Competitive Supplier Development Programme: DPE briefing; Committee Reports on Public Enterprises Budget; Oversight visit

Meeting report

Competitive Supplier Development Programme

Mr Mogokare Seleke, Director-General: DPE, said the aim of the Competitive Supplier Development Programme (CSDP) was to promote investment and the development of internationally competitive capabilities in local supplier sectors to state-owned companies (SOCs), with the aim of reducing costs through increasing efficiencies, reducing dependency on imports and foreign exchange exposure, and developing niche export areas.

Tthe programme focused on Eskom, Denel, and Transnet. It was measured against a number of key performance indicators. These indicators and associated targets were included in the shareholder compact for both Transnet and Eskom. The Transnet Supply Development Programme obligations had been committed to some of the following: local content (amounting to R30.8bn), skills development (R4.6bn), investment in plant (R4.9bn), jobs created (R2.9bn), jobs preserved (R3.9bn), industrialisation (R6.4bn), and small business development (R.8bn). Meanwhile, the Eskom Supply Development Programme obligations had been committed to localization (R116.9bn), Broad-Based Black Economic Empowerment (BBBEE) suppliers (R596bn), Black Owned Business (R170bn), Black Women-Owned Business (R58bn), Black Youth-Owned (R5bn), and Small Medium Enterprises (R63bn).

There had been challenges and teething problems with local content commitments in the beginning. These had arisen at the manufacturing facilities in Pretoria of General Electric South Africa Technologies and China South Rail, and China North Rail and Bombardier Transport that had a manufacturing facility in Durban, The challenges involved different systems used by the overseas and local companies, and these had been resolved. He commented that manufacturing did not provide overnight success, which was why targets had been set for the short and long terms.

He reported that at the South Africa Rail Association (SARA) exhibition, the original equipment manufacturers (OEMs) and suppliers participating in Transnet’s 1064 locomotive build programme had showcased their technologies. An interest was shown from the African countries represented in wanting to adopt the model that Transnet Engineering (TE) was using to develop suppliers, and also buying from the suppliers. This not only opened doors for the suppliers who were presenting, but it also showed South Africa as a country that cared for its industry’s growth and participation. Various suppliers were investing in their companies not only to support TE, but to grow and sustain themselves in this globally competitive environment as a result of their relationship with TE. More still needed to be done in supporting the developing industry and black industrialist programme from the Department of Trade and Industry (DTI).

Mr Seleke described the OEMs’ and Transnet’s supplier development reporting mechanism. The OEMs monitor and record in an auditable manner their own implementation and compliance with the plans and reports monthly to Transnet. Transnet conducts quarterly verification of claims by OEMs to ascertain whether or not the OEMs have met the quarterly targets. Transnet then appoints an external auditing firm to validate the reports by OEMs on a regular basis, and further verification is conducted by the Transnet supplier development team. If the OEMs fail to achieve their supplier development targets in accordance with their commitments, Transnet may issue non-compliance penalties.

(Tables were shown to illustrate 1064 locomotives’ local content commitments; the total number of suppliers utilised per OEM; the total number of Black Owned and Black Women Owned suppliers utilised per OEM, the total number of jobs preserved per OEM; and Transnet’s key local suppliers for rolling stock commodities – see attached document)

Discussion
Dr Z Luyenge (ANC) asked if there were any arrangements between the Department and the DTI to ensure entities that did not fall under the Department were making a contribution towards capacity building.

The Director-General said they were working closely with the DTI and wanted to formalise the existing relationship to foster closer cooperation. Currently, the Department was working with the DTI on a solar project. The DPE had learnt a lot since these programmes were started. Capacity had been in the country before, but they had had to take certain decisions. Now they were re-developing that capacity. There were certain struggles they had had to go through. Skills and capabilities were there, but they needed to invest in those areas as a country. If there were dedication, a lot could be achieved. Unfortunately, the commitment was not there, especially in SOEs. They had targets, but developmental targets were lacking.

Mr R Tseli (ANC) commended the Department on the work it had done on transformation, and the opportunities given to black women owned companies. He enquired if there were strategies in place to detect fronting in local content development.

Mr Seleke replied that a process was in place to verify that a local supplier was not fronting. They were thinking of conducting a survey to be done by an independent company in collaboration with the DTI to investigate fronting. To make sure there was no fronting, they were working closely with the DTI through the SA Bureau of Standards (SABS) to locate and identify companies that were black-owned and black women owned.

