DTI, National Consumer Commission & NRCS Quarter 2 Performance

Meeting report

Briefing by the Department of Trade and Industry (DTI)

Mr Lionel October, Director-General, DTI: presented the report. The DTI has three main goals: industrialisation, transformation and reflective regulation. The overall picture emerging is that there has been a positive global economic growth over the 2nd quarter under review. Most of the big economies like the United States, European Union, Japan and China are recovering from the 2015 slow down. There has also been growth in most Sub Saharan countries. This is a positive for South Africa’s exports since there is demand for its products. The global output is projected to grow by 3.6 % in 2017 and 3.7 % in 2018 respectively. National Treasury (NT) revised South Africa’s projection downward to 0.7 for 2017. The economic growth for the quarter under review has been slow due to the drought, which has affected the output in agriculture. There has been a slight recovery in the mining and manufacturing sector. However, business and consumer confidence has dropped. When business confidence drops, it affects foreign direct investments (FDI) and people postpone their investment projects.

Despite the overall decrease in business confidence, some sectors have shown growth in business confidence. For instance, in the manufacturing sector, confidence among manufacturers rebounded. In the automobile industry, the new vehicle dealer’s confidence bounced back as well. In manufacturing 10 000 jobs were created, in trade 58 000, but there were job losses in construction and mining. The recovery in the primary agriculture sector has manage to influence the agro-processing sector. Generally, the employment prospects remain weak for the near term in line with poor domestic economic growth prospects. With business and consumer confidence at depressed levels, it is likely that this will not only result in reduced investment, but also weaker employment growth.

The country’s total exports grew by almost 10%, mainly due to the growth in demand for agricultural products, forestry, fishing, manufacturing and mining. Germany, China, United States, India and Japan were the top five export destinations in the second quarter of 2017. On the import side, the country’s imports grew by almost 4% to reach R273 billion in the 2nd quarter of 2017 from R264 billion in 1st Quarter 2017. The trade balance has been at the positive in the last three quarters

There are also serious risks to the country’s economic growth. These risks range from the geopolitical such as in North Korea, possible tightening or normalisation of monetary policies; possible currency wars amongst others. The key downside risks on the domestic front is the deterioration in the fiscal strength, as well as the negative domestic political developments. There is also likelihood of a further credit rating downgrade which increases the risk of foreign investors selling off their holdings in South African government bonds and other financial instruments. If the country gets a further downgrade, it will affect the currency, cost of capital and interest rates offered by banks.

To address the challenges being faced by the different sectors, the DTI introduced some incentives for the critical infrastructural programme: The DTI is funding the extension of the Brandvlei dam wall; has a joint project with the Provincial Departments and the Wine Industry Value Chain Round Table to revive investments in irrigation infrastructure such as dams and water channels; supported Mpact Paper recycling division through its incentives to launch a liquid packaging plant; and also supports Denel, which is one of the emerging manufacturers of high valued added defence equipment, and it is a bigger exporter.

Another important key objective of the DTI is to increase the buying of local products. Therefore, the DTI is working with NT to come up with a Standard Plan for Implementation of Regulation 8.4. The Regulation allows State Owned Entities to buy local products even if the product is not designated. Furthermore, the DTI solved the problem of solar water heaters for the Department of Energy (DoE). Previously, most of the solar water heaters were imported, but eleven local suppliers will be locally supplying solar water heaters to the DoE.

The country imports a lot of pharmaceutical products and medical devices. The DTI is working towards an accreditation programme by South African National Accreditation Systems to produce the medical devices locally. Some tenders were awarded to local manufacturers to produce devices such as sutures. There have been improvements in locomotive assembling. Transnet Freight Rail accepted 116 locomotives and 76 were assembled locally in Koedoespoort. Of 153 locomotives from General Electric South Africa Technologies (GE), 147 were also assembled in Koedoespoort. The first locomotives by Bombardier Transportation South Africa (BT) are undergoing trials and additional test runs.  In September 2017, three of the Class 23 E locomotives by BT pulled a train of 104 wagons loaded with manganese ore, over the Eagle’s Crag, the steepest track slot (12.5%) on the Manganese Line from Kimberley to Port Elizabeth.

Initiatives to improve the primary mineral processing and construction were done. The Thakadu group completed a Bankable Feasibility Study into the development of a high purity battery grade Nickel Sulphate (NISO4) from SA platinum producer and Lonmin’s crude Nickel Sulphate stream. The project received approvals for Black Industrialist Scheme for R50 million in September 2017. On the clothing textile sector, the DTI has been working with Mr Price Store so that it buys more products from local producers. Mr Price Store is no longer importing from the East, but buys from local textile producers, and there have been significant improvements in the quality of the locally manufactured clothing. Local producers are also exporting to the rest of the African continent. The DTI is committed to ensuring that the local manufacturers produce high valued textile products. Through the DTI incentives, R 9 billion was generated from the private sectors. Some of the approved projects that invested over a billion Rand are Volkswagen South Africa and the critical infrastructure for a retail centre in KwaDukuza Local Municipality. The DTI also participated at the Manufacturing Indaba in Gauteng Smart Procurement and signed a Memorandum of Understanding on the implementation of the Strategic Partnership Programme.

