Economic Development Department Annual Performance Plan: DPME input

Meeting report

The Chairperson apologised for starting the meeting late, saying it was due to circumstances beyond the Committee’s control. They were preparing for the annual performance plans (APPs), and trying to ascertain whether they adhered to the national priorities and policy requirements. The financials also had to be aligned to those policy requirements and the particular APPs. It was important for the Committee to check this, because the portfolio of the Committee (economic development) was coordinating in nature, and the challenge was how to monitor a Department like the Department of Planning, Monitoring and Evaluation (DPME) that was not aimed at service delivery, but coordination and intervention. However, the DPME was crucial for holding other Departments accountable and providing the Committee with the tools necessary to exercise its function of oversight.

Economic Development Department: Draft APP

The presentation was made by Ms Edeshri Moodley, Acting Deputy Director General (DDG): Planning and Coordination, DPME, and Ms N Zuma, an economic expert in the Department.

They said departments were required to submit first and second draft APPs to the DPME every year by 31 August and 30 November respectively. The DPME provided recommendations to Departments on both drafts for the improvement of plans. The EDD had not submitted the first draft 2018/19 APP in August 2017, and the DPME had conducted an assessment of the second draft. The assessment had covered the alignment to the Medium Term Strategic Framework (MTSF) and technical compliance to planning principles

The main areas highlighted were:

Updating of Situational Analysis

• The EDD had not updated its situational analysis for the second draft APP;
• The situational analysis portrayed the current changes in the external and external environment of the Department and also outlined the challenges that may have a bearing on the achievement of its goals;
• It further outlined new opportunities and strategies the Department would embark on to address the identified challenges
• Updating of the situational analysis was crucial, as it reflected that the Department’s planning evidence was based on current issues in the micro and macro environment at large

Strategic Objectives and Performance Indicators

• The Department had revised the strategic objectives and there was alignment between the revised strategic plan and the 2018/19 APP;
• There was no distinction between the strategic objective targets and performance indicators targets. This was noted in all the programmes;
• Strategic objectives were high level outputs that the Department planned to achieve, which contributed to the achievement of the strategic goals and ideally should span over the medium term period;
• Performance indicators measured the deliverables which contributed towards the achievement of the strategic objectives

First Quarter Performance Overview

The Department had achieved over 78% of its targets for the first quarter in the core programmes 2 and 3. It should improve on the reasons for deviations to reflect the root cause for under-achievement, and improve the corrective actions to reflect the solutions to be implemented to ensure that the planned targets were achieved in future quarters.

The Department had reflected over-achievement in a number of its set targets for the first quarter. Examples of some of the achievements were the number of reports on black women and youth with access to employment and entrepreneurship opportunities, and the number of quarterly Cabinet level progress reports on infrastructure for strategic integrated projects (SIPs).

The Department had reflected under achievement in a number of its set targets for the first quarter. One of the under achieved targets was the number of infrastructure projects evaluated, unblocked, fast-tracked or facilitated, or project assessments completed. This was because unblockings were claimed after work had been completed and were dependent on escalations. Another was the number of Presidential Infrastructure Coordinating Council (PICC) meetings held and facilitated, as the availability of members had been limited, and meetings would accelerate towards the preparations for Cabinet.

Second Quarter Performance Overview

The Department had achieved over 71% of its set targets for the second quarter in the core programmes.It had not provided the reasons for the deviations and corrective actions for the under achievement, and it should provide the reasons for this.

Examples of some of the over achieved targets were the number of reports on social dialogue interventions to save and create jobs and reports on implementation of social accords, and the number of Cabinet and PICC strategic decisions on infrastructure implemented. Targeted initiatives to enhance the capacity, performance and outcomes of economic regulators had also been exceeded.

Examples of some of the under-achieved targets were the number of reports on support provided to provinces, and the number of PICC meetings held and facilitated.

Third Quarter Performance Overview

The Department had achieved over 81% of its set targets for the third quarter in the core programmes. Examples of some of the overachieved targets included the number of reports on New Growth Path (NGP) jobs drivers and coordination structures, the number of investment initiatives facilitated, fast-tracked and/or unblocked, and. the number of strategic intiatives to enhance the capacity, performance and outcomes of economic regulators.

Examples of some of the underachieved targets were the number of coordination actions to drive implementation of SIP 5 of the National Infrastructure Plan, and the number of reports produced on the funding allocations on township enterprises by Development Finance Institutions (DFIs) and government departments.

EDD Third Quarter Expenditure Analysis – Overview

Spending had amounted to R611.1 million, or 66.8% of the total available budget, against projected spending of R612.7 million. This was attributed to the Tirisano funds not being transferred due to an outstanding annual plan required prior to transferring money to the Industrial development Corporation (IDC) under Programme 3: investment, competition and trade.

In Programme 1: Administration, spending was R690 000 higher than approved projected spending of R62.2 million due to accrued legal costs from 2016/17 for the Department’s participation in public interest competition matters, where the expenditure were paid only during the first quarter of 2017/18. In Programme 2: Growth Path and Social Dialogue, R943 000 below the projected spending of R22.7 million by end of December 2017, due to vacant posts in the programme. The Department had spent 69.4% of its total budget for the programme to date. The under-spending and under-achievement of targets under this programme were both linked to the vacant posts that were not filled. In Programme 3: Investment, Competition and Trade Programme, spending had been R1.4 million lower than the projected spending of R525.2 million by the end of December 2017, due to delays in the finalisation of the annual plan which was required prior to transferring Tirisano funds to the IDC. The programme had spent 66.1% of its available budget to date.

