National Empowerment Fund on its 2015/16 Annual Report; Quarter 1 & 2 performance; Intellectual Property Consultative Framework; Procurement Report

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Trade and Industry

11 October 2016
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The National Empowerment Fund (NEF) supports the acceleration of economic growth, transformation and creation of decent jobs. The NEF is also involved in rural development and human resource development. The NEF a sector targeted approach in developing its portfolio of investment which included renewable energy, tourism, agri-processing, construction, transport and infrastructural projects. In doing so the NEF specifically seeks to support the initiatives of the DTI and more broadly championing the advancement of emerging entrepreneurs into the economy.

To date the NEF has assisted in the creation of 89 000 jobs assisting well over 850 000 beneficiaries nationwide. As the NEF is being recapitalised, this national priority can be enhanced faster.

From operational inception in 2005 up until the end of August 2016, the NEF has approved 803 transactions worth more than R7.9 billion for black empowered businesses. When the NEF refers to ‘black businesses” it really means black managed and controlled companies. Over R5.4 billion of the R7.9 billion has been disbursed to these companies and gone directly into the economy.

The NEF’s investor education campaign has reached over 30 000 South Africans through 130 community seminars on how to save and invest, personal financial discipline, shares, dividends, bonds and the property and money markets.

In the North West province, the Bapo Ba Mogale traditional community in Marikana have secured five year contracts with Lonmin Platinum in transactions that will benefit over 50 000 beneficiaries. The community’s investment arm has been awarded a contract to transport Lonmin’s mineral ore in a multi million Rand transaction that will support 45 direct jobs. This second contract is for the transport of Lonmin’s employees which will require 84 busses to shuttle 20 000 employees of Lonmin in the Marikana region. The anticipated revenue runs into mega millions and is expected to support 180 additional jobs. The third contract is for the supply of personal protective equipment to employees of mining companies in Marikana, Lonmin and Gauteng for which 60 jobs will be created.

The NEF’s intervention has resulted in the approval of R96 million with more than R30 million already having been disbursed with more to be disbursed in the near future subject to the invested criteria and milestones. The NEF want to also partner with other development finance institution (DFIs) on this project.

The NEF truly believes that if this model can be replicated in other areas in the country with the cooperate governance structures that the NEF has put in place to ensure that interests of the communities are protected, it could have far reaching benefits for black entrepreneurs and communities.

All of these KPIs are those contained in the annual business plan and the shareholder compact with the DTI. The outputs are therefore very specific and are reported on accordingly on a quarterly basis.

Further, efforts are underway to secure recapitalisation from the like of the Jobs Fund, IDC, Public Investment Corporation and the UIF. There are clear dangers in not recapitalising the NEF which include the weakening of public trust in government’s commitment to BBBEE, the delay could create a funding crises for black entrepreneurs who already have very few options for funding. The NEF receives something like 3 500 and 4 000 applications per annum which shows that the real demand is there for the assistance of the NEF. It threatens the potential collapse and closure of an integral organisation and undermines the historical obligation and importance of transforming the economy. If not recapitalised on time, the NEF could fall into another moratorium in the next three months and suspended the funding of new projects.

The Committee praised the NEF for the achievements in advancing the participation of black entrepreneurs across industries in the economy and in turning employees into employers. They did, however, raise the NEF’s 25% impairment rate as a cause for concern and were accordingly very interested in the possible merge with the IDC to remedy this and as a form of recapitalisation.

The briefing on the Intellectual Property Framework was given by DTI's International Trade and Economic Development Division. Cabinet approved the Intellectual Property (IP) Framework in July 2016 which then also established the Inter-Ministerial Committee (IMC) on Intellectual Property. The aim of the Consultative Framework is not to prescribe South Africa’s IP position but rather to strengthen the consultative process around IP.

The IMC consists of the Department of Agriculture, Department of Telecommunications, Department of Higher Education and Training, Department of Art and Culture, Department of Communications and the Department of Science and Technology. The role of the IMC serves three important functions. It will serve as a working group, a vetting forum to ensure that we do not have any conflict existing programmes and since it is difficult for stakeholders to deal with different government departments on a piecemeal basis, the IMC serves as an integrated consultation. The IMC has so far met twice on the Consultative Framework.

Moreover, a new approach to the formulation of the IP policy informed by three main pillars based on international research by top IP scholars has been pursued. What has been found is three main pillars which affect the formulation of IP policy and regulatory reform. These include:

  1. The degree of intergovernmental coordination;
  2. the extent of public consultation to ensure robust public engagement; and
  3. the ability of government to harness the collective capacity that exists within government.

To help them ensure that they formulate pursuant to these pillars, DTI has established the IP Consultative Framework. The Consultative Framework has served as a useful basis for intergovernmental coordination as it helps them understand the existing interests of government and its departments. It has also been useful in consultation with other stakeholder to ascertain the key aspects in their view.

The key objectives pursued are to engender the ethos of the Constitution, to align the country’s IP regime to its National Development Plan (NDP) and the Industrial Policy Action Plan (IPAP) and to develop a coordinated intergovernmental approach to IP. The objectives include striking a balance between creators and users of IP. IP is an instrument that government uses to stimulate innovation, hence there are limited exclusive rights that are granted.

In order to balance the need for action with further and adequate research in what are very complex and cross-cutting areas, a phase approach has been taken on the formulation of IP policy. There has been a distinction between immediate term issues and other in-built agenda. The immediate issues will be tended to in the short term for which tangible legislative proposals are planned to be put in place soon. The in-built agenda will subsequently be tended to in the medium to long term.

Some of the immediate term issues include local manufacture, substantive search and examination, patentability criteria, voluntary and compulsory licensing, competition law and the BRICS perspective on IP. While the medium term issues include IP rights and in agriculture, IP rights and climate change, biotechnology, IP rights and the informal sector and the commercialisation of IP.

The draft policy is set to be finalised by the end of financial year which will address the immediate term issues and propose legislative reforms. It will also set a solid framework in place for the medium term in-built agenda.

Members raised particular concern about the cost of pharmaceuticals while praising the consultative process taken in the IP policy formulation.
 

Meeting report

The Chairperson started the meeting by saying that like the weather, one needs to be prepared to withstand all eventualities with weather. Likewise, one needs to be able to adapt to the changing and unpredictable conditions of the economy and society itself and weather the storm regardless of what that storm is.

She welcomed the delegates from the National Empowerment Fund (NEF) and from the Department of Trade and Industry (DTI) and said that the Committee expects to hear a lot of good news.