The DTI is working on smoothing trade with the Brazil, Russia, India and China (within BRICS). The DTI’s international trade division has been actively participating in the negotiations for the creation of trade agreements across the continent, for instance, the Tripartite Trade Agreement and Continental Free Trade Area. There were also negotiations to revive trade relations with Iran and recently an MOU with Chile. Despite the decline of business confidence, there are a lot of investments in the manufacturing sector. DTI achieved investment pipeline of R42.7 billion for the 2nd quarter. It co-chaired the 3rd South Africa- Indonesia Joint Trade Committee and inaugural Trade and Investment Committee Meetings with New Zealand and Australia. There was also a launch of the AB InBev packaging line in Alberton to the value of R1.3 billion and expansion of a brewery in Rosslyn to the value of R1.5 billion in July 2017. Furthermore, a formal relationship between the World Bank and DTI was entered to improve business processes that will lead to improved rankings in future.

The facilitation of the project planning for the implementation of One Stop Shops in Gauteng and KwaZulu-Natal are at an advanced stage. The DTI is working closely with the Department of Labour and Department Home Affairs to ease trade. In September 2017 a One Stop Shop for the Western Cape Province was launched, and Gauteng and KwaZulu-Natal Provinces are next. The DTI issue operating permits in the Special Economic Zones (SEZ) in Makhado and Musina. Each SEZ has a Company and Intellectual Property Commission registration centre and helps with registration of companies.  In terms of the Industrialist Programme (BI), 17 black industrialists will receive funding and 14 for non-financial support. The non-financial support is to assist BI to access markets and supply their products to SOE and other big private companies.  The Free State Provincial Government and the DTI signed a MoU.

The DTI also held nine education and awareness workshops in the Eastern Cape, North West and Mpumalanga. Furthermore, the Credit Life Insurance Regulations came into effect on 21 August 2017. The aim of this legislation is to protect consumers from abusive practice by credit providers. The DTI managed to process payments for all its creditors within 30 days.

The allocated budget for the DTI was R9.3 billion and it has used R3.8 billion and R5.4 billion is the   available budget. There was a freeze on a compensations budget in the Department. When people retire, the Department has not been filling the post, in order to reduce its expenditure. To further reduce its expenditure, international travels were reduced. In pursuit of the Department’s mandate to facilitate the transformation of the economy to promote industrial development, investment, competitiveness and employment creation, an amount of R1.5 billion was disbursed to companies. The Incentive claims are payable once all performance criteria agreed at application are met and verified. The DTI is very strict on the required documentations before approving investments and payments. Investors are required to submit bank statements showing how much money has been spend on an actual project. The DTI does not subsidise labour but only capital equipment and the machinery. Before the DTI pays, the equipment needed for the project to run should be installed and start functioning.

In terms of performance, the DTI achieved 83% of its target as per Annual Performance Plan. The achievements include the implementation of SEZ in Limpopo, Black Industrial programme, investments and Trade Agreements concluded with the continent, infrastructural development and invectives in different sectors.

Discussion
The Chairperson thanked the DG for its presentation invited members of the Committee to comment

Ms P Mantashe (ANC) said the Committee appreciates the work done by the DTI in trying to achieve its targets. She further went on to ask the DTI to inform the Committee on the progress of the revitalisation of industrial parks and when Members should expect the second phase of that programme. She further asked whether the 17 Black Industrialists (BI) assisted were in the entire country or in a specific province. Are there any improvements on employment rates in the provinces where you have assisted with the BI programme? The Minister of Trade and Industry in his budget speech informed the Committee that a meeting was scheduled with the rating agencies this week. What input was the DTI giving to those engagements with the rating agencies?  What is the real output of the AB InBev programme support on job creation. Having noticed the drought that affected the farmers in 2016, she asked when the Committee could expect the roll-out of dams and channels for water in places where vineyards contributed to exports. Were there engagements with the Department of Health on the purchase of homemade products? The Committee was informed that most of the products produced locally benefited other countries more than South Africans.

Ms S Van Schalkwyk (ANC) joined Ms Mantashe in appreciating the performance of the DTI. The DTI mentioned that through its industrial development initiatives 4 000 jobs are projected to be created. Could you please give the timeframe to expect these jobs? Can the DTI give a feedback on the actual jobs created in their future quarterly reports? What are your current vacant posts that you are not filling? What is the impact of not filling the vacant post on the current staff establishment and service delivery? On SEZ, how far is the DTI in rolling it out these to other rural provinces.

The Chairperson asked if the Western Cape drought is likely to affect the growth in agriculture which the DTI had mentioned earlier. What percentage of the national growth will be affected by the drought in Western Cape? Has DTI checked on the progress of localisation? Sometimes, programmes are discussed but are not properly implemented on the ground. Furthermore, the AG’s Report indicated problems on oversight responsibility, proper record keeping, daily and monthly controls. What mechanism has the DTI put in place to ensure effective internal financial management?

