Minister of Economic Development on Presidential Infrastructure Coordination Commission

Economic Development

10 October 2017
Chairperson: Mr C Frolick (ANC)
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Meeting Summary

The Minister of Economic Development reported on the work by the Presidential Infrastructure Coordination Commission (PICC). He pointed out that PICC is the executive’s tool for monitoring the implementation and impact of infrastructural development on the economy. It is a planning and coordinating body. It is neither a funding structure; the accounting authority for the spending of money or control of the build-programme, nor an implementing agent. Investment in public infrastructure had grown since 2008 and had boosted real GDP by 2.2% by 2016 (cumulative effect), amounting to R95 billion. The multiplier effect of infrastructure spend in the economy over the next three years was estimated at about R302 billion annually in 2017 prices.

Driving industrialisation and transformation was one of government’s foremost priorities. Efforts to empower black industrialists were noteworthy. The value of funding for black-empowered and black-owned companies in the past three years increased by 103% to R10.1 billion and there has also been significant improvement in approvals for women-empowered businesses, which currently stood at R3.2 billion.

Access to electricity for all was key, as per the national development plan. Consistent to this, by the end of this administration in 2019, 6336 MW of usable energy was projected to be added to the national grid from 10 996 MW generated. This was equivalent to three Koeberg Power Stations. Furthermore, work was being undertaken by the PICC to deal with issues such as: costs overruns in major infrastructure projects; use of imported components and material; corruption and its impact on infrastructure; and disruptions at construction sites through protests. These would be reported on to Parliament periodically.

Minister Patel underscored the importance of judicious asset management. Despite the adoption of legal statutes and tools to assist government in conducting maintenance, major gaps still exist. Priority was in response to demand for new infrastructure, rather than maintenance of existing assets; a general lack of the adoption of asset management systems; lack of life cycle costing analysis during project development as well as lack of technical skills in rural municipalities. Action towards addressing the challenges included: increasing the spending trend-line through liaisons with National Treasury, new budget facilities, unblocking new project pipelines among others. Recognise the counter-cyclical role of infrastructure investment to boost growth was key.

In conclusion, infrastructure programmes are multi-year and generally go beyond the term of one administration. However, execution of all phases needed to be improved to ensure the full benefit of infrastructure investment is felt by all communities and the economy at large. Consequently, the National Infrastructure Plan spearheaded by the PICC is the basis for such focused implementation for the remaining term of this administration (to 2019) and by the next administration (2019-2024). He expressed commitment to brief the Committee on a quarterly basis on the work of the PICC. 

Members wanted to know about the role of the Department of Small Business Development in spearheading the development of small and medium businesses and facilitating their participation in government programs. Currently, the necessary structures and assistance was not available to small businesses and cooperatives. They asked about progress of the Umzimvubu hydro-dam project in the Eastern Cape. When was the project going to be realised? The Deputy Speaker of Parliament asked about information communication technology (ICT). What were the latest developments in that front? The PICC was a good example of what could work well if government coordinated its efforts, and ICT was one area which needed concerted effort.

The Chairperson appreciated the engagements and indicated that the chairpersons of economic cluster committees would facilitate such ongoing engagements with the executive, the PICC in particular. 

Meeting report

Progress report on the work of the PICC
The Minister of Economic Development, Mr Ebrahim Patel, reported on the work by the Presidential Infrastructure Coordination Commission (PICC). He pointed out that PICC is the executive’s tool for monitoring the implementation and impact of infrastructural development on the economy. It is a planning and coordinating body. It is neither a funding structure; the accounting authority for the spending of money or control of the build-programme, nor an implementing agent.

On the economic impact of infrastructure spending, investment in public infrastructure had grown since 2008 and had boosted real GDP by 2.2% by 2016 (cumulative effect), amounting to R95 billion. Without the increased infrastructure investment, the South African economy was likely to have gone into a recession in 2015. The multiplier effect of infrastructure spend in the economy over the next three years was estimated at about R302 billion annually in 2017 prices.