National Empowerment Fund on its 2015/16 Annual Report & 1 Quarter 2017 Performance
Ms Philisiwe Mthethwa, NEF Chief Executive Officer, said that the NEF uses the queen on the chess board as a metaphor for showing that like the queen, the NEF dictates the moves of all the other players on the board. The queen is the most powerful and versatile piece on the chess board as are black entrepreneurs in the economy.

the main emphasis of the report was going to be on the integrated report for 2016. It will be in both the financial and non-financial performance for the year.

one of the highlights that the NEF would like to report on is the work done in partnership with the Department of Rural Development and Land Reform to empower farm workers to become entrepreneurs.

the NEF is also pleased to report that its efforts to secure recapitalisation has received a new lifeline after President Jacob Zuma recently declared that, “the NEF needs to be supported to ensure that the institution can do more in order to secure access to finance by black entrepreneurs”.

For this seminal advancement she said that the NEF would also like to thank Committee for their continued support and encouragement over the years. They believe this is so because the Committee is aware that the NEF is the only DFI in South Africa exclusively mandated to grow black economic participation in South Africa. Other DFIs can also do BEE transactions and support black enterprises but the NEF is the only DFI that has been granted this exclusive mandate.

The NEF has also been able to advance its work with improving impact year on year because of the admirable calibre of its investments, specialist and support professionals. As an organisation with a vibrant future the average age of their professionals is 36 years of age. The 160 patriots are the jewel in the crown of the NEF. They are unique and valuable because together they constitute formidable human capital comprising of chartered accountants, masters, admitted attorneys and professionals from various spheres. As an academy of excellence, the professionals at the NEF hold a diverse range of qualifications ranging from Bachelors, Honours and Maters degrees. 60% of which are women with 90% of these women being black.

the NEF has not stopped there because it understands the needs of the economy and the immense challenges faced by the community. It has therefore facilitated the training of close to 100 professionals who were trained by leading European companies. The professionals were exposed to some of the global best practices that some countries had been involved in. This programmes, however, ended in 2013 but the NEF is looking into partnering with some European companies going forward. Moreover, it has facilities the training of charted accountants through the work that it has done with the South African Institute of Chartered Accountants (SAICA).

The NEF, being an organisation alert to the needs of society, has granted bursaries to about 31 students from rural areas since the beginning of 2015 to study at universities across South Africa. These students received grades averaging between 70% and 80%. Before the country was hit by what the education system is experiencing at the moment, some of these students were doing extremely well. The NEF is therefore making a contribution to the support the critical skills needed in our economy.

The NEF implements the Code of Good Practice of BBBEE. In this regard the NEF uses a sector targeted approach in developing its portfolio of investments. These sectors included renewable energy, tourism, agri-processing, construction, transport and infrastructural projects amongst others. In doing so the NEF specifically seeks to support the initiatives of the DTI and more broadly championing the advancement of emerging entrepreneurs into the economy. The government initiatives that the NEF seeks to support includes the acceleration of economic growth, transformation and creation of decent jobs. The NEF is also involved in rural development and human resource development.

Whilst the NEF places precedence on commercial viability, its mandate also focuses on softer measures in its funding applications. These include indicators such as black women empowerment, community involvement, black ownership, job creation and the geographic location of the business. Products also have to comply with NEF criteria. These form part of the development ethos which the NEF has adopted as its underlying theme of its funding strategy, with which the NEF evaluates the impact of its work. The assessment of impact is not only driven by financial returns but my measurement in terms of the ‘empowerment dividend’.

From operational inception in 2005 up until the end of August 2016, the NEF has approved 803 transactions worth more than R7.9 billion for black empowered businesses. When the NEF refers to ‘black businesses” it really means black managed and controlled companies. Over R5.4 billion of the R7.9 billion has been disbursed to these companies and gone directly into the economy.

For 11 years running the NEF has received clean external audit opinions. This attests to the organisation’s integrity and financial management acumen. The standards that the NEF sets for itself is the same as it holds for investees. If it is found that there has been any mismanagement in the companies that the NEF has invested in, the NEFs legal depart will get involved. Some mismanagement issues do not relate to any fraud but rather due to the fact that sometimes people are not really exposed to proper management strategy. Therefore, as part of non-financial support, the NEF provides the investee companies with guidance on Companies Act and regulations compliance.

To date the NEF has assisted in the creation of 89 000 jobs assisting well over 850 000 beneficiaries nationwide. As the NEF is being recapitalised, this national priority can only be enhanced faster.

Recapitalisation will also help propel the full commercialisation of all 25 strategic and industrial projects, developed in partnership with local and international partners, valued to be worth approximately R27 billion with the potential to support over 86 500 additional jobs.

A few years ago the Mabele Fuels project was presented to Parliament but a decision against biofuels has meant that this project will no longer commence. NEF is saddened by this because it would have created 15 000 jobs in the Free State which is one of the most economically depressed regions in the country. perhaps the Committee should brief the NEF further on why such decision was taken.

Furthermore, the Asonge Share Scheme made available more than 12 million MTN shares to over 87 000 investors comprising of black individuals and groups, 49% of which were women. It remains one of the most seminal public share offers in the country.

the NEF is keen to embark on more of these offers and is in discussion with the Public Investment Corporation (PIC) at the moment to see whether they would be interested in disposing of a small stake in some of their JSE listed investments.

The investor education campaign has reached over 30 000 South Africans through 130 community seminars on how to save and invest, personal financial discipline, shares, dividends, bonds and the property and money markets.

To date the NEF’s training and incubation programme has provided skills to over to 2 500 potential entrepreneurs.

The regional office network continues to show the very high demand for funding of black entrepreneurs. The NEF believes that it is an important breakthrough that the NEF’s exposure in Gauteng has decreased from above 60% a few years ago to about 45% currently. The NEF has been consciously involved in a strategy of actually working with provincial governments to identify those investments opportunities that have benefitted entrepreneurs. This does not mean that Gauteng is no longer supported but rather that the NEFs regional activity is more evenly distributed. The Portfolio Committee in the past used to raise this issue of high concentration in the Gauteng region.

because the NEF’s mentorship programme is making a positive difference in stabilising investees, over R2 billion has been collected in repayments and reinvested into the NEF’s funding mandate.

The NEF’s targeted cost to income ratio is between 54% and 58% with the achieved ratio at 1 August at 45%, which according to the NEF is well within target (slide 9).

The year under review was significant in advancing the mandate of the NEF across the board. In terms of providing finance to business ventures established and managed by black entrepreneurs from April 2015 to March 2016, the NEF approved 127 deals worth R1 248 million against a target of 111 deals worth R880 million.

With efficiencies having improved over the last year, commitments exceed R1 028 million against a target of R770 million with 120 deals against a target of 106 deals. The same improvement was manifest in respect of disbursements with R819 million against a target of R691 million. This was another area of concern raise by the Committee in the past. The Committee was worried about the gap between disbursements and approvals but this gap had now been narrowed.

The job opportunities supported during the past year alone were 4 938 of which 3 377 are new, bringing the total job opportunities to be supported since inception in excess of 86 859. In terms of the NEF mandate, new ventures and enterprises are embarked on but so are acquisitions. When the NEF does an acquisition, a job will not necessarily be created but they have gone out of the way to identify those investments that will yield good job creation numbers.

