Minister of Economic Development on Department’s 2nd Quarter Performance

Economic Development

01 March 2016
Chairperson: Mr A Cele (ANC) (Acting)
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Meeting Summary

The Minister on Economic Development reported on his Department’s 2nd Quarter performance. The Department obtained an unqualified audit opinion for 2014/15 with an improved management report and no material misstatements. Nominal GDP in the period under review was slightly more than R1 trillion. Though South Africa avoided a recession, growth rates were below the levels required to achieve national goals. Gauteng created the most jobs (191 000), followed by KZN (154 000) and Limpopo (147 000). 32% of the 171 000 jobs created from Q1 to Q2 in 2015 were for women and 68% were for men and 374 000 jobs were created for young people. The Economic Development Department and the Department of Trade and Industry’s task team on steel considered a pricing regime for steel. A Polish company in partnership with IDC established a factory in East London to recycle waste plastics into useful products. EDD and the Department Rural Development and Land Reform (DRDLR) visited four cooperatives to monitor progress made since the youths exit from National Rural Youth Service Corps (Narysec). Discussions were ongoing with a potential international investor to buy an iron and steel making company which was likely to go under and there was a plan to implement the Black Industrialists Programme. EDD in partnership with two other entities hosted a two-day Township Business Training Workshop in Mamelodi and beneficiaries were trained and issued with certificates of competence in various subjects. As at 30 September 2015, EDD had spent 48% of the budget.

Members asked about the effect of the budget cut for 2016/17 on the Economic Development Department, the road map to a clean audit, the stages of the proposed partnership with the Polish company and negotiation with another potential international investor. They asked if cooperatives under Narysec could survive beyond the intervention of EDD and DRDLR, if the trainees of Township Business Workshop would be financially assisted to implement what they had learnt, and the possibility of using sea water to address the challenge of drought. They asked for a progress report on vacancies, scarce skills, the proposed review of Economic Development Initiatives (EDI), the scrap metal policy, feasibility study of the steel industry, Umsobomvu Dam; requested clarity on the youth employment tax incentives, commended the initiative to vaccinate cattle and how Black Industrialist Programme would differ from Black Economic Empowerment.
 

Meeting report

Minister of Economic Development on Department’s 2nd Quarter Performance
Minister Ebrahim Patel said the Department obtained an unqualified audit opinion for the year 2014/15. There was an improved management report and no material misstatements. It had compiled a consolidated ‘heatmap’ to rectify the audit findings, reflecting responsible persons and timeframes. He said nominal GDP in the 2nd quarter of 2015 was slightly more than R1 trillion, which was nominal increase of R14.3 billion from the previous quarter. Though South Africa avoided a recession in the quarter under review, growth rates were below the levels required to achieve national goals. Gauteng created the most jobs (191 000), followed by KZN (154 000) and Limpopo (147 000). 32% of the 171 000 jobs created from Q1 to Q2 in 2015 were for women and 68% were for men. 374 000 jobs were created for young people. The EDD and DTI task team on steel considered a tariff and pricing regime for steel. There was additional capacity for ITAC to monitor the implementation of the scrap metal policy. He said a Polish company in partnership with IDC would establish a factory in East London to recycle waste plastics into useful products. This would provide 3 000 informal job opportunities and 50 permanent jobs. EDD and DRDLR visited four cooperatives to monitor progress made since exit from the Narysec Youth Programme and to unblock challenges. There was training for the 35 members of the four cooperatives in November 2015. A vet visited one of the four cooperatives to vaccinate the cattle and improve infrastructure. EDD convened a technical MinMec in July 2015 and the reports included the implementation plan for the Black Industrialists Programme. Discussion was underway with a potential international investor to buy an iron and steel making company which was likely to go under due to its inability to pays its bills. He commented that EDD in partnership with City of Tshwane and Hand-In-Hand Southern Africa hosted a two-day Township Business Training Workshop in Mamelodi in September 2015. 65 beneficiaries were trained and issued with certificates of competence in financial literacy and business marketing management in November 2015.

Mr Kamaran Naidoo, Acting Director General, EDD, spoke on the Department’s financials as at 30 September 2015. EDD had spent R423 927 000 out of an allocation of R885 778 000 which represented 48% of the total allocated budget. Expenditure excluding transfers amounted to R 54 121 000 out of an allocated budget of R152 533 000 which represented 35% of the baseline allocation.

