The Industrial Development Corporation, the International Trade Administration Commission, the Competition Tribunal and Competition Commission presented their annual performance plans to the Portfolio Committee on Economic Development.
The Industrial Development Corporation’s corporate plan highlighted some key issues faced by the entity, especially those which were due to the current economic downturn, and the implications of the depressed commodities market on the performance of the entity. The Committee asked about the entity’s plans to diversify its funds internationally, the spread of the investment into enterprises run by youths and women, and other programmes aimed at addressing transformation issues.
The International Trade Administration Commission said one of its challenges was the implementation of the price preference system for scrap metals, and the plans it had to ensure it would be accepted. In addition, the entity had to contend with a shortage of funds and not having a Deputy Chief Commissioner. The Committee asked questions around financial issues that had been raised at previous meetings and how they were being addressed.
The Competition Tribunal said it had been successful and was striving for more success in ensuring that information regarding their decisions was easily accessible and understandable to the general public. Another achievement by the entity had been its ability to source additional funds to support the growth of the entity. Transformation and capacity shortages remained the key challenges for the Commission. The Committee wanted to know the plans to address these challenges, and how it going to fulfil its mandate with a shortage in capacity. Members pleaded with the entity to broaden its horizon when dealing with issues of transformation.
The Competition Commission said its planned to intensify cartel enforcement and investigate strategic price fixing in its annual performance plan for the year. The entity disclosed an increase in its financial resources which would enable it to focus on its strategic plans. It also highlighted the need to increase its human capital due to the increase in its work load. However, a major hindrance was the scarcity of graduates in competition studies. The Committee asked the entity about its strategic plans to addressing its challenges and issues of transformation, and suggested that the entity engage with learners as a way of making them aware of competition studies.
Briefing: Industrial Development Corporation (IDC)
Mr Geoffrey Qhena, Chairperson: IDC said these were indeed tough economic times in South Africa, and the economy was faced with slower economic growth. The decline in commodity prices had increased IDC’s exposure to risk due to the slowing manufacturing sector which was severely affected by the depressed commodity prices. Therefore, it was imperative for the IDC to respond to the immediate economic crisis as more companies were in need of additional funds, so the response was part of IDC’s corporate plan.
It should also be noted that these tough economic conditions also provided opportunities which the IDC should not lose sight of. The declining commodities market gave the IDC an opportunity to reflect on how it could diversify as an economy.
The important thing was that the activities of the IDC were aligned with the National Development Plan (NDP) as well as the shareholder’s plan. In addition, the entity had embarked on regional diversification, and had allocated 12% of the IDC’s funds outside the continent.
Much of the entity’s focus had been shifted into supporting new and innovative industries, but just supporting industries was not enough. There needed to be transformation that went hand in hand with industrialisation. As a result, the entity looked at increasing the funding and support given to blacks and women industrialists, as well as young people.
Mr Qhena concluded his presentation by stating that partnerships with other departments and funders was key to achieving their goal of a substantially more pro-active IDC.
Mr P Atkinson (DA) raised a question regarding regional diversification. If the regional economy was performing better than the South African economy, would the IDC consider increasing the 12% funds invested outside the continent? Considering the fact that the IDC had offered funds to the Gupta family which were still outstanding, he wanted to know what it was doing to mitigate the risk of not being repaid the loan, as most companies were cutting ties with family.
Mr Qhena replied that the 12% of funds allocated outside the region could go higher. However, at the moment all economies including South Africa were experiencing slower economic growth as a result of the depressed commodities market, among other things. Another reason for not wanting to allocate a significantly larger amount of funds outside of Africa was because the IDC did not want to lose sight of its focus area, which was South Africa.
He gave some background on the Gupta issue, saying that the IDC had first been approached in 2008 by the Gupta family asking for a loan of R250 million to start up a mine. Approximately two years later into the agreement, even though the mine was generating income, they could not service the loan so the Gupta family went back to IDC and asked for a restructuring of their loan. The IDC had required the Gupta family to first pay R100 million, and then the two parties had agreed that of the R150 million outstanding, one portion would generate interest for the IDC and be repaid when it was due, while the other would be converted into shares at a discount if the mine listed, which it had done in 2015. So the IDC was a bit worried, but it had engaged with the mine management and was looking at other options they might have.
