Special Funds for Development & Poverty Alleviation: public hearings

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
12 March 2003
SPECIAL FUNDS FOR DEVELOPMENT & POVERTY ALLEVIATION: PUBLIC HEARINGS
 

Isibaya Fund submission
Department of Provinicial & Local Government submission
Independent Development Trust submission
National Empowerment Fund submission

SUMMARY
The Isibaya Fund was criticised by the Committee for not developing a large base of empowerment and for its inability to dispense its legislative mandate. The Committee felt there should be flexibility with regard to a demand for 10% investment return and the exclusion of start-up ventures.

The Department of Provincial and Local Government reported on efforts to produce a strategic framework for meaningful civil society participation in local government.

The IDT explained that their role has changed from being a funds dispenser to a manager of development with the focus on rural areas. There were concerns that the IDT may not be able to manage the large revenue at its disposal and ensure its proper auditing. Roll-overs were also a concern.

The National Empowerment Fund's underperfomance was cause for concern.

MINUTES
Public Investment Commissioners' Isibaya Fund
Mr Fuad Cassiem (Isibaya Fund Consultant) spoke on the work done by the Isibiya Fund which is not a development agency but acts as an investment manager in terms of the Public Investment Commissioners' Act. The PIC manages funds such as the Government Employees Pension Fund. It has also been mandated to invest in investments which have a social impact and develop Black Economic Empowerment. Unfortunately this had not translated to a significant number of opportunities. In order to manage the fund, the criteria set out were based more on sustainable returns and low risk investments than socially responsible investments. It was stated that Black Economic Empowerment would double in the next year.

The presentation by Mr Neill Maree (Fund Manager) focused on the operational activities of the Isibaya Fund with regard to the promotion of sustainable Black Economic Empowerment and investments that bring about necessary social impact. PCI had invested in toll roads and tin mine to yield returns over the long term.

Discussion
Based on the report, Mr D Lockey (ANC) questioned the performance of the fund as it had spent R121 million in investments but had not developed a large base of empowerment. In his opinion, perhaps it was time for change at management level. He also questioned the Fund's insistence on gaining a real return of 10% on its investments. Perhaps this was the reason for the lack of applications.

Mr C Lowe (DP) questioned the number of employment opportunities created by the investment of R121 million. Would success only be judged after a few years or are there any other methods to test presently.

The Chair requested clarity on the inability of the fund to dispense its legislative mandate. Reports were intended to provide detail, yet this had not been complied with. Having only spent 1% of the present budget (R10 billion), doubling it to 2-3% would not be productive enough. What mechanisms would the fund then employ to increase the rate of investment?

Prof B Turok (ANC) then questioned whether this fund was real as no information concerning the staff complement and other physical elements were included in the report.

In answering this criticism, Mr Cassiem responded that the fund was real even though the staff complement was only two. Further, investments needed to be gauged over the long-term as noted in the BEE deal regarding tin-mining and toll-roads.

In defending the slow investment of the fund, he said it should be noted that only existing firms could access the funds. Start-up ventures were not included in the fund's legislative mandate. A positive step would be the planned collaboration with other agencies (IDC, NEF etc) so that the R10 billion could be invested.

Prof Turok (ANC) noted that the details of these joint-funding proposals should be assessed by the committee as soon as they were available and before it was concretized.

Department of Provincial and Local Government submission
Mr Patrick Flusk (Local Government Transformation Programme) spoke on his programme's efforts to produce a strategic framework for meaningful civil society participation in local government. The weak level of national and provincial coordination between and among civil society organistions and networks was also noted. The framework aimed at increasing the numbers of non-governmental organisations and community-based organisations involved in the planning/policy processes and service delivery of municipalities. He saw the department's role as developing a co-ordinating mechanism for donors to capacitate civil society to participate in the ward committee system.

Discussion
Ms J Moloi (ANC) questioned the lack of practicality in what was needed to be done and queried if it would be followed up. Another member questioned the status of transformation as it was already mid-term.

The Chair expressed concern about the ability of Integrated Development Plan stakeholders to step up from the local to the national level. Though this did not, however, affect the ability to find the required funds.

Prof Turok (ANC) was pleased that the policy was in line with that of the national government, but was not sure that the staff possessed the abilities to complement the step-up. Would the Department help co-ordinate the NGOs and CBOs? He expressed concern over the time it had taken to create the strategy (4 years). What would happen if they encountered further delays, noting that there was an immense difference between conception and implementation?

Mr S Rasmeni noted the necessity for the monitoring of direct funding and financial management accountability. What type of mechanisms were envisaged for the roll-over of donor funds?

Adv Z Madasa (ACDP) wanted to know more about the size of the actual problem rather than the funds required or the policy planned.

Summary of response by Mr Flusk:
The strategy framework is aimed at creating capacity between NGO/CBO/Government which is sustainable. Members had an option as to whether the plan would be implemented. It was imperative that local wards be supported on an on-going basis. This would necessitate input from the local ward committees and would need to be legislated. The problem is immense, as most IDPs are 'wish lists' with the practical problems being participation and co-ordination. The Department plans to create troubleshooting teams to assess plans and solve any problems at a grassroots level. Unfortunately there are no monitoring mechanisms. A pilot process is being studied by the Human Science Research Council and would form the basis for a future mechanism. To further this aim, donor funders have been encouraged to build the capacities of the organisations. Instrumental to this, has been the European Union marking 25% of its funds for infrastructure development.

The Department had designed the unit clumsily and needed to shift to being people-driven and outcomes-based. This has been extended to the learning and sharing of information networks; co-ordinating capacity building; co-ordinating donor funding that impacts on local government. Donors are flexible with regard to roll-over funds.