Mr October said there had been slight improvements for agriculture, but these improvements were affected by the avian flu, which was also present in Western Cape. As such, the DTI expects different results when the new statistics are released. This is the reason why the DTI made investments in the Brandvlei Dam. The DTI has been trying hard to use its programme, which is not meant for dams, to assist in the construction of dams. The DTI should be working towards economic infrastructural development, industrial parks etc. The exports from the agricultural sector are very important since agriculture contributes a lot of exports products, such as wine. The country’s vineyards are the biggest exporters of grapes to Europe. In this sector there is need for critical skills and infrastructure, which is why the DTI intervened to ensure sufficient water for agriculture.

Mr October responded that the Committee would get the details of the industrial parks programme. However, there has not been an extra budget for the industrial parks programme from National Treasury (NT). Therefore, the DTI did an internal reprioritisation and transferred funds from other incentive programmes and redirected them to industrial parks. The internal allocation for the industrial parks was increased because the DTI intended to increase the number of industrial parks. The second phase is underway, and a workshop with all the industrial parks in the provinces was convened. The DTI is trying to expedite the programme and ensure that provinces and municipalities make contributions towards industrial parks. When the full details are gathered, the Committee will be briefed. There is however, a Steering Committee consisting of the Provincial members and the parks themselves to drive the programme. This is a permanent programme which aims to bring the country’s industrial parks up to standard.
On the rating agencies, the Minister is meeting them on Thursday and the DTI has been engaging with the World Bank and International Monetary Fund to focus on the fundamental sectors of the country like mining and agriculture. As indicated in the presentation, there have been improvements in the agro-processing, agriculture, manufacturing and automobile industry, although there are issues affecting the mining sector. The country’s exports are growing even though they are driven by political factors. The Minister is working so that the country will not be downgraded since it will affect FDI and cost of capacity.
On the AB InBev project, the object is to improve localisation by growing local hubs and bringing more large scale black farmers on board. The first phase of the AB InBev was the expansion of the brewery and that is what the 2nd quarter covered only. The DTI has been engaging with the Department of Health (DoH) to designate more of their products. However, there were difficulties since the DoH needs continuous supplies, but the DTI’s focus is to have them buy locally products like medicines, bandages and medical devices.

Mr October replied to Ms Van Schalkwyk’s questions by highlighting that the compensation budget was frozen and certain divisions within the Department were not permitted to fill vacant posts because of reprioritisation. Some employees where moved from one division to another. However, the Minister’s mid-term budget indicated that there was some relief for the compensation budget. As such some posts will be filled by the end of the year.

On the question of SEZ, the DTI had intended to complete 10 SEZs and it achieved most of them including Musina, Makhado, Dube Trade Port, Atlantis, and Saldanha. Currently, there is an initiative to establish another SEZ in Mpumalanga, North West. Thereafter the DTI will move to Upington, Northern Cape and Eastern Cape

Ms Malebo Thompson, Deputy Director General: Incentive Administration and Development, DTI, further stated the 17-black industrialists approved are only for the 2nd Quarter. The DTI has approved more BI this year and has achieved the widest provincial split than in the previous years. Provinces that were not performing well in other incentives have showed improvements and interests in the BI programme, e.g. Eastern Cape, Limpopo, Western Cape, Free State, Mpumalanga. However, some are lacking behind like Northern Cape. The DTI will welcome any recommendations from the Committee on the right places to launch the programme. The programme was launched 18 months ago and, four projects have been successfully started. These are in the Western Cape; United Industrial Union in Ekurhuleni; Mthembu Tissue in KwaZulu-Natal and Maneli in Ekurhuleni. All exceeded the job targets that they had promised to the Department. Now, the projects approved by the DTI are expected to create 12000 direct jobs and 30 000 indirect jobs in the next 2 years. The DTI will in future give feedback to the Members on the approved the projects and those in operations as well as the direct and indirect jobs created.

Mr Stephen Hanival, Chief Financial Officer, responded to the Chairperson’s question concerning the AG’s Report and his findings. It should be noted that the findings were on performance management, accuracy and reliability of the DTI’s Annual Report. Certain control weaknesses were identified during the audit process, but they were not significant to affect the final audit report. The AG stated that there are different lines of defence for internal management control mechanisms. One is to put management controls to increase verification, review, increased due diligence on the reported performance information. The DTI has put a plan in place and each division manager is accountable and responsible for its reported information. The other level of defence is internal audits, which looks at the document and provided evidence to verify the authenticity of the reported information. There is already a plan in place to ensure that the control environment of the Department is effective.

Ms Thompson added that on Agro-processing, there were 30 projects which the Department will be adjudicating over in the next two weeks and at least 15 would be approved. By the end of the year, at least 40 incentive projects would have been approved for the agro-processing.