Mr S Tleane (ANC) asked in which provinces the youth and women investments were taking place. Given that the IDC was placing a significant portion of funds in other countries, was it not concerned about losing sight of what was needed locally? How was it assisting in mitigating the drought? What was the IDC doing to make sure that while protecting jobs, it was also protecting environment?
Ms C Matsimbi (ANC) asked about the IDC’s plan to assist the slower economic growth provinces like the Eastern Cape, Mpumalanga and North West. Her second question was on the progress of Soweto Gold. What percentage of local content would be involved in the automotive manufacturing process?
Mr Qhena said there had not been much progress with Soweto Gold. The initial investment in 2013 had been R3.5 million and they had asked for more funding. However, there were disagreements that they were still trying resolve. The IDC was also looking into spreading its investments to other provinces.
Dr M Cardo (DA) wanted to know the impact which a possible downgrade would have on the IDC. He asked about the difference between black economic empowerment (BEE) and the black industrialists’ programme, and whether there had been improvements in the number of industrialists who had received funding for the first time. What measures had been put in place to ensure that in the black industrialists’ programme there was no fronting, and that it was a programme that was inclusive and of benefit to everyone.
Mr Qhena explained that if South Africa were to be downgraded to below investment grade, that would have implications of increasing the cost of funding, and the IDC would have to negotiate with their debtors and creditors for re-pricing.
Ms Nontokozo Hadebe, Head: Corporate Strategy, IDC, replied to the second question that the difference between the black industrialist programme and BEE was that the black industrialist program required the person to be involved in the operations of the business. However, even though there was a difference between the two programmes, the black industrialist program was a subset of BEE. As compared to the previous period, there had been an increase of 41 new companies funded, with an increase of R2 billion funds allocated to these companies for starting up and expansionary purposes.
The Chairperson asked about the factors that influenced the selection criteria as to which industries to fund. Had the IDC taken into account the current labour challenges, and how would it ensure that they met their goal of achieving 50-60% local content?
Mr Qhena said that when looking into approving funding, the entity first considered the growth prospects of the industry, at the ability to create jobs, our capability as a country and lastly, government priorities. It then decided, based on all these factors. Responding to the labour question, he said that even though it would be difficult to meet the target, there were parts of the manufacturing process that were very labour intensive, especially in the automotive industry.
The Chairperson thanked the IDC team for their presentation and made comments on the regional spread still being a problem. More value was understandably being added in Gauteng because capacity was not the same as compared to other provinces. However, the IDC needed to reach out more to slower growing economic provinces. She was not happy with the level of impairments and write-offs, even though these were also affected by the current economic conditions. This was an issue that needrf to be addressed.
Briefing by International Trade Administration Commission (ITAC)
Mr Siyabulela Tsengiwe, CEO: ITAC said that the entity had seen an increasing trend in its tariff policy for the period 2003-2015, with tariffs on intermediate products increasing from the previous period due to declining world and local economies. There had also been a transition in the value chain approach by ITAC -- the entity had shifted from the tendency to view tariff setting on products as an isolated process from the whole value chain.
ITAC had also focused on strengthening the price preference system (PPS) for scrap metal exports, which was a direct result of the policy issued by the Minister of Economic Development, whose rationale was to allow domestic industry to have access to affordable quality scrap metal.
The Commission had received ten applications from the steel industry to increase import on tariffs from zero to 10%. Seven of these investigations had been finalised and implemented by SARS.
Mr Tsengiwe said the entity had had shortages of funds and there had been a reduction in its budgets. The budget composition of ITAC was such that 75% of the budget went to employees and 25% to goods and services.
Dr Cardo asked why Port Elizabeth had been chosen as the only port, and what consideration had been given to transport costs by the scrap dealers due to the amendments. He had concerns with about the plan to finalise the PPS while there was still huge opposition from the scrap dealers.
