Economic Development Department on its Annual Performance Plan, with Minister & Deputy

Meeting report

The Minister of Economic Development, Mr Ebrahim Patel and Deputy Minister of Economic Development, Mr Madala Masuku, availed themselves for the meeting.

The Chairperson of the Committee Mr M Rayi (ANC, Eastern Cape) extended apologies for not attending the meeting as he was off sick.

Mr E Makue (ANC; Gauteng) took up the reigns as Acting Chairperson. 

Opening remarks by Minister of Economic Development
Minister Patel stated that the 2017/18 Annual Performance Plan 20 was the key roadmap to the Department’s (EDD) work for the next twelve months. The EDD wished to achieve its objectives by building partnerships with provinces. Oversight was important but it was also important to share ideas when meetings took place between the Committee and the EDD. The APP is connected to the Medium Term Expenditure Framework (MTEF) of government for five years. The APP provided annual expression of the plans of the EDD. The APP spoke to a range of issues.

Minister Patel said he had asked Deputy Minister Masuku to lead the EDD’s work at provincial level which would find expression in the present presentation. Deputy Minister Masuku therefore had a sense of the challenges and opportunities that existed at provincial level. He added that Deputy Minister Masuku was tasked with the actual briefing which spoke to the context of the EDD’s work. The briefing would also shed light on economic performance at provincial level.

Briefing by the Economic Development Department (EDD) on its Strategic Plan and Annual Performance Plan 2017/18
The delegation from the EDD comprised of Mr Malcolm Simpson, Acting Director General, Mr Len Verwey, Director and Ms Tanya van Meelis, Chief Economist.

Deputy Minister Masuku said the work of the EDD was impacted upon by various factors. Modest global growth rates and the policy environment were more uncertain with the rise of economic nationalism. African growth rates also slowed down. Slower continental growth in Africa also began to impact upon the country’s exports of manufactured goods to its fastest growing market. Domestic growth was slow during the past year, estimated at 0.3% and was projected to be only 1.2% for 2017. SA had also experienced its biggest drought in generations which impacted on the agricultural output. Employment growth slowed down during 2016. Employment in SA currently sat at 6.1m people. The Committee was provided with provincial job creation and unemployment figures for 2016. Limpopo, Eastern Cape and KwaZulu-Natal Provinces had the largest increase in total percentage increase in jobs. Limpopo, Eastern Cape and Gauteng Provinces saw the largest increase in the total number of jobs. However the North West, Mpumalanga, Northern Cape and Free State Provinces had experienced job losses in 2016. KwaZulu-Natal, Mpumalanga and Northern Cape Provinces saw the largest percentage increases in total unemployed. KwaZulu-Natal, Mpumalanga and Gauteng Provinces saw the largest increases in the number of total employed in 2016. Most of the jobs pre 1994 were concentrated in the Gauteng, Western Cape and KwaZulu-Natal Provinces and this phenomenon continued to the present. SA’s economy was anchored in its old structural arrangement. There was a need to address structural impediments in the economy. Structural transformation of the economy was needed. Change in ownership had to take place. The EDD had three Programmes ie Administration, Growth & Job Drivers and lastly Investment, Competition & Trade.

Programme 1: Administration
With the strategic objective to ensure good governance in the administration of the EDD for 2017/18, the Department planned to obtain an unqualified audit opinion. In order to achieve the target the EDD was expected to systematically address concerns and weaknesses identified in preceding years’ audit reports and maintain high standards in all other areas.
Programme 2: Growth and Job Drivers
The strategic objective was to coordinate job drivers and implementation of the New Growth Path (NGP) economic strategy in support of the National Development Plan. One of the targets for 2017/18 was to have four analytical and public policy advocacy reports produced on socio economic development and the NGP. Some of the work that was to be compiled into the reports covered research on policy areas of the NGP/socio economic development, advocacy efforts of the Ministry, the EDD or agencies through their interaction with companies, business forums, chambers of industry, trade unions etc. There would also be reporting on prices of administered /wage goods as well as early warning systems to monitor same.