The NEF’s unencumbered cash, which is cash immediately available for new approvals, is R356 million. This is not sufficient especially with regard to the NEF’s track record which shows that the NEF has been do about R1.4 billion in disbursement per annum. What this means is that the NEF’s lending operation is left with only two months funding. Current capital is likely to run dry by November 2016 but the NEF remains hopeful that discussion between the DTI and the Department of Economic Development around possible capital allocation from the Industrial Development Corporation (IDC) will materialise this year since it was approved by the two Ministers.

Also, those DFIs that are not able to meet their targets can tap into the skills base and partner with the NEF in doing the work necessary to empower black entrepreneurs.

Portfolio collections for the year amount to over R551 million which is 20% more than the previous year’s receipts. This goes to show that black entrepreneurs are paying the NEF back. The NEF is pleased with this performance. The NEF’s loan horizon is between five and eight years for regular transactions and up to ten years for rural and community transactions as well as industrial projects. The NEF is an assigned capital lender whose loans take longer to pay. Which therefore necessitates its recapitalisation through the legislation that enables its establishment. Out of the R5,8 billion that has been disbursed, the NEF is pleased to report that R2 billion has been paid back.

Despite the NEF’s activist approach to support black woman entrepreneurs, the NEF admittedly failed to reach a target of 45% of commitments, by reaching only 30%. Since the NEF did not perform so well in this area it is working with a lot of woman owned organisations to find ways of encouraging more woman to come to the NEF to raise funding. The 30% is still, however, better than achievement in the previous year.

Media coverage can be reported to the value of R54 million as measured by an external media monitoring agency. 58% of the coverage was positive, 9% neutral and 3% negative. When referring to media coverage this is a way of also reporting on media coverage which the NEF does not pay for which includes participation in seminars and conferences that the marketing team has a way of evaluating.

Time permitting, the NEF hopes it will be able to provide examples of dedicated work that has gone into the commitment to grow black industrialists with 60 deals worth R427 million in the regional offices and the pre investments unit achieved.

All of these KPI are those contained in the annual business plan and the shareholder compact with the DTI. The outputs are therefore very specific and are reported on accordingly on a quarterly basis.

In relation to geographic activity, Gauteng now comprises 45% of the invested portfolio and the NEF has disbursed more than 45% of its funds in the Northern Cape, Free State, Limpopo, Mpumalanga, Eastern Cape and North 3est.

Rural and Community development remains a cornerstone of the NEF’s development funding philosophy. Since inception rural deals are geared to empower 20 communities and over 1.8 million individuals. These are the initiatives that we have been working on. We have a scientific way of calculating this which will be seen through the Bapo Ba Mogale development.

Another achievement worthy of emphasis is that R1.7 billion has been repaid by investees as a result of the enterprise wide focus on collections and litigation. The litigation pipeline increased by 17 transactions with the value of R84.3 million signaling a robust commitment towards collecting more. Collections on deals in litigation came to R48.5 million against legal fees of R2.3 million. If the invested companies are found to be delinquent, the NEF legal team will actually pursue them.

In terms of active portfolio management, impairment has increased to 25% partly due to the macro economic conditions that we are faced within the country. The NEF’s return on investment (ROI) is currently at 9.7% which is in the targeted range of 8%-10%. The collection ratio is at 97% against a target of 80% with 26 successful exits at 1.25 times money back. Repeat business to the value of R135 million has also been created.

The NEF is pleased that the Turnarounds, Workouts and Restructuring Unit (TWR), which is still in its formative phase, facilitated two turnarounds, six business rescues and six restructures. The NEF is confident that as its work gains greater depth the NEF will be able to improve its impairment rate. This unit was formed three years ago with the purpose of working alongside businesses to formulate turnaround strategies.

A 33% decrease has been seen in the number of audit findings. This demonstrates an improvement in the internal controls environment. The NEF has not only been able to implement controls but also ensured that such controls are adequately designed and operate accordingly. As a result, overdue findings have decreased by 62% in comparison to the previous year.

As a result of the success in formulating processes and procedures and the fact that the NEF has started from scratch, there have been numerous requests from other DFIs and government departments who have approached the NEF for insight on the work NEF is doing with the Department of Rural Development and Land Reform. These requests range from requests for assistance with the establishment of risk committees, the role of risk and of audit for example. The NEF are involved in some of these activities.

There is also the IST Governance Framework which is one of the critical issues that King IV is focusing on, as well as the Master Systems Plan which has been approved by the board.

It gives the NEF great pleasure to report that in terms of preferential procurement that there has been improvement in procurement from black woman owned and black entities at 29.18% compared to 14.53% in 2014/15. The NEF continues to keep an eye on the KPI but is happy that almost 30% of procurement has gone to women owned entities.

On the socio-economic development fund, the NEF is pleased to report on 44 investor seminars that were held nationwide. These took place in North West, Mpumalanga, Eastern Cape, Limpopo, Northern Cape and Kwa-Zulu Natal.

As a development financier, the NEF’s work makes it mandatory that it assesses its strategy and operations in the context of the national, regional and global economic landscape. In this regard, key deductions stand out from the global and macro economic analysis:

The world economy is struggling to sustain higher growth momentum. The International Monetary Fund (IMF) has continued to make downward revisions in terms of its global economic growth revisions. This is the context in which the NEF and its black owned enterprises find in.

The NEF and its investees are also not immune to the vagaries of the markets. Although the current economic conditions are still perceived to be unfavourable, the assessments on the outlook for the next six months fell sharply across many regions and/or countries. Africa’s economic climate fell sharply over the past year. The UK is one of the preferred destinations for exports which means that the Brexit decision has made it increasingly difficult for small and medium enterprises to compete in the global economy.

Domestically, South Africa’s GDP growth rebounded by 3.3% in Quarter 2. When NEF saw the rebound it was very encouraged to see that is was driven by the exports. In the past the Committee would be worried that the growth was consumption led growth but the NEF is pleased to report that currently it is witnessing export led growth.

Most service oriented sectors have recorded relatively modest rates of expansions. Employment has dropped by 39 000 jobs. Agriculture, transport, mining and trade sectors reported substantial job losses on a quarterly basis as well.

The domestic environment is also still affected by drought conditions which affects the mining sector.

The operating environment remains fairly challenging for the manufacturing sector and black owned enterprises. Hence some growth moderations are likely to fall in the second half of 2016.

What the foregoing economic climate calls for is heightened post-investment monitoring for the NEF. The Post-Investment Unit (PIU) reports that investee companies are requesting moratoria on their repayments, reduced instalments and the extension of loan tenures. Five of the seven companies referred to the TWR are in the manufacturing and construction sectors which have experienced the knock-on effect of the decline in the steel manufacturing and mining industries.

The NEF’s targeted interventions therefore include a hybrid model of post-investment monitoring where the NEF’s investment funds work hand in hand with the PIU to reinforce the capacity of the NEF to monitor investees immediately after funds have been disbursed. In this environment, the increased focus on mentorships is an absolute necessity to help detect early warning challenges before businesses are thrust into distress. The global, national and regional economic imperatives described earlier also necessitate the active TWR of those businesses.