The Chairperson remarked that a number of projects had been completed, but there were no timeframes for their completion. She wanted to establish when one could expect a South African product developed without the assistance of China or the USA, and asked if there was a youth skills development programme among these projects, because some were not entirely owned by South Africans.

The Director-General said a first South African locomotive had been completed, but not all the components were South African. If 80% of the components were local, then that meant you have a local product.

Mr Kgathatso Tlhakudi, Deputy-Director-General: Manufacturing: DPE, added they need to bring some of the projects the SOEs had developed to the Committee. These included armoured trucks for the soldiers, African locomotives, and a fighter aircraft that had been developed by Denel. All these projects, including many others, were developed locally by the SOEs. These projects were case studies. Targets on localisation were given to the SOEs, but the challenge was the willingness of the SOEs to meet the targets. However, if problems came to the Department’s attention, it intervened. The DPE worked with the private sector to identify the required skills, and that was why it was collaborating with other departments like the Department of Environmental Affairs (DEA) and the Department of Agriculture, Forestry and Fisheries (DAFF), and others. For example, there was a farmer in Mpumalanga who was using solar energy to run his farm. That farmer had acquired that skill from one of the DPE’s programmes.

The Director-General said that between 1974 and 1994, these SOEs were not developing youths, but only developing products. The SOEs had had to re-engineer their programmes to get the desired outcome. The SOEs had to be given targets. That was why the focus was on black owned and black women owned companies, and at least the DPE was beginning to see the results because this was doable and practical. Furthermore, it would be good to invite the Committee to the Department’s graduation ceremonies to see skills development in practice. There were certain stakeholders who were willing to work with the government and transfer their assets to the youth, provided there was government support. There was a need to ensure there was an inclusive approach. More importantly, if the SOEs were not there, some of these projects would not have developed to be where they were now. The SOEs and private companies should work together to create new markets.

Mr Tlhakudi pointed out manufacturing needed an engineering background. That background was lacking in manufacturing people, and some had been retrenched as a result. The Department was looking at giving these people an opportunity to be skilled in starting their own manufacturing companies. The maritime programme run by Transnet had achieved good figures on skills development, but the economy was unable to absorb all of them. The focus, as a consequence, was on industrialisation to upscale manufacturing, so that the skilled producers could participate in the economy and be local suppliers who created jobs. In addition, when one looks at the coal sector, one realizes that coal is easy to mine. The sector could be designated to empower communities and be owned by locals in order to create jobs for them. There was no need to have foreign companies operating in this space.

Mr M Gungubele (ANC) commented that there was a need to work together on the aspect of development and move away from the whingeing phase. The Director-General had indicated there were things to be done, but they were not being done. He pointed out that every country took steps to be where they were today. After 1994, South Africa had wanted things to happen magically and had not put forward a clear plan for things to happen, because people had been nursing the feelings from the past. He felt the Department should state the line that should be taken on things that needed to be done. There must be plans, policies and set targets to turn things around. Technology was moving very quickly, and South Africa was still clinging to technologies that were outdated and which would render the country useless. There were committed and skilled South Africans who would like to work on these opportunities, but unfortunately these opportunities were given to unfortunate people who then brought unfortunate consequences.

Dr Luyenge wanted to know how the Department was locating ordinary people on the ground.

The Director-General reported the DPE had engaged with the DTI to provide incentives to the SOEs directly for some of these programmes. The DTI had been reluctant at first, but now it could see the results. The Department had signed memorandums of understanding (MOUs) with all the universities on their areas of specialisation, capacity and research to help the SOEs in their initiatives. The universities were helping the SOEs to develop the communities around them with economic and developmental programmes. MOUs had been signed as well with director-generals of provincial departments on developmental projects to be carried out by SOEs in those provinces.

Budget Vote Report
The Acting Chairperson engaged the Members with the consideration and adoption of the budget vote report, taking them through it page by page.

Ms G Nobanda (ANC) moved the adoption of the report, and Mr Gungubele seconded.

The report was adopted with minor amendments.

Oversight Report
The Chairperson took the Members through the oversight report, page by page.

Mr N Kwankwa (UDM) moved the adoption of the report, and Dr Luyenge seconded.

The report was adopted with minor amendments.

Adoption of Minutes
The Acting Chairperson took the Members through the minutes of 21 February 2017, page by page.

Ms Nobanda moved the adoption of the minutes, and Mr Tseli seconded.

The minutes were adopted with minor amendments.

The meeting was adjourned.