Mr October, on the BI programme, said the DTI looks at demand for products being produced. To address the problem facing the country’s economy, the DTI took some black industrialist to Namibia and Uganda to identify markets in those countries and make some investment in those countries. In Namibia there were good outcomes since the black industrialist managed to secure export orders.

Ms Mantashe said she understood that demand is a big issue, but the Committee and the Department should not forget the manifesto given to people wherein a lot of jobs were promised. The Department should give feedback because members would also want to report back to their constituencies.

The Chairperson reminded Mr October that his question on localisation had not been answered.

Mr October replied that the DTI has taken a few initiatives to avoid problems that they have had with Transnet and Passenger Rail Agency of South Africa (PRASA). The Minister arranged a meeting with the Minister of Public Entities and a technical working group to work with Transnet was formed to ensure that it meets the designation targets. The DTI further proposed to bring the AG’s reports in those audits. Meetings were held with the AG to ensure that there is compliance with designation regulations. When it comes to verifications and inspections, there has been some resistance from some SOEs who do not want to pay the South Africa Bureau of Standards for it to conduct verifications. The main solution is to ensure that the responsibility for the implementation of designation must rest with the Chief Executive Officers and Board of the SOEs and they should be audited to comply with the procurement regulations. It must be viewed as an irregular act if the procurement regulations are not implemented.  

The Chairpersons thanked the DTI for its presentation

Briefing by National Consumer Commission (NCC)
Mr Ebrahim Mohamed, Commissioner, NCC, briefed the Committee on the NCC’s financial and non-financial performance. On key highlights, the NCC’s timeshare enquiry progressed well and much of the work was done in the second quarter. The NCC conducted public hearings throughout South Africa and completed its interactions with consumers in all nine provinces. Two were held in Gauteng because of the demand from consumers to put their cases before the NCC. What remains is for the Enquiry Panel to engage with the relevant industry players and regulators. The enquiry is very important because consumers in South Africa often enter into perpetual contracts because of misrepresentations by timeshare companies.

The correct labelling of consumer products, especially food products is another important highlight. The NCC and other government departments like the Department of Health; Agriculture, Forestry and Fisheries; and South African Police Service conducted a raid on a bakery, South Bakels, in Free State. South Bakels is a company that has been operating in South Africa for a number of years and has depots in different parts of the country. The NCC received a video clip of that company wherein it relabelled expired goods and sold them. The NCC went to the depot and managed to close it temporarily and two of its managers resigned.

The question of electronic data and prepaid voucher needs intervention. The major telecom companies sell data which expires within a specified period. In terms of National Credit Act (NCA) if a prepaid voucher has been paid for, it must not expire within 3 years, but telecom companies do not comply with this provision. The prepaid voucher is regarded by the NCA as property of the consumer until it is redeemed or expired after 3 years and must be treated as money belonging to the consumer. The telecoms do not do that. The Independent Communications Authority of South Africa (ICASA) is the regulator of electronic data for telecoms and the NCC has been engaging with the ICASA so that the data which has not been used by the consumer must be paid back to the consumer in the form of money.

Furthermore, the NCC is working on the Opt Out Register system. National Treasury has been assisting the NCC financially to conduct a feasibility study with transactional advisors. A transactional advisor was appointed. Initially the NCC had intended to explore the Public Private Partnership (PPP) option to implement the Opt-Out Register. However, the feasibility study recommended an alternative option which will result in the target being amended since the existing target only relates to the PPP process. This has delayed the process since the PPP option was at an advanced stage and the NCC was about to start with its procurement processes.

Moreover, in terms of the Media analysis for the second quarter, the NCC did exceptionally well. During the first quarter the NCC had regular media interactions which resulted in 46 national and regional radio interviews, 12 television interviews, and 54 newspapers and online article mentions. All of them were cost free for the NCC and there was no negative reporting.

On achievements against planned targets, the NCC achieved its ICT Strategy target but however, failed to resolve all the complaints referred or issued with non-referrals on an average of 20 working days. The reason for this was the matters are referred to the Alternative Dispute Resolution Agency which the Commission uses to resolve complaints. Some matters were referred to the NCC. sometimes it takes long to come up with a solution because the role of the NCC is not to mediate, but investigate prohibited conduct. It is difficult to investigate all the matters and the NCC is working with the provincial offices to deal with the matters in their provinces and take them to consumer courts. The NCC had planned to conduct research on matters relating to consumer protection and on the determination of national norms and standards in terms of the Consumer Protection Act. This was not achieved because of the delays in the finalisation of terms of reference.  Consequence management is being contemplated in this area. The NCC received requests for explanatory notes which are non-binding opinions for the interpretation of provisions of the CPA. However, this has not been achieved. These requests usually come from consumers, lawyers and the NCC’s legal division deals with such matters. The NCC was supposed to have 7 workshops for the first two quarters. It conducted 7 workshops but not as it had indicated on the annual plan.