This analysis is instrumental in identifying sectors with the greatest potential for maximising the empowerment dividend in a financially sustainable manner. The NEF will also get involved in the ‘Oceans Economy’ in future where a lot of investment economies have been identified.

With regard to the Bapo Ba Mogale investment model, NEF is able to embrace opportunities that have far reaching benefits for both entrepreneurs and communities.

In the North West province, the Bapo Ba Mogale traditional community in Marikana have secured five year contracts with Lonmin Platinum in transactions that will benefit over 50 000 beneficiaries. The community’s investment arm has been awarded a contract to transport Lonmin’s mineral ore in a multi million Rand transaction that will support 45 direct jobs. This second contract is for the transport of Lonmin’s employees which will require 84 busses to shuttle 20 000 employees of Lonmin in the Marikana region. The anticipated revenue runs into mega millions and is expected to support 180 additional jobs. The third contract is for the supply of personal protective equipment to employees of mining companies in Marikana, Lonmin and Gauteng for which 60 jobs will be created.

The NEF’s intervention has resulted in the approval of R96 million with more than R30 million already having been disbursed with more to be disbursed in the near future subject to the investment criteria and milestones. The NEF wants to also partner with other DFIs on this project.

The NEF truly believes that if this model can be replicated in other areas in the country with the corporate governance structures that the NEF has put in place to ensure that the interests of the communities are protected, it could have far reaching benefits for black entrepreneurs and communities.

The NEF is also mindful of the concerns raised by the Public Protector when she met with the community of Bapo Ba Mogale to provided a preliminary report on her investigation into allegations of systematic looting of the community’s collective resources. Apparently this started happening in 1969. The NEF has only been involved in this community since about three months ago.

The NEF believes that its control systems and measures in relation to support for community development are effective and adequate in safeguarding investments ensuring that the benefits accrue to communities.

The NEF’s socio-economic development unit has held two consultative sessions with Bapo Ba Mogale investment and traditional council. The objectives of these discussions was to outline the NEF’s expectation of how the funds will be disbursed and utilised as well as how the community will collectively benefit. The NEF enlightens the communities about investing and their rights. This is done to also ensure transparency. The NEF has discussed how the social intervention initiatives and the community trust will be used to implement all empowerment initiatives to bring economic development opportunities to the area.

The NEF has workshopped an effective community consultation model that will be inclusive of all those whose interests are affected by Bapo Ba Mogale post approval of the transaction to achieve community buy-in and smooth implementation of the social development plan. The NEF has also engaged with Lonmin and explored their social labour plan and how this can be integrated together with the NEF’s social interventions. Finally, the parties were appraised on the detailed corporate governance and entrepreneurial training to be provided to all key parties about trustees and their roles and responsibilities.

Legally, the NEF has the right to appoint a Director into the Bapo Ba Mogale companies in which it has invested. The NEF has viewing rights into the bank account of the project companies so as to make sure the investment concerning the community are protected. The NEF will receive management account from the companies on a monthly basis to asses if all expenditure is in line with the budget.

For the first time Lonmin has decided to procure some of the service required directly from the community in which it operates. In the past Lonmin relied on the royalties that they received from the mining councils. This new approach is something that must be applauded because Lonmin has taken the steps to ensure that the business of the community become part of Lonmin’s value chain.

The Managing Director of this new investment company and other senior managers will be bound by a management agreement. This will be monitored on a regular basis. The NEF has the right to request any transaction information related to the business. This talks to the corporate governance structure put in place to try and support the community.

The empowerment of farm workers to become entrepreneurs is a very exciting prospect for the NEF. One of the NEFs proudest achievements is the partnership with the Department of Rural Development and Land Reform (DRDLR). This came about after Minister Gugile Nkwinti invited the NEF to become a partner in the implementation of the programme for strengthening of rights of people working the land known as the 50/50 project.

There were several factors distinguishing the NEF as a worthy partner. This is why the DRDLR approached the NEF. From their side they understood what had to be done but needed the special expertise to execute it. They said the NEF had a track record of success in structuring start ups, expansions and equity acquisition deals. It is a dedicated community development fund and that it possesses the consummate expertise in unlocking economic value in semi-urban and rural areas. The NEF is highly experienced in facilitating community and worker ownership and participation in BEE transactions.

Since the partnership began in January this year, there are several milestones which can be reported on. These range from fund disbursements and agreements that will be signed following negotiations with farmers. A lot of these projects are here in the Western Cape. The farmers will come to own wine estates and wineries as well.

In Limpopo, beneficiaries will become involved in a game farm worth R21 million. Also in Limpopo an agreement has been signed to empower 26 workers to become co-owners of a game farm valued at R39.8 million. In the Eastern Cape a total of R29.5 million has been disbursed to empower 40 farm workers to become co-owners as well as 58 workers to become co-owners in a citrus farm valued at R38 million. Also in the Eastern Cape 35 workers are co-owners in a vineyard for wine making. In Kwa-Zulu Natal disbursements worth R33 million have empowered 55 workers to co-own a farm specialising in vegetables, sugar cane and timber. In the Western Cape, 18 permanent and 180 seasonal farm workers will co-own a R73.5 million farm specialising in slicing and dicing of vegetables and table grapes once the agreements are signed and 56 employees will soon be shareholders in a wine farm priced at R160.4 million. In the North West, 10 workers will be shareholder in a cattle farm valued at R 55.1 million once agreements have been signed. In Gauteng, 102 employees will become employers once agreements have been signed to co-own a herb farm that is valued at R30.2 million.

The scope of the NEF’s work in taking these objective forward has been wide ranging. First, the NEF has undertaken due diligence into projects to determine the value and commercial viability. It has the NEF’s responsibility to negotiate the prices of the acquisitions. In some instances it was found that some assets had been over valued which is another reason why the DRDLR is eager to partner with the NEF because it needs these expert skills and findings. The NEF has finalised the structures of transactions and agreements. This is all done on a ‘willing buyer, willing seller’ basis.

The NEF audits the current list of employees and beneficiaries, acts as a warehousing agent of government until the relevant broad based structures have been finalised and the NEF serves as an implementation agent of government in ensuring the conclusions of the relevant agreements, collection of all conditions precedent, overseeing the conveyancing and business transfer processes and implementing the governance structures in the projects.

It is the NEF’s responsibility to conduct social facilitation for the workers and farm dwellers. The NEF will participate as a 5% shareholder in each of the projects which gives it a board seat. In line with the NEF’s philosophy it will provide monitoring and mentorship support.