On the employment impact of infrastructure spending, the challenge was how to help absorb large numbers of new entrants into the job market, with an ever-increasing proportion of people aged between 15- 64 looking for work every year.

Driving industrialisation and transformation was one of government’s foremost priorities. The drive to transform the construction sector involved mandating a minimum sale of 45% of shares to black South Africans or partnerships with smaller black-owned construction companies, to enable them to increase their turnover to 25% of the listed company turnover. Efforts to empower black industrialists were noteworthy. The value of funding for black-empowered and black-owned companies in the past three years increased by 103% to R10.1 billion and there has also been significant improvement in approvals for women-empowered businesses, which currently stood at R3.2 billion.
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As a means of spearheading local procurement, as at 2012, the state began to designate products that should be purchased locally by all public entities. However, the challenge was in two areas: ensuring that public entities actually comply with the regulations and limiting the number of exemption that are granted. The PICC was currently monitoring implementation of more than 300 projects. The level of information covered areas from economic data (such as job numbers) to project development and spending trends. The monitoring enables problem identification; as well as progress monitoring by cabinet to ensure that departments and state-owned companies resolve blockage, plan and coordinate implementation. PICC was willing to share the monitoring reports with Parliament to assist it in carrying out its oversight roles.

Access to electricity for all was key, as per the National Development Plan (NDP). Consistent to this, by the end of this administration in 2019, 6336 MW of usable energy was projected to be added to the national grid from 10 996 MW generated. This was equivalent to three Koeberg Power Stations.

Cable and metal theft in public infrastructure was a significant challenge. However, PICC was working on curbing such cases. According to the City of Johannesburg, approximately 45% of power outages in the areas where City Power operates were caused by cable theft. As part of efforts to address the challenge, new legislation had been signed into law in December 2015; introducing a minimum sentence; making it more difficult to obtain bail, and burden of proof to be shifted to possessor of copper cables in cases of cable and metal theft in public infrastructure. It was government’s belief that such stern measures would serve as a deterrent. Also, a Trade Policy Directive was gazetted in 2013 to place controls on the export of scrap metal. While this was aimed at addressing supplies of metal to the domestic manufacturing industry, it also assisted in reducing the market demand for scrap metal which fuelled the large- scale theft of metal cables. 

Minister Patel acknowledged the urbanisation challenge the country was grappling with. The rate of urbanisation across the country led to a growth of new households by 3.7% on average annually over the past six years, or put differently: more than 375 000 new households were added to cities every year. Also, the work of the PICC was looking into dealing with the impending water challenge. For instance, Gauteng was vulnerable to weak rainfall for the next 10 years because water from Lesotho would only be delivered by 2025. This was the case even if dams were full. Failure to devise viable coping mechanisms may thus affect government’s capacity to use infrastructure as an anchor for economic recovery.

Furthermore, work was being undertaken by the PICC to deal with issues such as: costs overruns in major infrastructure projects; use of imported components and material; corruption and its impact on infrastructure; and disruptions at construction sites through protests. These would be reported on to Parliament periodically.

Minister Patel underscored the importance of judicious asset management. Despite the adoption of legal statutes and tools to assist government in conducting maintenance, major gaps still exist. Priority was in response to demand for new infrastructure, rather than maintenance of existing assets; a general lack of the adoption of asset management systems; lack of life cycle costing analysis during project development as well as lack of technical skills in rural municipalities. Action towards addressing the challenges included: increasing the spending trend-line through liaisons with National Treasury, new budget facilities, unblocking new project pipelines among others. Recognise the counter-cyclical role of infrastructure investment to boost growth was key.

During 2016, cabinet mandated the PICC to establish a Technical Project Management Unit (TPMU) as part of efforts to strengthen government’s project management capacity. Initial modest funding for the Unit will be provided in the 2017/18 Budget. Also, a core team was being put in place that would assist with project evaluation, cost-saving measures, improved development outcomes and financial packaging.