Ms Ntsobe Nkoana, Head: Finance, NCC, proceeded to report on the entity’s financial management and AG’s findings. The NCC has managed to implement some of the recommendations from the AG’s findings. Out of all the recommendations, 32% were resolved and some are in the process of being addressed. These relate to the investigation of irregular expenditure, ICT management systems, technical indicators in the APP. The NCC have also discussed with the AG to conduct an early interim audit to assist the entity to get a clean audit. This will ensure that the recommendations are addressed as early as possible and avoid negative outcomes at the end of the year. This progress has been reported to the executive authority, risk committee, oversight and assurance partners. The commissioner is monitoring the progress to ensure that findings are fully implemented. On the financial performance, the NCC had a budget of R 54 million for the whole financial year and R 28.2 million has been spent already. R 26 million is still available for the third and fourth quarter. The payment turnaround has reduced to one week; however disputed payments take up to 30 days.

Discussion
Ms Mantashe asked for clarification on the meaning of Opt Out Register. Why has NCC not addressed the irregular expenditure highlighted by the AG? Do you have an internal auditor? If yes, what are his/her duties? Is he/she not performing? Why do you need to call an external auditor twice a year?

The Chairperson asked whether there should be an action taken or amendment to address the timeshare and perpetual contracts that consumers sign, to avoid it from happening. What was the action taken against South Bakels for changing food labels and selling food that that had expired? Was there any prosecution instituted since this puts consumer in danger? With regards to the expiry of data which is prohibited by the NCA, what consequences are available when the network providers do not comply with the NCA? What can we do about it, are there any penalties in the Act?

Ms Mantashe further asked if the consequences for South Bakels company were directed to individuals or the company itself since the people who were dismissed were working for the company.

Mr Mohammed replied to the Chairperson’s question on timeshare and perpetuity of contracts. A panel was established to make recommendations that will indicate whether there are any amendments to the legislations that are necessary. The NCC is still waiting for the report and it will report fully to the Committee when the report is completed.

Ms Thezi Mabuza, Deputy Commissioner, NCC, explained to Ms Mantashe that an Opt Out Register is a system that allows consumers to pre-emptively block messages from service providers. The NCC is empowered by the Act to set up such a system to assist consumers to protect their private information so that people do not get unnecessary messages from service providers. When a consumer has registered with the Opt Out Register, all the messages are automatically blocked, and a consumer will not have to regularly opt out. When service provider wants to send messages to consumers, they will visit the NCC to verify the cell phone numbers, email addresses of consumers who have Opted Out so that they do not send message or information to those consumers. Therefore, when a consumer who has opted out receives the messages from a service provider, the NCC will investigate the company to understand how it managed to get the consumer’s information. If there are some violations, the NCC will prosecute based on the evidence gathered. It is a criminal conduct to access personal information of consumers and the system helps us to gather evidence. In other words, opt out is an electronic system updated with security features which the NCC is establishing.

When the NCC benchmarked for the Opt Out programme, it assumed that the registry would have lots of millions in terms of the yardstick, but what it received is that for the next three years, it expects R63 million. According to National Treasury, such a system does not qualify as a Public Private Partnership (PPP). NT advised the NCC to get funding and that marketers should clean their records against the NCC. NT advised that for the programme to be self-sustaining, there is need to establish a trading entity. The Act says all the moneys are collected, including the fines, must be directed to NT. However, NT suggested that when moneys are collected, such funds should not go to the NT but channelled toward investigation of the Opt Out registers. However, these are just options available which must be discussed with the DG of DTI and the Minister. Setting up an Opt Out Register is a mandate which has not been funded and there is need for more funding to make it work.

Ms Mabuza responded to the Chairperson’s question on incorrect labelling of food by South Bakels. Three regulators are working on the same matter. The NCC was the lead in relation to the defacing because the defacing is a criminal matter in its nature. Based on the investigation, the NCC will be able to follow the Act which criminalises incorrect labelling of food products or selling unsafe foodstuffs. The NCC cannot go to lay a charge at the South African Police Service without concluding its own investigation. For the NCC to preserve the evidence, it applied for a search warrant and after concluding the investigation, it will then go and lay criminal charges against the perpetrators using the NCC legislation. This will help with getting a conviction if there is sufficient evidence.

On the question of expiry of data, there were disagreements on the interpretation of section 63 of Consumer Protection Act (CPA) as to whether data is a good or service. The reason why the NCC set up a Task Team with ICASA is because, it wanted all the telecoms companies to come to the entity and present how they deal with the funds collected from data. When they presented, the NCC noted that the money from the data is not kept in trust for consumers but declared as profits in the companies’ books. The NCC vehemently disagreed with the companies on how they deal with the money collected from data or prepaid vouchers. The NCC noted that the CPA was not clear as to what a voucher is and what data is, but that is not an issue now. With the provisions available, the telecoms companies must pay the money back to the consumer when they change to a new sim cards or pay it back when the consume moves to another network provide.