Programme 3: Investment, Competition & Trade
The strategic objective was to coordinate infrastructure development and strengthen its positive impact on the economy and citizens. For 2017/18 the planned target was to have eight Action Minutes on a number of infrastructure projects evaluated, unblocked, fast tracked or facilitated or project assessments completed. However infrastructure projects often experienced delays in design, approval or implementation as a result of regulatory requirements, funding challenges, technical capacity limitations or policy gaps.

In conclusion, the Committee was provided with a breakdown of the 2017/18 budget for each of the three Programmes ie Administration - R80.6m, Growth Path and Job Drivers - R35.6m and lastly Investment, Competition & Trade - R680.9m.
           
Discussion
The Acting Chairperson observed that the briefing had referred to quite a bit of reports that the EDD was to submit to the Committee however nothing in the briefing had been said about the administrative strength of the EDD to do so. Would the EDD have the necessary capacity to come up with all those reports? It was even more concerning given that the budget allocated to the EDD was deemed not to be that much by the Committee. Could the EDD provide the Committee with certainty that it had the necessary capacity to produce the reports whilst maintaining quality standards of past reports?      

Deputy Minister Masuku said that it was highly unlikely that any government institution would have the perfect capacity needed to do its work. However through innovative means one could achieve a great deal. One such innovation by the EDD was that it had Memorandums of Understanding (MOUs) with institutions of higher learning and with research institution to provide assistance. The EDD also worked with private institutions. There was a great deal of cooperation taking place.

Minister Patel stated that the reports of the EDD were auditable work of the EDD. He had instructed the EDD not to produce cumbersome 200-300 page reports. He wished to have short action orientated reports. The reports were evidence of the work that the Department was doing. 

Ms M Dikgale (ANC, Limpopo) noted that the briefing had spoken about jobs, unemployment and also about the EDD’s budget. She observed that the Limpopo was not fairing as well as Gauteng and asked how the EDD intended to address the issue.

Deputy Minister Masuku said that Limpopo was doing well on employment creation. Structural reform of SA’s economy needed to take place. In Limpopo beneficiation of minerals was taking place. This was part of the changing structure of the economy.

Minister Patel said that the EDD did have infrastructure projects in Limpopo. The Medupi Power Plant was an engine of growth in the Province. The idea was to look at the next stream of infrastructure projects in the province which included the pipeline of water supply to Lephalale. He felt that Lephalale had growth potential. 

Mr L Magwebu (DA, Eastern Cape) pointed out that the briefing had spoken about job growth taking place in the Eastern Cape Province. He asked what the nature of these jobs was. What types of jobs were they? The briefing also made reference to the Nine Point Plan and that SA was experiencing one of its worst droughts. At the end of April 2017, the Eastern Cape had a looming disaster affecting its citrus industry. The citrus industry in the Eastern Cape was a serious contributor to Gross Domestic Product (GDP) and to seasonal jobs in the province. The EDD was asked what interventions it had put in place to assist with the situation. He asked Minister Patel and Deputy Minister Masuku to explain the concept of radical economic transformation in reference to the National Growth Plan (NGP) and the National Infrastructure Plan (NIP).

Deputy Minister Masuku explained that the focus on radical economic transformation was aimed at trying to address the fact that there was something very wrong with the South African economy the way it was. SA’s economy should cease to be dependent on commodities. Efforts such as agro-processing and beneficiation needed to be done. The idea was for systems to be changed as well. Change needed to be done in haste and should not be done slowly. Radical changes were needed immediately. There was a need to address demographics as well. Changes in human settlements, education etc needed to also take place. The EDD worked with the EDD in the Eastern Province on the citrus issue. There was no final solution on the matter as yet. The Eastern Cape was one of the EDD’s focus areas. People of the Eastern Cape had raised concerns about the province’s dependency on citrus. Alternatives like tourism as job creators were raised in the Eastern Cape.  