Independent Development Trust (IDT)
The Chief Executive Officer, Dr Lulu Gwagwa, addressed the committee on the performance of the Trust in 2002 and its projected performance for 2003/4. She noted that the IDT is not an NGO but a Schedule 2 entity (public enterprise) responsible to the Minister of Public Works. The IDT's role has changed from being a fund dispenser to a manager of development. Implementation of programmes is focused on rural areas and 99.9% are government funded programmes. In 2001, the IDT was mandated to assist the government in managing the ISDPs in order to enable poor communities. Programme management remains the core function of the IDT.

Discussion
Prof Turok (ANC) commented that the IDT seemed to fall within the ambit of a state structure and not as a public works department. He asked if the IDT had the capacity to deal with these large amounts of revenue. Did the process include an audit by Treasury and if so, was performance criteria applied strictly. Was there any legislative control over the spending of the funds?

Ms Moloi (ANC) needed clarity on the links between NGOs and the IDT. Was there a mechanism to accommodate gender within the programmes and at a national level?

Ms C September (ANC) questioned the process in which funds were spent and roll-overs maintained. Were the roll-overs returned to the donor or kept in the IDT account? Were these roll-overs based on incompetence or historical complications?

The Chair felt that it was obvious that a lack of co-ordination prevented the various agencies from making a concerted impact in their performance. It was thus urgent for proper co-ordination.

Prof S Ripinga (ANC) questioned the use of intentional/deliberate roll-overs.

Mr Rasmeni (ANC) asked if roll-overs were part of strategic planning and if not, what steps were being taken to combat this (late engagement).

Summary of response:
Dr L Gwagwa felt that generally there remains an inability with regard to capacity as:
· The absorptive capacity of the country which was a practical difficulty.
· Some agencies had not yet reached the level to efficiently manage their portfolios.
The co-ordination between agencies would always be difficult due to the dynamics involved. This included the mandate of some agencies to operate in geographical areas only and others which were cross-cutting. Co-ordination was further hampered by the communication between the end-users and the agencies. Legislation would not clarify the situation, rather a practical effort was need to integrate the agencies.

In accordance with its mandate, the Auditor General oversaw the auditing of the IDT and its programmes. With respect to Prof Turok's question, there was no legislative control of funds or the manner in which it was spent except where there was a set material criterion. This development planning should be based on the long-term output and/or production.
With regard to late engagement, adequate planning had not been enabled as there was no consultation with the communities. Contractual liabilities on the part of the Department of Public Works increased the delay of initial programmes. This delay hampered the implementation of Employment Equity policies.

Roll over funds were spent in the following year and therefore included in the proposed budgets. This formed part of the contractual needs of project management. There remained a need to include relationship building within the planning stage. Roll over was therefore hampered by:
· Late commitment on the part of all stakeholders
· Large programmes involve more technical planning
Capacity was hampered by:
· Historical circumstances
· planning occurs before IDT involvement e.g. where the donors have planned the programme

National Empowerment Fund (NEF)
The Chief Executive Officer, Mr Khaya Motshabi of the NEF presented the committee with a report on the performance of the NEF in 2002 and 2003/4 projections.

Mr Motshabi focused on 3 primary matters:
· the NEF had not performed to its potential
· the reasons for this lacklustre performance
· the projected performance anticipated based on current plans
As noted in the budget speech, the mandate of the NEF has taken a radical change. Due to these changes, the figures concerning performance would also change. The relationship with the Department of Trade and Industry has also undergone a change, with the emphasis being more active dialogue.

The value of the shares entrusted to fund the NEF in 2001 was estimated at R4.1 billion. It had now shrunk to an estimated R2.1 billion. The figures quoted were estimated as a proper valuation had not occurred.

2001/2 had been used to understand the needs and implementation of the NEF mandate. This had led to the under-performance of its potential. The current investment plans aimed at spending R10 billion over the next 5 years. Total funds for the venture capital division would total R100 million.

Discussion
The Chair thanked Mr Motshabi for the presentation but felt that it lacked insight into the proposed injection of R10 billion over 5 years.

Prof Turok (ANC) held that it was difficult to focus on the reason for the NEF's underperformance.

Mr D Lockey (ANC) was concerned that Mr Motshabi had appeared before the committee two years before and that there had been no improvement in performance. If government empowered the nation at the output rate of the NEF, it would take centuries for the county to reach the envisaged level. Why was there uncertainty as to the actual value of the assets?

Mr Motshabi commented that there exists the opportunity to partner with sister agencies to openly discuss a co-ordinated build up of capacity via joint equity or private equity basis. It remains an attempt to plug holes in the various operations. Exciting opportunities for small and large business would be focused on.

The share value mentioned was made in discussions concerning the formation of the NEF and was not definitive. The NEF however would apply criteria and funds to possible projects. It must still determine whether the NEF would be the distributive agency.

Ms September (ANC) noted that most of the funds were acquired from 'dark corners' i.e. from tax penalties thereby creating only an estimated value and that perhaps this sourcing of funds needed to be rethought.

The Chair asked if the NEF would attempt to change the manner in which a joint venture with the Isibiya Fund would set out criteria, specifically the real return of 10% and the exclusion of start up ventures.

Mr Motshabi commented that there remains considerable uncertainty with regard to investments, therefore the concern from all sectors. Yet the levels of concern should not reach those levels. Within a week of tax amnesty announcements, the government received R3 billion. Due to these reasons, the focus should not be on the uncertainties rather the certainties i.e. share assets.

With regard to joint ventures and equity partnerships with sister agencies, they also aim at a 10% return based on the ability to remain sustainable. The NEF would be more flexible and should therefore look at an aggregate 10% return over the lifespan of the venture and perhaps not from day one.

The Chair thanked all representatives and reminded them as to their responsibility of providing documents/policies and reports as promised timeously.

The meeting was adjourned.