Ms Nkoana responded to the question of irregular expenditure. Most of the recommendations from the AG were addressed. There was a recommendation for policy review, which the NCC has already addressed. Another recommendation was reviewing the business processes relating to supply chain management SCM processes, which has also been done. Another was the review of the checklist to align with the business processes and the NCC has addressed it. The outstanding issues are investigations and consequences management. The NCC outsourced internal audit function. In terms of the AG coming to the entity twice a year, the NCC’s view is that it is better to be audited in the first and second quarter. The reason is that if there are any recommendations to be implemented, the entity can work on them as soon as possible.  This would also give the entity time to correct all its mistakes and alleviate the pressure before the year ends. The idea is splitting the year into two parts without incurring any additional expenses.

Mr Mohammed, added that the idea of two audits in one financial year is to ensure that the NCC gets clean audits at the end the year. When its first six months books are audited, the entity will be able to correct any mistakes. The NCC has been struggling in the past and two audits would assist the entity to get clean audits. The AG also thinks that it is a good idea to conduct two audits.

Mr October said for timeshare contracts, there is a view that there might be a need for legislative regulatory amendments, but the DTI is still awaiting a full investigation to be completed. Furthermore, the DTI has a clean audit campaign and close to 10 entities achieved a clean audit. The DTI had meetings with the NCC and the idea is that they should also get clean audits. Therefore, the NCC’s proposal for two audits is a mechanism to help the entity achieve clean audits

The Chairperson said that data costs consumers billions of Rands while the companies are making profits. The amendments to the CPA should be prioritised to address this problem. It seems as if it is only in South Africa where data expires but in other countries consumers get paid their money back or value for their money. The DTI and NCC should prioritise this issue and report back to the Committee on progress as soon as possible.

Ms Mantashe said her major concern was whether the NCC has an internal auditor. If so, is the person performing? One of the duties of the Human Resource Manager is to place competent persons in the right positions. Have NCC filled all the vacant posts in your entity? If not, why not?

Ms Mabuza replied that in the post structure of the NCC, there is no position of an internal audit. Hence, the entity outsourced it when it started because it did not have the capacity. When the NCC was established, there were many positions but because the entity’s budget has never increased since its establishment, it therefore can only afford to employ people in critical positions.  However, the NCC is engaging with the DG of the Department to assist the entity where it needs guidance. The DG is also providing capacity guidance and support. Furthermore, the NCC engages with the AG to ensure that early signs are addressed.

MrMohamed added that the NCC outsourced the function of an internal audit because it does not have enough funding for all posts. Some posts are not funded. All the funded posts are about to be filled and soon 100% of all the funded posts will be filled.

Mr October said the DTI has been meeting with the NCC to assist the entity with filling most of its vacant posts. The same problems were raised by the previous Commissioner and the DTI is working with the NCC to address it.

Ms Mantashe said outsourcing is not the best way to do things because it is sometimes expensive and attracts corruption. She stated that she does not support outsourcing.

Briefing by the National Regulator for Compulsory Specifications (NRCS)
Mr Edward Mamadise, Acting Chief Executive Officer, NRCS, presented the NRCS report. He started with the key highlights of the entity. The NRCS conducted 6 418 inspections of fishery and associated product consignments and facilities. The entity further conducted 6 084 inspections for automotive, electro-technical, chemicals, materials and legal metrology related products. When conducting these inspections, it found non-compliant products worth R106,5 million in the market. The composition of the non-compliant products found were electro-technical products and food products imported from India, Vietnam, Ecuador, China, Panama, Argentina and Indonesia. Non-compliance was also found in the safety footwear, non-pressure paraffin stoves, plastic carrier and Flat bags and Swimming Aids. In the automotive non-compliance was found in motorcycle helmets, tyres, incandescent lamps, child restraints, headlights and brake fluid. Legal Metrology - R83,5 million worth of products were found to be non-compliant. Furthermore, because of an inspection deferred to Legal Metrology (LM), Food and Associated Industry (FAI) unit found noncompliance of 3000 units of squid tentacles, imported by a Packer based in Atlantis, were found short mass.

The NRCS did not receive cases on the National Building Regulations during the quarter. This was mainly because Section 9 National Building Act was declared unconstitutional by the Johannesburg High Court. That provision gave the review body powers to adjudicate on any matters. Now that the section was declared unconstitutional, the NRCS did not adjudicate over any matters. However, the NRCS is still awaiting the confirmation of the constitutionality of that provision by the Constitutional Court.

Furthermore, the NRCS managed to have Compulsory Specifications (VCs) published by the DTI for electric cables with extruded solid dielectric insulation for fixed installations electrical and electronic apparatus on the 18th August 2017. The VC submitted were also approved by the CEO, and one amended VC of canned fish was submitted to the DITI for first gazetting. The NRCS conducted 6 084 inspections against a target of 5452 for automotive, electro-technical, chemicals, materials and legal metrology related products. More so, 1 050 inspections conducted on locally produced frozen products and fishery and canned meat processing factories and vessels against a target of 1110 for the first half of the year.  Again, 84% (409 out of 487) of all gaming approval applications processed within 30 calendar days. The NRCS managed to approve more applications than in the previous year.