Since the NEF has partnered with the DRDLR, a number of milestones have been achieved. These include the negotiation of better prices for the acquisition of assets. The NEF’s deal making expertise has helped to infuse the principle of going concern into the programmes. Drawing on historical business acumen the NEF has helped to unlock hidden value from assets. The memorandum of understanding encompasses 30 farms country wide collectively valued at over R1 billion which is transferred to the NEF who then conducts due diligence of assets and land, valuations and strategise on the way forward. So far the NEF has tended to 15 farms, 8 of which to the value of R355 million have been approved. This amount includes the cost of acquisitions and expansion capital which will be disbursed over the next few months if certain conditions are met. Some of the conditions include detailed business plans to support business expansions and setting up of trusts, transformations and skills transfers.

The NEF believes that this partnership constitutes an important and historical step towards social cohesion. If this model is adopted, the NEF believes that it will remedy some of the challenges brought on by land reform and will contribute to the revitalisation of the rural economy.

The NEF funds across the economic spectrum ranges from R250 000 to R75 million. The NEF provides non-financial support in its involvement in business planning processes and the establishment in TWR units even once those investments have been made.

The Black Industrialisation Programme is done through the Strategic Projects Fund (SPF) which is a unit of the NEF established with the mandate to increase the participation of black people in early-stage projects. Through the SPF there has been the establishment of 25 strategic and industrial projects worth R27 billion with the potential to create 86 000 jobs.

Ms Mthethwa, responding to the Chairperson’s request for information on the Black Industrialist Programme, said that the IDC will often co-fund some of the projects in partnership with the NEF. When its projects reach the stage of their bankable feasibility study which is the final project development stage, a lot of interest comes through and the fundraising kicks in. Even international investors coming to South Africa will say that they are looking for bankable projects and are hesitant to get involved with actual project development. The reason the NEF got involved in early project development was because they were concerned that the black entrepreneurs were not getting involved in new industries such as the renewable energy industry in which the country has invested about R200 billion over the last five years. Black entrepreneurs were saying it is difficult for to them to enter the industry because they do not have access to venture capital financing.

NEF does partner with established businesses in South Africa so what it does is allow black entrepreneurs to have a voice in the greater scheme. The programme allows them to become operationally involved in business. There is a lot of value in investing from the outset of the conceptualisation. If the investors come in at financial close there is a premium due whereas as day one investors are exempt.

The Chairperson mentioned that the Black Industrialist Programme seems to come up frequently in different way. It would be useful for a status report to be given on that at a different time.

Ms Mthethwa said that President Zuma recently assured the nation that NEF’s longstanding recapitalisation challenge will become a thing of the past. He stated that government is currently exploring various means to recapitalise the NEF as an apex institution to facilitate BEE finance. Accordingly, the NEF believes that the role and the mandate of the NEF is here to stay. It has made some progress but only just touched the tip of the iceberg. It is not only being protected because it was started from scratch but it has demonstrated that is can add real value.

The NEF is the culmination of a long journey. It was an undertaking of the 2005 government to fund the NEF to the tune of R10 billion over the next five years, of which only R2 billion had been received between 2004 and 2010. Since then the NEF has been self financed with proceeds from dividends and interest from its investments and sale in 2004 of the Asonge Share Scheme. During this period, the operating expenses of the NEF was supported through DTI transfers of R322 million over a five-year period which stopped in 2010.

Over the years the NEF’s applications for recapitalisation were unsuccessful as well as application for reclassification. The uncertainty on recapitalisation led to the NEF declaring a temporary moratorium on funding between May 2013 and 29 April 2014 in order to preserve available resources. Other DFIS want the calibre of the professionals in the NEF. So there is competition to keep these professionals as part of the NEF. The recapitalisation issue therefore requires urgent attention.

Efforts are underway to secure recapitalisation from the Jobs Fund, IDC, Public Investment Corporation and the UIF. There are clear dangers in not recapitalising the NEF which includeS the weakening of public trust in government’s commitment to BBBEE, the delay could delay in a funding crisIs for black entrepreneurs who already have very few options for funding. The NEF receive something like 3 500 and 4 000 applications per annum which shows that real demand is there for the assistance of the NEF. It threatens the potential collapse and closure of an integral organisation and undermines the historical obligation and importance of transforming the economy. If not recapitalised on time, the NEF could fall into another moratorium in the next three months.

In pursuit of the President’s undertaking, the NEF has continued to talk with the PIC, UIF and IDC. The NEF requires an annual allocation of R2 billion over the next five years to be able to address the considerable demand for funding among black entrepreneurs. The NEF has been working with R1.2/4 billion per annum.

Since July 2014 the NEF has been in discussion with the IDC in a process endorsed by both the DTI and the Department of Economic Development. The objective was to find sustainable and long term recapitalisation for the NEF from the view of different scenarios such as the NEF being an arm's length subsidiary, a closely managed subsidiary, a division of the IDC or a complete merger into the IDC. The NEF and DTI have recommended the implementation of the arm's length subsidiary option where the NEF assets and business are transferred to a company that it is a subsidiary of the IDC.

The UIF is pleased with the NEF’s projects in mining towns and said that they would be able to access money from the UIF if they are able to increase this type of investment as seen in Marikana. The proposal for due diligence was approved by the PIC Exco Investment Committee and is currently being negotiated between the NEF and PIC.

The projected unencumbered cash position to date stands at R1.17 billion. R317 million in uncommitted cash is at hand. The NEF is projected to fully commit current funds by the end of November 2016. This is why recapitalisation is an issue that is being prioritised.

In conclusion, the milestones reached by the NEF would not have been met had the NEF not invested significant time and effort in building relations with the broader spectrum of stakeholders across the public sector in organised commerce, in civil society, communities and mass media.

She thanked the Committee for their continued support and mentioned that there were gift baskets for them to sample products comeing from some of the NEF’s investment projects.

Discussion
Mr A Williams (ANC) asked why certain provinces were getting much fewer resources than other provinces. His main concern was that two provinces were not included at all, these being the Northern Cape and Mpumalanga.

Ms Mthethwa replied that the projects that the NEF has invested in partnership with the DRDLR has been selected by way of having received a list from the DRDLR after farmers presented their interest to the Department. The NEF cannot go to these places and initiate projects but if farmers show interest in working with the NEF, the NEF is more than happy to support them.

the NEF is very concerned about this scenario and it usually depends on the MEC. The MEC actually drives this exercise. For example, the MEC for Economic Development works with the local entrepreneurs to identify investment and entrepreneurial opportunities. Partnership is therefore driven by the willingness of provincial government to work alongside the initiatives of the NEF. It would perhaps be advisable for the Committee to liaise with local and provincial governments to see what can be done to change this situation.

Mr Williams asked what obligation the NEF has in getting people to get involved. It seems that eventually these projects will come to an end and those projects in other provinces would not have benefitted at all.

Ms Mthethwa replied that in Mpumalanga there are a lot of initiatives that should be considered and these include training seminars which are hosted in this region. The NEF is currently assisting projects worth R300 million but if you look at the geographic spread outside of Gauteng, it is a significant impact we have made nationwide and which the NEF seeks to take even further.