In conclusion, infrastructure programmes are multi-year and generally go beyond the term of one administration. However, execution of all phases needed to be improved to ensure the full benefit of infrastructure investment is felt by all communities and the economy at large. Consequently, the National Infrastructure Plan spearheaded by the PICC is the basis for such focused implementation for the remaining term of this administration (to 2019) and by the next administration (2019-2024). He expressed commitment to brief the Committee on a quarterly basis on the work of the PICC. 

Discussion
A Member noted the impending water challenges pointed out by the Minister. As a means of dealing with the looming challenge, was the PICC looking into building more dams in areas where there was better rainfall to increase the country’s water retaining capacity? Also, was there sufficient and enabling legislation to ensure success of the identified programs? Has the infrastructural development drive made significant impact on employment given that levels of unemployment were not going down? Why was energy so expensive in the country? He noted that there still seems to be a small number of black-owned construction companies within the construction sector. What was the value of contracts and the socio-economic impact of the black industrialisation program? What were the potential risks identified by the PICC in achieving set targets and how could they be circumvented?

Ms P Chueu (ANC) wanted to know about the role of the Department of Small Business Development in spearheading the development of small and medium businesses and facilitating their participation in government programs. Currently, the necessary structures and assistance was not available to small businesses and cooperatives.

Ms P Bhengu-Kombe (ANC) commented that the Department of Small Business Development should play a more active role in infrastructure development, job creation and poverty reduction. Also, apartheid geospatial development was meant to divide the nation. How was PICC going to address that in its infrastructure development drive? Rural development would have to mean getting people back to arable land in a systematic way.
Nkosi M Mandela (ANC) asked about progress of the Umzimvubu hydro-dam project in the Eastern Cape. When was the project going to be realised? Progress has been at a snail’s pace. He made reference to the Mvezo area, a rural community in the Eastern Cape where transport networks were a challenge. How was government ensuring that rural people have sufficient road networks? Also, existing institutions of higher learning were being left to rot whilst there was talk about establishment of two new universities. There was no rationale in that. He emphasised the need to strengthen South Africa’s boarders. What was being done to ensure the country’s sovereignty was protected? Weak borders facilitated an influx of illegal immigrants who went on to collapse certain developmental nodes in areas close to such borders.
Mr Gugile Nkwinti, Minister of Rural Development and Land Reform, in response, outlined government’s efforts to empower marginalised communities and small businesses. For instance, on Women’s Day, government launched a project that went by the name Mzansi Rural Women Cooperative Bank. R1 million had been budgeted for the bank to cater primarily for rural women. He acknowledged the disappointment due to the slow progress. Currently, an infrastructure master plan was in place to ensure that there were no silos in government planning and addressing the apartheid’s dichotomous development legacy was part of the master plan. Also, arable land in the rural parts of the country was being developed and its full utilisation was important. 
Ms Nomvula Mokonyane, Minister of Water and Sanitation, commented about water challenges. The issue has always been the storage capacity of water bodies and maintenance of existing infrastructure. The new water strategy sought to deal with water utilisation and conservation, which also entailed water harvesting. She acknowledged that reticulation and access to potable water was a key priority. On the Umzimvubu hydro-dam project, R75 million was recently set aside to launch the program. Traditional authorities within the area had been consulted and an alternative funding model for phase two had been devised. The Minister of Finance was expected to outline the financing framework soon.
Mr Andries Nel, Deputy Minister for Cooperative Governance and Traditional Affairs, indicated that he would give a presentation on government’s integrated urban development framework in Parliament on the following day and would address the issues identified by Members more comprehensively. Urban and rural development was inextricably linked. Thus the notion that government had to concentrate on rural rather than urban development was a false starting point. Managing urbanisation and addressing the apartheid spatial legacy was not solely a metro issue. The reality was that in as much as significant inroads had been made in service delivery and infrastructure rollout, much needed to be done to deal with integrated human development. He emphasised the need for integrated planning and implementation to reduce blockages. 
Mr Jeremy Cronin, Deputy Minister of Public Works, stated that the PICC was making efforts to facilitate the participation of black-owned companies in the construction space. One blockage that had been identified was the absence of social facilitation. The public sector was in a drive to ensure that there is sufficient facilitation, localisation and job creation within the communities. Capacitation of local people in partnership with local SMMEs was one key aspect of the strategy. Hence, government has co-opted to monitor the sustainability and durability of many cooperatives especially those operating in rural areas. Solar water heater rollout, which had however been delayed due to various reasons, and localisation of the manufacturing capacity through an expanded works programs approach was one such initiative.
Mr S Tsenoli, Deputy Speaker of Parliament, asked about information communication technology (ICT). What were the latest developments in that front? The PICC was a good example of what could work well if government coordinated its efforts, and ICT was one area which needed concerted effort. What initiatives were being taken in sourcing critical skills? Also, greening the economy as an ongoing campaign was noble and rehabilitation of rivers was another area which could yield commendable results.