The NRCS also managed to inform and educate consumers and other stakeholders about its work and compliance awareness.16 awareness campaigns and sessions were held in Mpumalanga, KwaZulu-Natal, North West, Limpopo and Northern Cape. To optimally capacitate the institution two new permanent appointments were made and there were six terminations within the organisation. At the end of the 2nd quarter the NRCS had thirty-three (33) budgeted vacancies which represents a 10,3% vacancy rate. The critical vacancies that were not filled are in the process of being filled. To strengthen the entity’s internal audit management system, it created new a vacancy of Chief Audit Executive. Furthermore, the position of Chief Information Officer (CIO) and Project Manager (PM) were created even though they were not on the initial vacancy structure. The CIO and PM will assist with implementation of the ICT modernisation project. The CIO position replaced the position of Senior Manager. The NRCS managed to award 16 bursaries to deserving applicants and to train 139 employees during the first quarter. In terms of labour relations matters, there were three grievances during the second quarter and were resolved. Two of the employees took the matters to the Commission for Conciliation, Mediation and Arbitration.

The AG’s report had a total of 40 findings and 16 were addressed, but 24 are work in progress. The NRCS has put in place 45 action plans to address these findings. The NRCS had a budget of R81 539 million from the DTI. The total expenditure against the budget left a surplus of R20 082 million. The financial revenue composition consisted of transfers from the DTI, levies from compulsory specifications, levy audits, interest income, goods and services. The financial expenditure composition included compensation for employees, goods and services. The AG’s reported also indicated that the risk management in terms of finance management and compliance management remained as one of the biggest challenges.

The ICT Modernisation programme is a digital way of doing things, driven by factors such as rising costs and a need for organisational agility. The project was delayed and the NRCS is currently in the processing of appointing a service provider to assist with business process improvements, change management, revenue qualification, automation of NRCS operational processes which include collaboration with other key stakeholders i.e. South African Revenue Services and Customs. The expected date of appointment of a service provider is February 2018. The DTI recommended that the NRCS should seek assistance from the Companies and Intellectual Property Commission (CIPC) and the entity managed engage with the CIPC. The CIPC will assist the task team based on the CIPC modernisation experience. Furthermore, on 20 November 2017, the NRCS will conduct interviews for the appointment a CIO and a Project Manager to drive the project. The entity anticipates implementing the project by 2019.The nature of the qualification needed to implement ICT systems is a technical one. The NRCS and the AG agreed that a manual plan must be developed to address the qualification in the current financial year. As such the entity is already in the process of developing a manual plan to ensure that the organisation achieves an unqualified audit at the end of the financial year.

The entity encounters several challenges ranging from operational, border enforcement and revenue. Some of the operational challenges are high transportation and storage costs for confiscated goods, long turnaround times and capacity constraints at the test houses compromises the effectiveness of the Regulator. In terms of border enforcement challenges, the inadequate information supplied on the bill of entry and shipping manifests, high number of abandoned goods at ports of entry which results in high transportation and storage costs after confiscation are huge challenges. The main revenue challenges that confronted the entity include a decline economic activity impacting revenue collection and audit qualification

Discussion
The Chairperson thanked the NRCS for its presentation and asked the Committee to make comments.

Ms Mantashe said the Committee appreciated the improvements in the NRCS. However, she wanted to know if the entity has already appointed a CIO and PM for the ICT modernisation project. The staff turnover in the entity was worrying since it must train and continue retraining employees which will affect its performance at some time.

Ms Van Schalkwyk asked if the entity would achieve its ICT modernisation targets before the end of the current financial year. The current compensation rate for employees shows that there are 33 vacant posts. The report indicated that there were three labour grievances, but there is information to the effect that contracts of six employees were terminated. She asked the NRCS to elaborate on whether these employees were going to be reemployed. The actual post structure also showed six positions which were totally removed, why were these positions removed? How do you plan to address the vacancy rate in the entity? Could you also provide the Committee with information on the labour relations of the management with employees? Could the Committee expect total labour security in the entity or unrest?

Ms Theko welcomed the report and said there have been improvements as compared to the last report received from the entity. She stated that the action plan to be taken against the Audit findings was not clear, she asked for clarification. What is the intervention that the entity is taking to address the problems indicated by the AG? You have reappointed two employees out of the six who were dismissed? Have you filled all the vacant posts that are critical for proper functioning of the entity in terms of internal audit?

The Chairperson asked what the entity had done to address the risk management issues that the AG indicated, specifically on financial and compliance management. According to the AG’s Report the financial management and compliance has not been impressive.