Ms P Mantashe (ANC) asked why interest was taken in the investment of game farming in the Eastern Cape when it is known as an agriculture province. She asked how investment in public hospitals is going to assist us as a country or if it was just exacerbating the situation of the private hospitals.

Ms Mthethwa responded that a decision was taken a few years ago to support a group of black doctors who wanted to invest in the health sector. In the presentation it said that the NEF will always try to support the macroeconomic aims of governments and the Industrial Policy Action Plan (IPAP). If the Department of Health issues licences to a group of entrepreneurs, it suggests that they are saying that they want these entrepreneurs to be involved in the health sector. All that the NEF is doing is therefore implementing a decision taken by government. There are no black stakeholders in the health sector and so the NEF is looking at the GDP of the country as to whether it is a good industry for them to invest in and from there be able to make an informed decision as to whether to invest in it. The decision has allowed for black entrepreneurs to participate in a sector which had been dominated by about five major players. A cue is taken from government, these players are doing exceptionally well and what is pleasing is that one would not even be able to see that it is a black owned business because the patient demographic is fairly mixed.

Mr Macpherson (DA), referring to slide 39, asked whether the projects are time bound, how long they would run for and if they would need to be financed within the next six months. He asked how far the NEF was along the lines of obtaining additional finance through the IDC since he knows there have been talks for long time about cooperation. He asked for an update on this.

Ms Mthethwa responded that it takes about two to three years to reach financial closure of a project. Some of these would have progressed from a bankable feasibility to a financial close while some will be stuck at certain developmental stages. When you reach the fundraising stage there is an equity portion that the NEF must put into the project. For example, the NEF started working with Mabele Fuels after a government announcement was made saying that there was a need for crude oil to be blended with bio fuels. The NEF started investing in the project with R10 million from each partner to move the project from scoping to concept to pre-feasibility. The investment was supposed to happen in the Free State and everything was ready for commencement. Even the PIC decided to invest as well. This project was just waiting for regulations to be passed by the Department of Energy but government decided not to proceed with that project. As long as the Mabele Fuels project was still going to have its black equity component the NEF was still going to proceed with the investment plan since the project had already reached a financial close.

obtaining additional funding through the IDC had been reported on in the presentation. The matter must still be tabled in Parliament and it is likely that the NEF will become an arm's length subsidiary.

Mr Macpherson said this response was helpful but rephrased his question asking if there was the ability to put equity in all 25 projects if they went through such lengthy processes and checks. This process is burdensome and he was concerned that it would jeopardise quite a big job driver.

Ms Mthethwa said that what she understood Mr Macpherson to be asking was whether there was sufficient equity. She admitted that the NEF does not have sufficient equity except that coming from the portfolio investments they have identified. If the NEF gets an allocation today, it would be able to make moves. Sometimes we even exit at the financial close and leave it open to the black shareholders.

Moreover, the NEF only has about 160 employees and given the HR and human capital constraints it can only do so much. The NEF cannot be expected to do everything with only 160 employees that is why partnering with local government is crucial.

Mr N Koornhof (ANC) congratulated the NEF for getting involved in the agricultural industry. He was of the opinion that the achievement of only six beneficiaries from a game farming investment is not money well spent. He noted from the NEF financials it pays 60% on employee compensation and questioned whether it was really necessary to fill the vacancies. The quarter on quarter impairment rates went up dramatically and more than doubled in 2015 and asked whether that would mean serious financial trouble in the long run.

Ms Mthethwa replied that six beneficiaries in a R21 million investment is moving from a point of one beneficiary is still progress. With the six, there are other multiplier effects. One could find that it is six times another six secondary beneficiaries. The same would apply for the ten beneficiaries in cattle farming.

According to the current shareholder compact, the NEF will keep the 160 staff force. The NEF is however worried about high unemployment levels. The NEF believes that it has the track record to be capitalised in such a way that they are able to achieve more and grow the staff.

Mr Koornhof commented that the NEF should be in the position to say that they will be looking for better projects to support a wider range if beneficiaries. If one spends R21 million one ought to actually have way more beneficiaries. He himself would be able to find many other agricultural opportunities but he asked them whether they are of the view that the money was wisely spent.

Adv A Alberts (FF+) asked how the NEF decides on project in which they invest and how potential entrepreneurs, especially women, are approached.

Mr Setlakane Molepo, Divisional Executive: Small Medium Enterprise and Trade Development, NEF, replied that when you look at the criteria used to choose projects there are two approaches. First, the push effect where people come through the doors of the NEF in response to marketing. Through all the provinces there are regional offices and pre-investments in Johannesburg where the NEF assess these projects. The send is the pull effect where through the SPF, the NEF identifies particular opportunities such as the Bapo Ba Mogale protective clothing and equipment initiative to ensure intervention in a South African produced product. The other way is that the NEF is approached but if the project is not identified for funding but rather referred to incubators until such time that they have developed a market and upon exit from the incubator the NEF might consider providing capital such is the case where some women were involved in the manufacturing of radishes. Once they had identified markets, the NEF then stepped in to provide capital to produce at a higher level.

Mr Hill-Lewis said that on the impairment rate, there is not a single bank that would be able to survive with a 25% impairment rate. At the time of its failing African bank had a rate of 17%. On a site visit, there was a business manufacturing hazards and manufacturing lights. The business has since gone into liquidation. The business could not survive because of a sad tale of intergovernmental coordination. The South African Bureau of Standards (SABS) refused to test the lights because standards had not yet been developed to test these lights. However, all the tenders to supply these lights required SABS improvement. Surely then, none of the companies awarded the tenders had had their lights approved either/ The SABS flatly refused to test the business owners’ products and therefore it is questionable as to how the other companies got through the tender process. This is illustrative of the reason some of these businesses fail due to no fault of their own. What can NEF do to assist where policy confusion fails small business.

Ms Mthethwa said that the impairment level is worrying. It is in some part related to the macro economic climate in which the companies find themselves. Some of the initiatives put in place to address this situation have already presented on. If one looks at some of the interventions, some of defined as exogenous. For example, if a company is affected by what is happening in the industry, in the mining industry for instance, then there is little that the NEF can do to remedy the problem. Otherwise, the NEF has identified instances of non-payment of SMEs. There is even a cluster of companies which they have listed as experiencing this problem. This cluster list is sent to local and provincial governments to say that if they do not pay SMEs, those SMEs will obviously collapse. For example, in the Northern Cape there was a clothing and textiles investment which was the second largest employer in the region. The NEF even spoke to companies like ABSA to ask them to increase their procurement from those owing companies. So, the NEF actually does go out to try and support their struggling enterprises. There is therefore a lot of hand holding.

As for what can be done about policy confusion, sometimes there is a disjuncture between what the officials at the top want to achieve as a strategy objective and those objectives from industry. The question then should rather be turned around to the Committee because the NEF needs as much help n this respect.