Minister Patel provided a practical example on economic transformation. He noted that the Coca Cola Company undertook to consolidate its three plants. It would lead to economic growth in the economy. There were however challenges that had to be dealt with. The EDD said to Coca Cola that they had to come on board on black economic empowerment and that a 20% stake in Appletiser had to be owned by black individuals. Coca Cola agreed to the condition. Coca Cola was also informed that they had to develop small business. Coca Cola set aside R800m to support small businesses. Spaza shops had to be empowered. Coca Cola also agreed that 10% of the space in its fridges could be used to refrigerate products of its competitors. The EDD looked at practical ways to build the economy. He explained that on jobs the EDD used Stats SA data. The figures provided were not broken up. It was aggregate figures on jobs which included fulltime, part-time and seasonal jobs etc. He said that perhaps the Committee needed to be briefed on the Expanded Public Works Programme (EPWP). The EPWP was a programme to create jobs and was a ladder to create permanent jobs. SA’s EPWP was lauded over abroad. When the EDD looked at the period from 1996 to 2016 it realised that more people were coming into the job market than the growth of the population. He was cognisant that the EPWP could not be the only job creator. 

Mr W Faber (DA, Northern Cape) pointed out that in 2015 16m jobs and R4trillion in contributions to GDP had been attained. He asked whether the numbers of jobs had increased or decreased. Given SA’s negative downgrade in its credit rating he asked how long it would take SA to recover. He asked what the progress was on the Saldanha-Northern Cape Development Corridor. He was aware that the steel industry in SA had taken a dip. Jobs in the Northern Cape had increased due to strides being made in the energy sector. He felt that more needed to be done in the Northern Cape. 

Minister Patel said that figures had not declined. The current figure on jobs was 16m. On SA’s rating downgrade he said that members would have to wait for his speech in the National Council of Provinces (NCOP) where he intended to address the issue. A ratings downgrade was bad for the economy. In such an instance investors extracted a higher return. SA had to move back to an investment grade rating again. SA needed to have a credible investment roadmap. In Saldanha Plan 1 was to increase iron ore rail capacity. However the demand for iron ore had dropped. Iron ore demand had somewhat recovered recently. The EDD had to decide on what to do on the Development Corridor. There was first the intention to improve infrastructure on the line and secondly the frontloaded effort of work on the Saldanha side. Saldanha could become an iron ore export port. There was the option of gas as well in the area. Saldanha could be used to do repairs to ships as well. He noted that energy projects in the West Coast had been cleaned up. Wind farm projects had created jobs. The upgrade on the Clanwilliam Dam was also a huge project. There were plans to raise the walls of the Dam. In the Northern Cape the EDD had made huge investments in solar energy projects. However at some point there would be a slowing down of solar plants in the Northern Cape hence there was a need to consider industrialisation projects in the Province. He suggested that community trusts should use their dividend flows from solar to create jobs and enhance development.

Mr S Mthimunye (ANC, Mpumalanga) asked whether SA was at junk status. He believed SA to be just above junk status. What work was SA doing on the international stage to regulate the tendencies of rating agencies to downgrade countries based on politics. He also asked whether SA was on course to create 6m jobs by 2030. He felt that the EDD’s APP did not address radical economic transformation in rural areas. Former homelands were just as poor as they were 30 years ago. What were the plans on radical economic transformation? He asked who implemented the verdicts that were given by the Competition Commission. A recent verdict of the Competition Commission had stated that companies in the construction industry had to invest in black economic empowerment. He noted that it seemed that it was the same black companies that were being empowered. The saying seemed to ring true that “once empowered always empowered”. He asked how was it possible for big companies to qualify as being a small company. He suggested that Broad Based Black Economic Empowerment (BBBEE) Codes needed to set an exit ceiling for when black companies should stop getting financial assistance. Government could not continue to invest in the same companies.

Deputy Minister Masuku responded that rating agencies could be regulated but he asked whether it would make an impact. He noted that credit bureaus were regulated but this did not stop them from operating the way they did. The issue was about how one operated economically. Ratings agencies took factors like the stability of countries and their populations into consideration. It was also about the perception of the investor behind the rating agency. SA would only get out of its current situation and grow its economy if it broke away from its dependence from outside. SA’s economy had to grow and have developmental impact. The EDD on its work in the provinces performed its work in terms of space. The issue was about how provinces dealt with urban and rural spaces. The EDD worked with provinces. The EDD also analysed agri-parks. There were 44 agri-parks. 600 000 jobs needed to be created annually. It had to be checked how many jobs were created each year. The EDD did make comparisons on how many jobs it created compared to targets.

