The briefing noted that the country had to adapt to global challenges to operate locally, regionally and on the continent and internationally. The Deputy Minister stressed that the mandates of the EDD related to job creation, inclusive growth and industrialisation, and for this reason the EDD must give strategic direction to development finance institutions on competition policy and trade administration. The Gross Domestic Product (GDP) of R3.8 trillion was the same size as Malaysia and Denmark, but the biggest difference was that only 16.0 million of South Africans were employed. South Africa exported up to the value of 30% of the GDP. Certain economic activities had declined, impacting upon the domestic economy, with sharp declines in demand for platinum and iron ore, whilst industrial relations, high levels of income inequality and energy shortages added to the problem, and growth was below target in South Africa.
Youth unemployment was a critical concern. The largest number of quarter-on-quarter employment jobs were created in Gauteng (79 000), Western Cape (63 000) and North West (48 000). Specific focus areas would continue to be the 18 strategic integrated projects (SIPs), meant to trigger rapid economic development, industrialisation, and fulfilling the President's Nine-Point Plan set out in the State of the Nation Address. Targets and figures for the individual programmes were then set out. It was noted that some of the initiatives and organisational work would move to the Ministry of Small Business Development, which would mean a reduction of budget. The allocations for 2016/17 and the two outer years were discussed and the cessation of the Economic Competitiveness package was noted.
Members requested clarity on the inconsistency in the numbers for annual employment; was there a strategy in place to address the problem of companies abusing the market power through competition actions; it was important to know the level of skill required for infrastructure development projects to determine the kind of people and companies that would be involved in a project. It was concerning that South Africa seemed to be dependent on foreign companies for infrastructure development projects. What are the conditions about jobs and training given to those awarded a particular tender? Did the Department emphasise that key to economic development of emerging businesses was access to markets? What was being done in terms of projects and initiatives for provinces with higher levels of unemployment such as Free State? One Opposition Member felt that the mandate of the Department was obsolete as it was a duplication of the mandate of existing government departments. It was concerning that 78% of the allocated budget of the Department was transferred to other entities or agencies. Why was National Treasury not transferring the money directly to these entities in order to save money on exorbitant bank charges? Members asked if there was a strategy in place to unblock and fast-track infrastructure projects. What is the role of the Department in unblocking obstacles in the infrastructure rollout as identified by Presidential Infrastructure Coordinating Commission (PICC)? It was unclear if the 277 000 jobs created for young people included the internships and Expanded Public Works Programme (EPWP) or were permanent jobs.
The Chairperson announced the passing of the Acting Director-General of the Department, Mr Kumaran Naidoo, and gave the Committee’s deep and heartfelt condolences to his relatives and the Department.
Economic Development Department: 2015/16 Strategic and Annual Performance Plan
Deputy Minister, Mr Madala Masuku, introduced the presentation by noting that the core mandates of the Economic Development Department (EDD) related to job creation, inclusive growth and industrialisation. The EDD must give strategic direction to development finance institutions on competition policy and trade administration. The current contexts of its work were its awareness of poverty, unemployment and inequality, and the need to ensure long term change to these realities. South Africa’s GDP is R3.8 trillion, the same size as Malaysia and Denmark. However, only 16.0 million of South Africans were employed in the 4th quarter of 2015. The labour force participation declined by 0.3% points to 58.5% in the same reporting period. South Africa exported up to the value of 30% of the GDP. In 2014, the global economy grew by 3.3%, which was lower than the 5.7% growth in 2007. In South Africa, certain economic activities had declined, impacting upon the domestic economy. There had been a sharp decline in demand for platinum and iron ore. Other challenges included industrial relations, high levels of income inequality and energy shortages. The growth of the economy last year was 1.5% lower than the target. Youth unemployment was a critical concern in South Africa, and there had to be more focus put on the youth.
The Deputy Minister reported that annual employment figures increased across the country except in Northern Cape in the 4th quarter of 2015. Year-on year employment in the Northern Cape declined by 8 000 in 4th quarter. Gauteng remained the largest contributor to the national GDP, at 33.3% with KwaZulu Natal contributing 16,0% and Western Cape 13.7%. He specifically noted Limpopo’s increased contribution, from 6.2% in the previous year to 7.3% in 2013. The increase had a significant impact for the outcome of employment in the country. Some of these provinces increased above the national growth rate of 3.7%, which showed the importance of economic development focused on provinces.
The largest number of quarter-on-quarter employment jobs were created in Gauteng (79 000), Western Cape (63 000) and North West (48 000). Significant price changes were seen in Western Cape and it was becoming more expensive in terms of the Consumer Price Index report of March 2015, with the least growth evident in KwaZulu Natal. There were 18 strategic integrated projects (SIPs), meant to trigger rapid economic development in their specific regions. The Industrial Development Corporation had spent about R120 million, mostly in Gauteng, for various projects, since the money was requested by 40% of clients based in Gauteng. This informed the EDD of the need to industrialize other provinces, create capacity and sufficient infrastructure. R11 billion had been spent on clients for industrial development in the past few years. The Nine Point Plan of the President in the State of the Nation Address had included moderating workplace conflict, and encouraging private sector investment.