Mr Mamadise replied to the Chairperson’s question saying that finance and compliance management in the entity were the two areas that the AG indicated as critical areas that need a lot of attention. These two relate to the technical qualification completeness of revenue, the need to update finance polices and cut off period for levies. The entity is in the process of finalising finance. The policies have been submitted for approval. By the end of November 2017, all finance policies would have been updated and approved. There are also interventions for qualifications being put in place. Part of the solution lies in the ICT modernisation. However, in view of the delays for implementation of the ICT modernisation programme, the entity has decided on a manual project plan to clear the qualification. As such the NRCS is working on improving its internal control environment with the manual system before it can implement the ICT programme.

Mr Mamadise replied to Ms Theko’s question and highlighted that the AG’s report had 40 findings. The NRCS has implemented action plans to address all the 40 findings. To address the 40 findings, the entity is required to have 45 actions plans. Currently 16 findings have been addressed and 24 are remaining. The NRCS is also working to stabilise the labour environment for its employees. The environment was volatile. Part of the intervention put in place is to regularly meet with organised labour and partner with them so that they are not left out. Management sometimes also feels disempowered because of the strength of the organised labour. However, the labour environment has settled even though there are still outstanding issues from previous agreements concluded like the CDP for support staff. The entity has engaged with the DTI, which recently informed the entity that they have a legal opinion for CDP support staff. Further, the entity filled some posts e.g. the Chief Financial Officer (CFO) and some are in the process of being filled. The position of the Deputy CFO was replaced with the creation of the new position Chief Operating Officer which has already been advised. The internal audit is in place and there is an Internal Audit Manager. However, due to the limitations within the human resource department the Internal Audit sometimes outsource assistance from external auditors.

He further replied to Ms Van Schalkwyk’s question. There are challenges within the ICT modernisation projects. When the project was started by the previous CEO, the commitment was that, the ICT project should be completed by end of December 2017. However, the CEO and CIO subsequently resigned leaving the entity with important vacancies that needed to be occupied. In the process of trying to implement the ICT modernisation, the entity discovered that it did have an approved modernisation concept document and an approved master system plan to inform the implementation. Therefore, the NRCS needed to ensure that these are in place. Furthermore, the ICT Steering Committee was not functional, and the entity needed to recruit new members to constitute the committee which would assist the entity with expert advice.

Mr Edward Matemba, Strategy and Risk Manager for NRCS, said that the six terminations were for two-year contracts that had ended. Two of those were appointed permanently and other four left the organisation.

Ms Rahimoonisha Mimi Abdool, CFO, NRCS, said the two findings in the AG’s report on financial management and compliance were due the unqualified audit opinions. This was a result of weaknesses in the internal control, governance, which is a warning for the entity to address by the end of March 2018. The entity also submitted the Plans to the Committee on 09 October 2017 indicating how it will address these two critical areas (finance management and procurement compliances) raised by the AG. The plans have been implemented already and the entity is now working on implementation and evaluation of improvements on a weekly basis.

Ms Mantashe said the Committee should be updated on the funding models. For the past for two years there has been a challenge in exploring funding methods especially for legal metrology. What is the position of legal metrology?

M Mamadise replied that the CFO is working on a project for a funding model. There is a mandate to implement legal metrology, but the funding to implement is not available. However, a proposal for funding was submitted to the DTI and the entity is still waiting for a response

Mr October replied the DTI requires all the entities to have their house in order before the DTI can approach National Treasury. The DTI developed a plan to solve the revenue management system, but the labour unrest in the NRCS and SABS has been disturbing. These two are the only entities that had a full strike. The DG met with both entities and Trade Unions to solve the problem raised by employees. The DTI also received a mandate from both the management of the entities and the trade union that they will work together to deal with the problems. Furthermore, the DTI managed to solve the problems which NAMISA was experiencing. The Department will report in 2018 as to the solutions taken. NAMISA has been able to achieve clean audits, therefore it was easier to negotiate the increases for the budget for machinery and equipment. NRCS has a revenue stream and the Department will be able to assist the NRCS, but the entity should first solve its internal management systems, the revenue collection system and issues raised by the AG.

The Chairperson thanked the delegates from the NRCS for their presentation.

Tomorrow’s meeting would start at 8:30 with the briefing by the CIPC on its financial and non-financial performance of the second quarter.

Adoption of minutes
Minutes of 18 August 2017 were withdrawn since they had errors to be corrected the following day- 01 November 2017.

16 May 2017: The minutes were adopted with minor amendments.

01 August 2017: The minutes were adopted.

05 September 2017: The minutes were adopted with amendments.

13 September 2017: Minutes were adopted.

14 September 2017: Minutes were adopted.

3 October 2017: The minutes were adopted with amendments.

4 October 2017: The Chairperson highlighted that the attendance register was not circulated on time, and said it should not happen again. The minutes were adopted.

5 October 2017: The minutes were adopted.

10 October 2017: The minutes were adopted.

17 October 2017: The minutes were adopted.

24 October 2017: The minutes were adopted.

Committee business
The Chairperson informed the Committee Members that another meeting was to be held on 01 November 2017.

The meeting was adjourned