Mr Tsengiwe responded that the reason PE had been chosen was because traditionally it had low export volumes and other ports were very busy. Secondly, having only one port would ensure price compliance, there would be less theft and this would also help curb illegal exportation. ITAC acknowledged that the PPS had been implemented with challenges, as its implementation would give scrap dealers a lower price compared to the price they would get when exporting. The entity was looking into having closed hearings where they would invite scrap dealers and all stakeholders in order to hear and understand their concerns.
Mr Atkinson asked a question related to an issue which had been raised at the previous meeting about the qualifications of the CFO. He wanted to know whether the issue had been addressed.
Mr Zanoxolo Koyana, CFO: ITAC said that ITAC’s main problem that had resulted in it receiving a qualified audit opinion was the result of a misunderstanding. Some of the items on the financial statements had been accounted for from a legal point of view, which was totally different in terms of accounting standards. ITAC had since taken over the responsibility for financial reports. Its first step in addressing the problem was having internal auditors, who would help with the financial reports. There had been an improvement so far and ITAC had learned from its mistakes. The entity had also enrolled its staff for skills development courses in order for people to have a better understanding of accounting concepts.
Ms Matsimbi asked why the deputy chief commissioner position was still vacant. What conditions did the country have in place when exporting raw materials, because South Africa exported raw materials which it imported as finished goods at very high prices.
Mr Tsengiwe responded that the appointment of the deputy chief commissioner was the responsibility of the Department, so it was difficult for them to make a decision as to when the post would be filled. However, having one would bring relief to the Commission. There was no conditionalities in place, but there were export controls enforced for health, safety and environmental reasons.
The Chairperson asked why ITAC’s five-year plan was remaining the same when there was a lot happening in the economy, especially in terms of the regulations where ITAC was involved. What had happened to the restructuring that was meant to have taken place two years ago, and had any recommendations and suggestions been made to the Department of Economic Development? Had the issue of irregular expenditure that had been raised at the previous meeting been addressed?
Mr Tsengiwe said that it was only the policy direction that had remained the same, otherwise there were additional projects in place that were meant to address the challenges that had arisen as a result of the current economic conditions. Furthermore, ITAC could not start with the restructuring without the support of the parent department. ITAC had forwarded some recommendations and suggestions to the parent department, and it was still engaging with the Department of Economic Development.
Mr Koyana responded to the last question saying that there had been no finding of irregular expenditure, but rather an issue of compliance with Generally Accepted Accounting Practices (GAAP). This issue had resulted in the financial statements being affected by R2 million, which had been found to be an issue with a material impact.
Briefing by Competition Tribunal (CT)
Ms Lerato Motaung, Head of Registry: CT, said that the tribunal was updating its Case Management System (CMS) so the general public could have full access to their information. Their aim was also to try and communicate 100% of their decisions within two days.
The tribunal was also revamping its website where they would post all their press releases, not only the ones with public interest, and also to have links to all African Competition Tribunal websites.
Ms Janeen de Klerk, Chief Operating Officer: CT, said that looking at the financial overview, the Commission had improved its budget shortfall from the previous periods. The Tribunal had also been experiencing fluctuating filing fees because it was difficult to tell when companies would be merging.
Mr Norman Manoim, Chairperson: CT, said that capacity constraints was the main challenge the Tribunal was currently facing. The entity was in need of a deputy chairperson, two part-time tribunal members and a senior economist. Currently their budget allowed only for the recruitment of a senior economist.
Dr Cardo said he noticed that the AB Inbev/SAB Miller merger case was not on their case calendar. What was causing the delay?
Mr Manoim responded that the AB Inbev/SAB Miller merger had not been finalised because the parties had asked for an extension until 12 April 2016, to which the Commission had agreed.
Mr Tleane commented that the tribunal had struggled with a low budget for a long time, but now that their budget had been increased, how was the tribunal planning to use these additional resources efficiently and effectively? He asked when the internship had staredt and whether there had been any impactful work done by the interns for the entity.