Mr Hill-Lewis said that in future if there is an obvious example of downright policy stupidity, this must be acted on. It makes no sense that government is supporting a business on one hand and killing it on the other.

Adv Mziwabantu Dayimani, General Counsel for the NEF, replied on Hazard Bonaco that they did engage the government department at the time. A decision was taken that some work would take place on this. The time lapse affected the business as well.

Mr Moemise Motsepe, NEF Head of Marketing and Communications, noted that African Bank's impairment was more than 26%. She admitted, however, that they are concerned about the 25%.

The Chairperson said they would like to be kept informed about the impairment level and that all further contributions should be in writing.

The Chairperson said no one would disagree on the positive impact of the NEF and it will be made a priority should the NEF require more time. The development and economic impact of the investments made by the NEF are evident and she thanked the NEF.

Intellectual Property (IP) Consultative Framework
Ms Lizell Reyneke, Acting Director General: International Trade and Economic Development (ITED), said that Cabinet approved the Intellectual Property Framework in July 2016 which then established the Inter-Ministerial Committee (IMC) on IP. The aim of the Consultative Framework is not to prescribe South Africa’s IP position but rather to strengthen the consultative process around IP.

It is necessary to note that the Consultative Framework is a new process which replaces the Draft IP Policy published by the DTI in 2013.

Since IP is such a vast interdisciplinary field, it is important that as many government departments be part of the process as well as implementing agencies. The IMC has met twice since its establishment and it is key in ensuring a collaborative and consultative approach amongst the nine government departments represented on the IMC.

The Consultative Framework is informed by the Constitution and the National Development Plan (NDP) and the Industrial Policy Action Plan (IPAP). IP rights and protection should be in response to the national developmental dynamic and objectives. It goes without saying that any IP policy should be informed by sound analytical research and best practice and take into account our developmental objectives.

Mr Marumo Nkomo, Director of ITED, said that in 2008 the Cabinet mandated the DTI to develop an IP policy and in 2013 a Draft National IP Policy was released for public comment replacing the initial attempt. One of the key outcomes of the 2013 experience was that it became clear that there was a need to introspect and re-evaluate the approach that was followed with regards to the establishment of IP policy. Hence, in 2015 the DTI took a new approach informed by three main pillars based on international research by top IP scholars. What has been found is three main pillars which affect the formulation of IP policy and regulatory reform. These include:

• The degree of intergovernmental coordination;
• The extent of public consultation to ensure robust public engagement; and
• The ability of government to harness the collective capacity that exists within government.

To help them ensure that they formulate pursuant to these pillars, they have established the IP Consultative Framework. The Consultative Framework has served as a useful basis for intergovernmental coordination as it helps them understand the existing interests of government and its departments. It has been useful in consultation with other stakeholder to ascertain the key aspects in their view.

The key objectives pursued are to engender the ethos of the Constitution, to align the country’s IP regime to its NDP and IPAP and to develop a coordinated intergovernmental approach to IP.

Moreover, the objectives include striking a balance between creators and users of IP.

IP is an instrument that government uses to stimulate innovation, hence there are limited exclusive rights that are granted. The results and fruits of innovation must balance the competing the interests of the IP rights holder and the public to facilitate the development of key industries while striking a balance with public interest. This is key for the state and it is enshrined in the Constitution as well as other human rights instruments.

Also key is that IP policy contributes to the attraction of foreign investments and technology transfer, adopts a coordinated approach to IP in sub-regional and international forums and promotes public health.

If one follows the news one will see that the IP policy is eagerly awaited by civil society. In order to balance the need for action with further and adequate research in what are very complex and cross-cutting areas, a phased approach has been taken. There has been a distinction between immediate term and other in-built agenda. The immediate issues will be tended to in the short term for which ITED plans to have tangible legislative proposals in place soon. The in-built agenda will subsequently be attended to in the medium to long term.

In terms of the immediate issues, is the intersection between IP and public health as well as our use of international agreements and corporations. A key aspect is thus local manufacture. In terms of IPAP, the pharmaceuticals sector has been earmarked as a key factor. There are two important objectives that drive the facilitation of access. Focusing on local manufacture and ensuring that the IP regime is supported.

There are some pharmaceutical ingredients that are commonly used in South Africa of which there is limited international supply. To ensure the sustainability of supply of certain pharmaceutical ingredients, to be able to manufacture such ingredients domestically, is key.

Medical devices, from an economic perspective, is the fifth largest contributor to South Africa’s deficit. It is estimated that 65% of our pharmaceutical needs are met by imports. We therefore need a policy that will assist us in addressing this. The IP policy should be such a policy. South Africa’s share of the pharmaceutical sector is 0.4% by value. We therefore have significant room to improve on this figure in which the IP policy can be instrumental.

Another key aspect of the IP policy is substantive Search and Examination (SSE). Pursuant to the 1952 Patents Act, South Africa has not conducted a substantive examination of patents. It has therefore not had a patentability criterion. As long as the applicant fills the forms correctly and meet the formal requirements, such applicant will receive the exclusive rights. This means that the applicant will be successful in obtaining patent rights without having the need to demonstrate that the product satisfies any innovative criteria or if it has any industrial applicability. The reasons for this are complex. The new regime has not yet addressed this because in terms of the efficient allocation of resources, it was felt that to do something like substantive examination was going to be too complex since technical skills combined with legal skills, would be necessary. It was felt that these kinds of skills would be best placed in developmental activity such as infrastructure development and not sitting in the DTI area of patents.

Through engagement with international community and civil society, it has been found that there are adverse effects to not examining our patents. One study from 2011 by Prof Anastassios Pouris at the University of Tshwane found that 80% of South Africa’s patents would have passed muster on substantive examination. It is indeed, not a desirable approach to not examine patents. Processes to do these examinations has been put in place by the Intellectual Property Commission to ensure that we can examine our own patents. 20 substantive patent examination companies are currently undergoing training and the plan is to appoint 20 more every two years. CIPC working in collaboration with the DTI is seen as key in the policy development process in working towards capacitating itself to ensure that in due course it can examine patents.

Another important area is voluntary and compulsory licences. Government’s first port of call has been to look at voluntarily licensing mechanisms especially in the area of public health. Where it has been identified that certain IP rights are an impediment to access, there have been very effective negotiations with right holders to make them available at reasonable prices.

We have seen that South Africa is the biggest beneficiary, internationally, of the Medicines Patents Pool which is an international health organisation which facilitates licensing between governments and rights holders. So, South Africa has been very effective in utilising voluntary mechanisms to facilitate access. We therefore need to incentivise these voluntary mechanisms.

In as much as voluntary mechanisms are important, there is a need to have effective compulsory licensing provisions in our law. We do have compulsory licensing in section 25 of the Patents Act but there have been barriers to effective use which have been identified. One of which has been the judicial process where the applicant has to make a court application to the Commissioner of Patents which means that the issuing of licence will be subject to excessive cost and time delay associated with litigation. This should be removed from the judicial process so that it is accessible.