Ms L Maseko (ANC) commented that research and development (R&D) was crucial and had to find meaningful expression on the PICC work. More funds had to be dedicated towards R&D to enhance the country’s competitive edge. She emphasised the need to decisively deal with vandalism and theft of public infrastructure.  Stern punitive measures should be taken against cable thieves and vandals. A strong message had to be sent as such acts were costing taxpayers.

Mr Gcwabaza (ANC) said he would like to see the extent of skills transfers through SMMEs. He asked for a complete breakdown of funds directed to state-owned companies (SOCs) which tie in with the work of the PICC. Complete coordination of developmental programs was key. Also, integrated infrastructural development was pivotal. Cases where a standalone clinic is built whilst no roads are provided to enable access, especially in rural areas, were cases in point and needed to be looked into.

Ms Y Phosa (ANC) wanted to know if the 20 year infrastructure development framework was now in place. She noted that the President had announced government’s plan to build six TVET colleges. She asked why this had been revised downwards to three. She asked the PICC to share its quarterly reports with Members to assist Committees in conducting their oversight mandate.
 
An ANC Member asked the PICC to shed light about the challenges stalling the completion of many projects. What plans were in place to prevent fronting to ensure black empowerment is effective? What systems had been put in place to make sure small businesses benefit from government infrastructural development initiatives? She agreed that poor infrastructure deprives rural people from access to services. Some of the plans were not being implemented because the planning did not speak to the resources allocated for such projects.

Ms J Fubbs (ANC) spoke of projects that are abandoned or buildings being condemned upon near completion. She urged the PICC to look into it moving forward. Also, the complementarity of inter-African trade was important and the country’s railroad infrastructure had to be developed mindful of the need for continental integration.

Minister Patel acknowledged that the engagement was introductory and all questions could not be exhausted. In response to questions from Members, the role of the PICC had to be understood. The PICC was for coordination purposes not usurping the work of government departments. It provides a framework to refine implementation. The implementation and accounting was the mandate of the respective departments. He underscored the need to usefully share ideas with Parliament. Also, the failure to achieve set targets has never been due to a lack of adequate pieces of legislation but a lack of implementation. As part of efforts its implementation initiatives, government has recently been dealing with collusion in the construction sector to bring down its cost structures. Anticipating the risks and dealing with them was a fundamental aspect of implementation.

On ICT development, the issue has many dimensions. One was high data costs amplifying the cost of doing business in a digital economy. This was a constraint in the effective generation of fresh entrepreneurial ideas. Thus, government had initiated an enquiry into high data costs mindful of the fact that data access and the digital divide deepens the long term inequities in society. The ongoing optic fibre and free Wi-Fi rollout was part of a host of measure to deal with same. He suggested that a series of meetings dealing with selected specific themes be held. A thematic approach would allow for a more coherent and systematic engagement.

The Chairperson appreciated the engagements and indicated that the chairpersons of economic cluster committees would facilitate such ongoing engagements with the executive, the PICC in particular.

The meeting was adjourned.


 

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