z Ncitha (ANC, Eastern Cape) said that if it were true that the EDD had relationships with various government departments she suggested that the EDD partner with the Department of Labour on the Employment Enterprise Programme. She understood that China’s demand for resources was declining. She asked for which resources the demand was declining.  The Committee needed to be given specifics on the efforts of the EDD in the provinces. She felt that government needed to take action on the monopolies that cartels had in SA. The Committee needed details on the R1 trillion unblocking of infrastructure.

Deputy Minister Masuku, on the unblocking of infrastructure, said that premiers in provinces were aware of what was happening. The commodities that the Chinese demand was decreasing for were iron ore and other types of metals.

The Acting Chairperson observed that the EDD had entities; the Committee should also be given access to the reports of entities. On maintaining peace in the mining industry, the discourse was being looked at in NEDLAC. The EDD was asked what was happening in NEDLAC at present. The Committee had visited a solar plant in Upington. The EDD was asked if it had information on how far the plant was on being up and running. He also asked for information on the expansion of solar energy in De Aar. He was very concerned about metal and cable theft and felt that scrap metal dealers who bought stolen metal and cable should be dealt with harshly. The EDD was asked whether its draft legislation would address the concern.

Deputy Minister Masuku agreed that metal and cable theft was a serious concern, and confirmed that legislation was being put in place. The legislation should be in Parliament at present and was at an advanced stage. On peace in the mining sector, there was a Phakisa taking place and it would end in November 2015. All stakeholders would be taken on board and hopefully resolutions would be found. On solar plants there were those who had issues but for the most part there was progress. Most plants were operational. Taking action against scrap metal dealers was important and hence monitoring had to be improved and arrests also had to take place.

Committee Minutes

Committee Minutes dated 22 September 2015 and 21 October 2015 were tabled and adopted unamended.

The meeting was adjourned.