The Deputy Minister reported that provinces whose 4th quarter 2015 unemployment rate was higher than the South Africa average included Free State (29.8%), Gauteng (27.6%), Eastern Cape (27.4%), Northern Cape (25.8%) and Mpumalanga (25.7%). Western Cape (19.4%), Limpopo (19.8%), KZN (20.5%) and North West (23.9%) had the unemployment rate, below that of the country in the 4th quarter of 2015. All of the nine provinces had their inflation rates above the Reserve Bank’s inflation target band of 3% to 6%. Comparatively, Limpopo had the highest provincial inflation at 7.6% whilst Northern Cape had the lowest inflation at 6.2% in February 2016. Six of the nine provinces grew at a rate above the national average of 1.5% in 2014/15. Northern Cape had the fastest growing economy at 2.8% and North West had the worst performing economy as it shrunk by 3.8% in 2014/15. Gauteng which is the economic hub of the country grew by 2.4% in 2014/15.
The programmes of the EDD for 2016/17 included administration, growth and job drivers, investment, competition and trade. In the Administration Programme, the main challenges were to get an unqualified audit report, and respond to the Auditor-General's findings. Another objective was to introduce targets for customer satisfaction, also to support the New Growth Path economic strategy in line with the National Development Plan. Stakeholders would be invited to a summit that would look at all aspects of the economy that might need to be adjusted. Agriculture and agro-processing, mining and beneficiation were important new avenues for economic development in South Africa. Green economy and jobs through the Green Economy Accord had already proceeded with geysers, and there was focus on manufacturing of green technologies and local production. The Department was focusing also on entrepreneurship of black women and youth, strengthening of programmes directed at youth employment and accords at provincial levels linked with the National Development Plan. The focus on township economic initiatives would be funded and the facilitation of long term plans would be put forward. There was an improvement in the link between infrastructure and productive investment. The Department would have a conference with BRICS countries to examine and share expertise on capacity building in job creation. Some of the organisational work of the Department would be shifted to the Ministry of Small Business Development.
Mr Stephen Hlakane, Acting Chief Financial Officer, EDD, indicated that there would be a significant reduction of the budget in some allocations. He discussed the allocations for 2016/17 and the two outer years and noted the cessation of the Economic Competitiveness package (see document).
Deputy Minister Masuka said that the challenges were aligned to the work of other governmental departments in the country, as the Department must also look to other policy indicators. The Department gave guidance to the economic success of the country.
Mr W Faber (DA, Northern Cape) requested clarity on the inconsistency in the numbers for annual employment as the Minister had indicated that quarter-on-quarter employment had increased by over 200 000 while in the presentation it stated 190 000. It looked like the Department was thumb-sucking when it came to these figures and this was something that needed to be explained in detail. It was also confusing how it could be possible for year-on-year unemployment to increase by 284 000 while quarterly unemployment was reported to have declined by 225 000 persons. Was it possible for unemployment to increase and decrease at the same time? The Department should also provide clarity on the variation in the number of those who are not economically active (146 000 quarter-on-quarter to 12.7 million) as this was a different figure to that provided by Statistics SA.
The Deputy Minister responded that the 190 000 for the quarter-on-quarter employment was referring to the end of quarter 4 and therefore figures must have fluctuated from the end of quarter 4 till now. The EDD’s source for employment figures was directly from Stats SA. It was important for Members to be able to differentiate between the annual and quarterly figures as there was a possibility for employment to increase in a specific quarter but decline on an annual basis.
Mr J Parkies (ANC, Free State) asked if there was a strategy in place to address the problem of companies that are abusing the market through competition actions. It would be important to know the level of the skill that was required for the infrastructure development process in the country so as to determine the kind of people and companies that would be involved in this. It was concerning that South Africa seemed to be dependent on foreign companies for infrastructure development projects. What are the conditions given to those awarded a particular tender for infrastructure development? It would be important to know the number of jobs that are supposed to be created from an infrastructure development project. The state should reach a level of determining the kind of skills that have to be developed when a particular project is completed.
Mr Parkies commented that the Department of Agriculture Forestry and Fisheries (DAFF) is alive to the fact that access to the market by small and black commercial farmers could be “pie in the sky”. He wanted to know if the there was coordination between the Department and DAFF as it was impossible to talk about agro processing while it was difficult for small and black commercial farmers to access markets. It had been indicated in the presentation that Free State was one of the provinces with higher levels of unemployment. What kind of projects and initiatives could be introduced in the province to significantly reduce the numbers affected by tormenting poverty and unemployment?