The US Federal Trade Commission of 2004 conducted a study where they identified certain anti-competitive practices that had been used by dominant pharmaceutical firms. One of these is Pay for Delay whereby firms would enter into agreements with generic competitors to delay entry into the markets for a certain amount of years in exchange for some financial consideration. The EU found in a 2009 investigation that the cost to the fiscus because of such practices was about 3 billion Euros. Therefore, there needs to be a systematic way of dealing with such practices through our competition law.

We have seen that our engagement with international corporations is key to improve our status as a leader in the international IP arena. We were integral in bringing about the Paragraph 6 Decision that allows countries that do not have pharmaceutical manufacturing capacity to get drugs from those that do, notwithstanding certain impediments of international patents law through the World Trade Organisation (WTO). Our engagement has, however, not always been at that level.

On 30 September 2016, the Marrakech Treaty Facilitate to Give Access to Published Works for Persons Who Are Blind or Visually Impaired came into force. This allows exceptions to the limitation to give access to material to people with visual impairments. The twentieth country joined on this date. African countries such as Liberia and Botswana have taken the lead on this but South Africa should have taken the lead as the leaders in IP in Africa. For us to continue to remain outside of this agreement, we have placed ourselves on the wrong side of history.

With regards to the in-built agenda, certain issues have been identified and will be pursued medium term in terms of the World Intellectual Property Organization (WIPO) methodologies and incorporation with international organisations. Some of these issues include IP rights in agriculture, biotechnology and genetic resources, the environment, climate change and green technologies, the informal sector and the commercialisation of IP. It is stressed that this list is non-exhaustive and open to the identification of key areas that will benefit the country through the IP regime.

The monitoring and evaluation component deals with existing legislative initiatives that precede the current development of the IP policy. Significant resources have been expended in some of these legislative initiatives. So as not to waste resources they should be finalised but always assuring the public that if there is a need to align them to the broader policy framework, it will be in that position to do so.

Further, there has been constant engagement and consultation with trade associations, civil society, embassies, NEDLAC, intergovernmental organisation such as the WTO, WIPO and the United Nations Conference on Trade and Development. From 26 to 30 September a stakeholder engagement was held in Tshwane where there was a forum which addressed and went, in detail, through the document and all its key issues. This is in line with the second pillar of policy formulation.

The Consultative Framework was published for the precise purpose of public engagement. It expressly says “for engagement” and not “comment” because with “comment” the assumption is that it is one way. The opportunity was given to people to submit through the DTI with a further extension of the engagement period until 14 October which is way past the prescribed three months. The draft policy is set to be finalised by the end of financial year which will address the immediate term issues and propose legislative reforms. It will set a solid framework in place for the medium term in-built agenda.

Discussion
The Chairperson said that it has been a long time since they have deliberated on a consultative framework. it is truly pioneering and an essential pathway process. It will fill a real gap on explaining how to go about consultation.

Mr Williams referred to the Fix the Patent Law Report which speaks to case studies around medicines dealing with cancer, hepatitis, pain and epilepsy, mental health, sexual and reproductive health and HIV. The report spo lighted drugs for TB. He asked if this Consultative Framework was going to deal with these issues and especially those related to the cost of these drugs in South Africa, why these drugs cannot be manufactured for less locally and whether the eventual regulations will deal with this. The drugs that South Africans are paying for are very expensive and can be obtained cheaper elsewhere in the world.

Mr Nkomo replied that if you peruse the framework, the reforms that are proposed would directly address the the cost of pharmaceuticals. The government does have the capacity to progressively move towards access and international flexibility and as a member it recognises that it has not done so as effectively as we should.

Mr Koornhof said that after the consultative process is done, we are looking towards the improvement of the legislative process. At the first meeting of Department of Science and Technology (DST) there was chorus saying that we must take the process of indigenous knowledge further and repeal the IPA Act as soon as possible. He wanted the opinion of Mr Nkomo on this.

Mr Nkomo replied in terms of the Consultative Framework document, there are various divisions within the DTI and that ITED has not been involved at all in the legislative process. It is, therefore, somewhat constrained in what it can and cannot do with regard to existing legislation. Hence, this was brought under the auspices of monitoring and evaluation to ensure that as policy is developed and finalised, it will be in a position to progressively engage with colleagues to ensure that the existing legislative provisions are aligned with the policy. His division is very supportive of the DST Bill because it conforms with international best practice in terms of the WIPO and this was expressed when ITED briefed the DST Committee in August.

Mr Alberts asked how much of the substance of the consultations translate into policy and the Bill which comes from it. He asked why the current Copyright Amendment Draft Bill has gone to NEDLAC despite this step not being a requirement.

Mr Nkomo replied that the Copyright Amendment Bill was not a topic in this presentation which focused solely on the IP Framework. A legislative amendment would have to go to NEDLAC. The current Consultative Framework is not an amendment but was taken to NEDLAC although there is no obligation to do. It was seen an important step to engage and consult as widely as possible and inform NEDLAC from the outset.

The Chairperson said that among the many organs of civil society consulted, was the Médicins San Frontières (MSF) because they came to see the Committee many times in deep distress and concern about what was going on in the Consultative Framework.

Mr Nkomo replied that this very report is from the material collected from the input from civil society. He added that this input is taken very seriously and many of the recommendations are in response to the concerns raised. He added that MSF was indeed included in consultations along with the 31 member group that formed civil society organisations.

When engaging with civil society it is found that there is an agreement of minds but there is a concern about whether this will actually be implemented. They are working hard to ensure that they do so. The Companies and Intellectual Property Commission (CIPC) has already employed 20 people undergoing training on international best practice so that by the time the policy is finalised, we would already have gone some way to having skilled people who are able to do these examinations and implementing the key reforms.

The Chairperson asked who else, besides the IMC, is part of the Consultative Framework.

Mr Nkomo replied that they are the coordinators of the IMC together with the Department of Agriculture, Department of Telecommunications, Department of Higher Education and Training, Department of Art and Culture, Department of Communications and the Department of Science and Technology. The role of the IMC serves three important functions. It will serve as a working group, a vetting forum to ensure that we do not have any conflict with existing programmes, and since it is difficult for stakeholders to deal with different government department on a piecemeal basis the IMC serves as an integrated consultation.

Mr Nkomo said a draft will be available by March 2017.

Other Committee Business
Committee Report on Colloquium on Local Public Procurement
Mr Williams said that recommendations had been made by Members but they are hardly seen in the report. it is irregular to receive draft Committee Report without the recommendations inserted although those recommendations have been made.

The Chairperson said that the persons who had written the report was not able to capture all the issues from the meeting.

Upcoming Committee Meetings
The Chairperson said that since the last meeting Parliament has taken a position that this Committee would meet twice weekly on a Tuesday and Friday beginning at 09h00 with any overflow issues to be dealt with on Thursdays. There is an option of dealing with overflow on Saturdays but this is highly unfavourable.

The meeting was adjourned.

 

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