Discussion
Mr P Atkinson (DA) asked for an indication of the budget cut for 2016/17 and how it would affect the work of EDD.

The Minister replied that the budget cut for 2016/17 was principally in goods and services. 2017/18 cuts would be concentrated in both staffing and goods and services. His experience in government was that when there was pressure, Departments found a way to get the job done. EDD contribution would be in two ways – First, creating efficiencies, for instance instead of having a conference in a hotel, a public facility with a good auditorium could be used and secondly to extract more value from the public sector as it was well resourced but under-utilised. It was more glamorous to re-invent the wheel. There was a need to do more with fewer resources.

Ms D Rantho (ANC) asked if the Department had a time frame for responding to the Auditor-General findings and if there was a road map to a clean audit as this would affect other departments that were affiliated to the EDD.

The Minister replied that he would hope the current order would give an idea on how to get there as the Acting DG was brought in because of the system knowledge that he had. It was possible to have a clean audit report if systems were put in place to work. He looked forward to see the next AG audit report and how close the EDD was to getting an audit report without any findings

Ms C Matsimbi (ANC) congratulated the EDD for the unqualified audit outcome and said the action plan in responding to the AG’s findings was very impressive. She asked what stage was the proposed partnership with the Polish company to establish a factory in East London to recycle waste products into downstream products.

 The Minister replied that the transaction with the Polish company had been approved. If there were no delays, construction would start within six months.

Ms Matsimbi asked in which provinces were the cooperatives that were being assisted in Narysec Youth Programme situated? Were any of the cooperatives in a state of survival beyond the EDD and DRDLR intervention?

The Minister replied that the cooperatives were in Sedibeng Municipality. As people graduated from Narysec, they came across problems they found insurmountable because there was no post training support. The essence of the visit was to find out the problems and how they were doing. Can we change the mindset in the public sector to be less transactional and more strategic? Departments across the board were staffed with different skills. People concentrated on their mandate but it should be more about making an impact. There was an appetite within the private sector to help smaller players. One of the things that could be done was to make the Small Enterprise Development Agency (SEDA) see what technical support was needed.

Ms Matsimbi questioned the plans to address the challenge of drought the country was facing, especially as it related to livestock and agricultural farming.

The Minister replied that the IDC had made available about R400 million to address the drought. The support from DRDLR, Department of Agriculture, Forestry and Fisheries (DAFF), Land Bank, Department of Water and Sanitation and additional support mentioned by Minister Gordhan in the budget speech would amount to a little less than one billion rand. These were all put together to address the challenge of drought. He added that it was a critical issue.

Ms Matsimbi appreciated the two-day township business training in Mamelodi and the certificates awarded. Were the trainees financially assisted to help in the implementation of what they had learnt?

The Minster replied that it was the same challenge as the Narysec Youth Programme. The state did things in pieces and not in one integrated movement. More integrated support was needed. He would come back with more answers on this in the 3rd Quarter Report.

Mr I Pikinini (ANC) asked of the possibility of using sea water to address the challenge of drought in the country.

The Minister replied that in order to make sea water drinkable, one needed to remove the salt. A lot of heat is needed for this technology which made it an expensive option. Hopefully the cost would come down significantly in the next few years. A report on desalination projects in the country would be submitted to the Committee

Mr Pikinini asked for illustrations on the work done in the area of vacancies and scarce skills.

Minister Patel replied that the answer hinged on smarter use of management support rather than the traditional support of relying on six of seven people to re-invent the wheel. There should be reliance on using experts rather than non-experts. He added that when seconding staff from the University of Johannesburg, EDD benefited from the high level engineers. The teaching experience will also be enriched, thereby benefitting UJ. EDD had extended the search to Wits University but it was too early to get an evaluation. It was an innovative approach. There was no need to build massive empires to be effective but smart use of resources. Things should not be done in the old way but in new cost effective ways.

 Dr J Cardo (DA) said he wanted more clarity on the youth employment tax incentives. It would lapse in January 2017 and there was special mention of it in the Budget Speech last week.

The Minister responded that the big challenge was not that there were no incentives but how to design incentives that would generate employment. Since the resources were scarce, the incentives should generate the additional jobs.

 Dr Cardo asked if there were plans to review EDI and what the EDD approach would be in 2016/17 and 2018/19.

The Minister replied that Treasury would announce a review to know the early lessons.

Dr Cardo asked for a progress report on additional capacity for ITAC on scrap metal policy and if a final decision had been taken on the steel mill. Had any research been done on the likely consequences of that proposal on employment?