The Deputy Minister responded that the Department was working together with DAFF to see the practical factors that could be holding back projects like agriparks and also ensure that there is a possible market for these initiatives. On infrastructure development, the level of skill that is required for the participation in infrastructure development programme was mainly dependent on the infrastructure to be delivered. Big infrastructure projects would require Grade 9 (big companies and complying with BEE codes). EDD was aware that there are very few companies complying with BEE codes in infrastructure development and this was an area that needed to be addressed promptly. EDD was engaging companies themselves to deal with these existing challenges so as to work together in achieving the transformational goals.
The Deputy Minister added that infrastructure could be used as a platform for transformation and there is an effort to ensure that each specification responds to all the policy needs of the country. The specification was based on the kind of skill required and the number of people to be trained and incubated. EDD was able to intensify the importance of local procurement and this was practically evident in the construction of the University of Mpumalanga. Free State was also one of the provinces that would be prioritised by EDD as was already pointed out as this was one of the provinces affected by poverty and unemployment. EDD officials have already communicated with the province to identify areas for projects in order to deal with these challenges.
Ms E van Lingen (DA, Eastern Cape) commented that she had always felt that the EDD mandate was obsolete as it was a duplication of the mandate of existing government departments. It was concerning that 78% of the allocated EDD budget was being transferred to other entities or agencies. It was unclear whether EDD was the one transferring the money from its account. Why was National Treasury not the one transferring the money directly to these government entities in order to save money from exorbitant bank charges? What are the bank charges on these transfers? She asked if there was a strategy in place to unblock and fast-track infrastructure projects. What is the role of EDD in unblocking obstacles in the infrastructure rollout as identified by the Presidential Infrastructure Coordinating Commission (PICC)? What is the progress made in the projects under the Coega Development Corporation?
Ms van Lingen requested that the Committee should be briefed on targets that were not achieved in the previous financial year and still needed to be incorporated in the current financial year in order to be achieved. It was disappointing that EDD was unable to provide a breakdown of the projects in terms of provinces and municipalities as this was important for the purpose of conducting individual oversight. Was the Competition Commission of South Africa overloaded with work currently? Who was responsible for the Competition Commission? She asked about the progress in the court case against the Minister on the illegal social grants deductions. When was the Preferential Procurement Policy Framework Act (PPPFA) promulgated?
The Deputy Minister responded that it was the decision of EDD to transfer 78% of its budget to government entities or agencies and this was mainly intended to assist struggling companies that are owned by young people that could not be funded somewhere else. It was EDD that was responsible for identifying valuable projects that could be funded to stimulate the economy and create employment opportunities. There is a concerted effort to ensure that the Cabinet-level progress reports of infrastructure Strategic Integrated Projects (SIPs) are able to reach parliamentary committees. The Competition Commission was not currently overloaded with cases but the challenge was capacity for specialised skills, hence there is a heavy reliance on outsourcing. The PPPFA was promulgated in 2011.
Ms M Dikgale (ANC, Limpopo) asked why EDD was aiming for an unqualified audit opinion instead of a clean audit. It was unclear if the 277 000 jobs that had been created for young people included the internships and Expanded Public Works Programme (EPWP) or only permanent jobs.
The Deputy Minister responded that the intention of EDD was to have an unqualified audit opinion without issues and the term clean audit was not in the framework that was being used. The Committee would be forwarded with detailed information on the breakdown of the 277 000 jobs created in terms of their categories. Global oil refining capacity is closing down in the Western economy and refineries are being built very close to the source of oil. He spoke about the feasibility study that was to be conducted by EDD about petroleum products infrastructure. This would be a PICC SIP project.
The Acting Chairperson indicated that the Committee was dealing with a broad spectrum of economic issues and EDD was also dealing with other government departments that are allocated huge budgets like the Department of Trade and Industry (dti). It was indeed difficult to see exactly where to locate EDD with other existing government department despite existing for more than six years. The Committee was closely following the black industrialists programme as well as the persistent problem of fronting in BBBEE. The unblocking of infrastructure projects should be supported but it should also include the unblocking of foreign direct investment. The Committee should be provided with a breakdown of the projects that are undertaken by EDD in terms of provinces and municipalities as this would assist when conducting individual oversight. It was interesting to hear that EDD had signed Memorandums of Understanding (MoUs) with the University of Johannesburg (UJ) and Wits University but EDD should also form collaborations with other universities outside of Gauteng. The intention of everyone was to ensure that the economy was able to function better and create more job opportunities. The Committee would meet with Department of International Relations and Corporation (DIRCO) in order to meet with all the ambassadors.
Adoption of minutes
The Committee adopted the minutes of 26 January and 05 April 2016 without amendment.
The meeting was adjourned.
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