Minister Patel stated that the EDD did monitor the work of the Competition Commission. Reinvestment in Broad-Based Black Economic Empowerment (B-BBEE) was the policy challenge that was being faced. The EDD could not only support small businesses in the construction industry. There was a large amount of small black owned companies in construction. In order to lift the turnover amount for these small businesses there was a need for them to enter into partnerships with each other. Big players in the construction industry also had to support smaller black companies. For example the construction giant WBHO was required to support three black companies. Larger black companies were also starting to develop. In the construction industry it was necessary to build and develop larger black owned companies. He stressed that a limit should be set on how much a single individual should be able to benefit from black economic empowerment. It was however not yet policy to set such threshold. The concept was a good one but more policy work was needed.

Mr B Nthebe (ANC, North West) applauded the EDD for the good work that it was doing in the rural provinces. There was an allocation of R95m in the Steel Fund. The Committee had raised concerns about the steel industry and knew what it expected to see in it. He noted that there was much talk about beneficiation and localisation but asked when the Committee was to see tangible results. He noted that 50% of SA’s GDP still comprised of revenue from commodities. More needed to be done to stimulate SA’s export base. The EDD was asked when the vacant Director General post would be filled. When would the Deputy Commissioner of the Competition Commission be appointed? Lastly, he asked when the migration of staff to other departments would be completed. The EDD was doing well on coordination thus far.

Deputy Minister Masuku said that beneficiation and localisation was a major focus for the EDD. He noted that the Nine Point Plan was in place. The economic zone in Limpopo was addressing the issue. There was a youth chamber of commerce and industry in place that was doing things differently. Capacity needed to be built for the beneficiation of various minerals. There were successes on local content and localisation.

Minister Patel said that on the Steel Fund it would be of great value if there was a value chain that used local iron ore. A huge amount of SA’s coal was beneficiated through Eskom. One of the issues related to beneficiation was the price that local players paid. They simply could not cope with foreign prices. On staffing issues he said the idea was first to get stability. He added that in November 2016 a Deputy Commissioner of the Competition Commission had been appointed. He was reviewing the matter of appointing a second Deputy Commissioner. He explained that the EDD had fewer vacancies than what it had. A certain quality of persons needed to be appointed. The EDD did have centres of excellence. The EDD wished to improve the skills levels of professionals it attracted. Perhaps academics from Wits University could be seconded to government. The EDD needed to chase capacity.

The Acting Chairperson said that Minister Patel had mentioned Clanwilliam Dam. The Minister of Water Affairs had spoken about the expansion of the Dam. There was after all a water shortage in the Western Cape. What was the EDD’s role in this regard? He said that it could be useful to the Committee to have information on the Department’s projects. The Committee’s next planned oversight was to Saldanha. He said that the National Empowerment Fund (NEF) was to be shifted from the Department of Trade and Industry (DTI) to the EDD. The NEF would be reporting to the Committee in the next two weeks. The NEF was to be placed as a subsidiary of the Industrial Development Corporation (IDC). He said that the Committee often had issues around time to accommodate departments and entities etc. Ways needed to be found to communicate with the EDD more regularly besides in formal meetings.

Deputy Minister Masuku explained that even though the NEF would be a subsidiary of the IDC it would still have to report to the DTI. The Committee should feel free to call the IDC to make a presentation to members.
 
Minister Patel, on the Clanwilliam Dam, said that the EDD would monitor things. The Committee could jointly with the National Assembly have a meeting with the IDC. He said that innovative ways needed to be found to keep the EDD connected with the Committee. Perhaps skyping should be an option until video conferencing facilities were available in Parliament. Innovative ways like video conferencing could save time and costs.

Draft Joint Oversight Report to Mpumalanga, Nkangala District by the Select Committee on Trade and International Relations and the Select Committee on Economic and Business Development 28 -31 March 2017
The Draft Report was adopted unamended.

Committee Minutes
Committee Minutes dated 23 May 2017 was adopted unamended.

The meeting was adjourned.