Ms De Klerk responded that the Tribunal did not need more money to do more things, but rather that the funds allocated to the entity were growing at a slower rate, given the entity’s growth. It was just a matter of the grant being insufficient to meet the budget needs. With regards to the internship, the Tribunal was small so it was starting with holiday interns and assisting them with skills. The case management internship had always been there to help students with their practicals, and these interns were sometimes employed by the Tribunal or went to the Competition Commission. They did try to keep in contact and develop relationships with these interns, and sometimes they came back for references.
The Chairperson asked what input the Competition Tribunal had made to the amendments to the Competition Tribunal Act. How would the entity be able to achieve its strategic focus with the shortfall in capacity?
Mr Manoim responded that they had made some recommendations regarding the amendments to the Competition Tribunal Act. They were also aware that it would be difficult to meet its strategic goals with less capacity, so they were engaging with the Department about the appointment of a deputy chairperson, in particular.
The Chairperson commended Competition Tribunal for making an effort to ensure that information was easily available and understandable. She commented that the entity must broaden its horizon and look not only at the big universities, but also at college students and students from previously disadvantaged backgrounds. There had been no transformation in the Competition Tribunal because there were no black specialists, so the Tribunal should engage with learners to develop an interest in competition studies, especially those from previously disadvantaged backgrounds.
Briefing by the Competition Commission (CC)
Mr Hardin Ratshisusu, Acting Deputy Chief Commissioner, Competition Commission, said the Commission had a big duty to ensure sanity and that everyone was fairly treated. They were happy that their vision was in line with the National Development Plan, which was to regulate a growing and inclusive economy.
The Commission was intensifying its cartel enforcement and as a result had investigations into over 40 cartels planned for the current year, with some cases being received from government departments and municipalities regarding state contracts. Another matter worth noting was the increase in the volume of mergers in the past four years, with more anticipated to take place in the current period.
The entity was also planning on investigating the abuse of dominance, with allegations that there was strategic price fixing in priority sectors like telecoms and pay TV broadcasting, among other sectors.
Mr Ratshisusu said that there was a need for the Commission to increase its staff in order to fulfil goals and fulfil its mandate. This was because of the increased work load, the increased mandate and the need for enforcement expertise. As a result, a new proposed organisational structure had been submitted to the Minister of Economic Development.
In terms of finances, mergers filed were expected to increase as a result of the expected increase in economic activity. Financial resources had been allocated to ensure that the Commission could focus on the identified strategic areas.
Mr Atkinson asked why the budget had fluctuated unexpectedly.
Mr Molatlhegi Kgauwe, Acting Head: Finance Division, CC, replied that it had been because of the health inquiry -- a once off item that had caused a significant decrease in the budget. Thereafter there had been an inflationary increase of about 5% from one period to the next. In addition, the health inquiry had been expensive due to high consulting fees because health experts had been needed, some of whom were international personnel.
Mr Tleane said that the last time they had met with the Commission they had a problem with space. He asked whether that had been resolved since the Commission had moved to another location.
Mr Ratshisusu responded that the space was a very difficult issue, but they were still exploring their options were hoping to find decent space. The Commission was currently renting out space from the Department of Trade and Industry, and renting fees kept going up so this might not be sustainable in the future.
Ms Matsimbi raised a question regarding the shortage of staff, and asked whether the Commission had considered university students, since there was a shortage of law professionals. They should look into providing learnerships and training them according to their needs.
Mr Ratshisusu replied that the Commission had been able to attract graduates and it was hoping to strengthen human resources and have someone responsible for talent management in order to implement the recommendations and suggestions that the Portfolio Committee was making.
The Chairperson noted that the Commission planned to increase the staff by 100 people over the next three years, and that was roughly 33 people per year. She asked how that would be possible, given that the Commission was saying there were not enough potential personnel in the market.
The meeting was adjourned.
- International Trade Administration Commission of South Africa (ITAC) 2016 Annual Performance Plan presentation
- International Trade Administration Commission of South Africa (ITAC) 2016 Annual Performance Plan
- Competion Commission 2016 Annual Performance Plan presentation
- Competion Commission 2016 Annual Performance Plan
- International Data Corporation 2016 Annual Performance Plan
- Competition Tribunal 2016 Annual Performance Plan presentation