The Minister replied that there were two initiatives: A localisation programme to reduce the export of scrap metal that deprives local foundries of its stock. EDD had seen a decline in the exportation of scrap metal. Industrialists said more needed to be done as merchants were not accepting the spirit of deregularisation but rather trying to find ways to bypass it. Separate to that was an initiative by the Presidential Infrastructure Coordinating Commission (PICC) to reduce the theft of scrap metal in the National Infrastructure Programme. Parliament had passed the Criminal Matters Amendment Act on minimum sentencing. This was not sufficient. There was need to monitor domestic trade in scrap metal. There was an increase in the export as part of it was satisfied by theft and stolen metal scrap. What policy must be put in place to reduce that market and stop a potentially damaging situation? Evaluate the concern and have one single point of exit which could be monitored easily. To change there had to be adjustment and some degree of pain.

 Dr Cardo questioned the progress made in the feasibility study on steel industry? He questioned the sustainability of government’s Infrastructure Development Programme considering the amount allocated to it in the budget.

The Minister replied that the feasibility study was concluded in December and the report submitted in January. Companies were considering reducing supplies. When the demand picked up, would South Africa be ready and well positioned to have transformation of iron ore. There was a single player and one producer. There was no competition as this helped to keep companies on their toes. A steel mill was not built overnight. It would be viable only if the markets were shifted dramatically. The market was collapsing. There was a need to find other projects that would go slowly. When there were fiscal projects where do you spend the money? The Department did not want to touch the investment in its wealth creation and the funds kept for the poor. If we have up to 10% of GDP, there would be a more significant growth. We managed to get fresh investment into the industry. There was a need to have investors with knowledge of the steel industry and big pockets

Mr S Tleane (ANC) commended the Department for the progress made under very difficult conditions in the country, adding that more work was needed. He asked how many jobs were saved in the two companies that were rescued from going under.

The Minister replied that companies that IDC supported were in Mpumalanga and 1 800 jobs were saved.

 Mr Tleane asked if the training of the members of the four cooperatives commenced in November 2015 as planned and progress made.

The Minister replied that he was not sure if the Department knew that but would report on it in the next quarterly report.

Mr Tleane commended the vaccination of cattle and asked how possible it was to take the initiative into other areas where there were emerging farmers so that their cattle could be saved.

The Minister replied that the EDD would follow this up with the DRDLR and the DAFF and bring a report to the Committee on new initiatives.

Mr Tleane asked if negotiations with the potential international investor to buy and rescue an iron and steel company were continuing or concluded.

The Minister replied that the company that was attracted was concerned about some liabilities that the company had including liabilities on environmental issues and this had not been resolved. The pressures were enormous in keeping the steel industry. The Department was hopeful but it was a tough battle at the moment.

The Acting Chairperson appreciated the presentation and said it was well received. What was the Department doing to ensure the Black Industrialists Programme was broad based and how did it differ from BEE? When could the EDD brief the Committee on the steel industry as it generated a lot of interest because of its potential to create jobs?

The Minister replied that the policy document said it should be broad based but it was easier to write that on a piece of paper than to implement it. The first module of BEE was individually based. The second phase was to make it broad based and the third phase was to get black South Africans into production, which was a much more difficult phase to get right. It was an area the Department would focus on.

Mr Atkinson said the Minister referred to the change in the nature of the spending on infrastructure and that water would be part of the focus. What progress had been made on the Umsobomvu Dam?

The Minister replied that the project on construction had been submitted to Parliament. It was not a long road into the future as a lot more technical work had been done. The concern was what happened after the building of the Dam. What support packages would DRDLR and DAFF bring to small scale farmers in the Eastern Cape, where there were many villages with land used in a minimal way. To change this, a lot of things had to be resolved - how to deal with drought and frost, support on fertilization, moving people from subsistence to commercial farming, improve the business skills of the small scale farmers. All investment on the dam would come to naught if there was no water running in the taps when they were turned on. The next phase of the work was to have the dam built and N2 rerouted between East London to Durban which would bring rural homesteads into national markets; and have the Mthatha revitalization programme completed. It was necessary to get all the other points right as having the dam alone would not change things.

The Minister said the Department would come back with answers to the remaining two questions in the next quarterly report.

The Acting Chairperson thanked the Minister and Deputy Minister, the Committee Members and support staff.

The meeting was adjourned

 

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