Second Quarter Medium Term Strategic Framework Progress

Implementation of the local content designation policy had resulted in the creation of new industries such as bus manufacturing, locomotives, renewable energy, boat building and rail signaling, but compliance with designation remained a challenge. Factors affecting progress included:

• No central entry point. Not all tenders were advertised on an eTender publication portal, a single point of access to information on all tenders made by all public sector organisations at all spheres of government and SOCs.
• No mechanism to report and name non-complying entities. There was non-compliance in many procuring entities, either wittingly or not knowing how to go about implementing local procurement or a lack of knowledge of state local procurement programmes.
• An alternative funding model was required – capacity and high costs of local content verification.
• Corrective measures – currently there were no punitive measures or consequence management against non-compliance.
• Strengthened focus on localisation to prevent import leakages, with a major focus on compliance and enforcement of current provisions, including provisions to be included in state-owned entities’ (SOE’s) chief executive officers’ (CEOs’) performance contracts and shareholder compacts.
• The State had won the constitutional challenge brought against it regarding the introduction of a trade policy directive on exporting scrap metal. The directive was aimed at addressing the supply of metal to the domestic manufacturing industry as part of the National Infrastructure Plan, reducing carbon emissions and high energy use.
• The EDD and Department of Trade and Industry (DTI) had intervened on the procurement of a major tender for transformers by Tshwane, which was non-compliant.
• The draft Export Tax Guidelines and discussion document had been completed and would be presented to the Economic Cluster.

The Financial Sector Regulation Act, required to establish the Financial Sector Conduct Authority (FSCA) had been signed into law on 21 August 2017. Plans for the establishment of the FSCA were under way.

Challenges and Remedial Actions: Local Content

Government’s intervention involved the EDD, National Treasury (NT) and the DTI working on the identification of commodities to be considered for transversal contracting. Strategies were being developed for the clothing and textile industry and some of the pharmaceutical sub-sectors. The EDD had engaged the Coega IDZ regarding the placement of orders for imported transformers. The DPME, NT, DTI, EDD and DPME, supported by key procuring departments, would undertake an assessment project to determine where government departments, SOCs and agencies purchased goods and services, and to determine the level of local content procurement versus imports.

EDD’s Public Entities

The entities within the EDD were the Competition Commission, the Competition Tribunal, the Industrial Development Corporation and the International Trade Administration Commission (ITAC). Not all entities had complied with the framework for strategic planning and annual performance plans. Some entities did not even have budget programme structures, and not all of them were aligned to the MTSF. The alignments to the Department’s mandate were not always clear. Some entities had not been submitting quarterly reports to National Treasury.

Conclusion

• Economic growth was projected at 1.5% for 2018, slightly up from below the 1% anticipated last year.
• In the current economic environment, it was clear that both growth and jobs remained a core focus of government.
• The EDD had achieved most of its departmental targets, although this had not resulted in higher growth and job creation.
• A separate report with details of the project portfolio which included expenditure, jobs and milestones achieved, had been reported in quarterly SIPs reports that were submitted to the PICC.

Discussion

The Chairperson described the presentation as eye-opening. There were areas revealed where the Committee should have pursued the entities. The information provided showed that the Committee fell short in some areas, and that was why the briefing was important as it prepared the Committee to evaluate the APPs of the entities.

Mr P Atkinson (DA) referred to the challenges that were mentioned in the presentation regarding the quarterly performance reports of the public entities under the Economic Development Department (EDD).  He expressed surprise that the International Trade Administration Commission of South Africa (ITAC) had not submitted a single quarterly report to National Treasury, while the Competition Commission had produced only one quarterly report out of three. However, when it came to audits, these entities always seemed to do very well by having unqualified audits. He asked whether this lack of reporting would not impact the audits.

Ms A Mfulo (ANC) asked whether the DPME offered advice when they picked up challenges regarding compliance and reporting by entities. Didthe entities adhere to the advice when it was offered? Did the DPME request the EDD to perform its oversight role when challenges were detected in the process of monitoring? The EDD was the body that disbursed the money to the entities, and she requested information regarding the response of the EDD to tip offs.

Ms C Matsimbi (ANC) said her question was in line with that of Ms Mfulo. She asked what happened after the monitoring was done. What kind of support was the DPME giving to the EDD? Repetitive non-compliance was a concern and there was a need to put a stop to it. The presentation showed that there were many deviations that were occurring and no reasons were being provided for these deviations. She wondered what the point of monitoring and identifying deficiencies was if those responsible were not held accountable.

DPME’s response.

Ms Moodley said, in response to the first question, that the Auditor General (AG) would raise an audit finding when they were auditing the plans and reports of the public entities, but not of the EDD. As in the case of ITAC, the AG would raise the audit query with ITAC, but not the EDD.

Concerning the second question on advice, the DPME assessed the quarterly performance reports and provided written feedback to the Departments. Performance dialogues with National Treasury were also done, where plans of departments, as well as budgets, were reviewed. Then a dialogue was conducted with the concerned department, and that had proven to be beneficial. The performance dialogues were there to unblock any impediments to service delivery. Another accountability measure that had been embarked on was the impact tool, the management performance assessment tool. They had brought in a standard which evaluated whether a department assessed the plans of its public entities. In that way, they were trying to guide and gently push departments to do what they were supposed to be doing. That tool and standard was incorporated into the impact framework. The DPME had also introduced the platform for national departments and public entities. It was a community of practice for national departments like the EDD, DTI, Health and Education, and this community of practice dealt only with building capacity of the departments to provide support to the public entities. They were capacitated on issues to do with planning, budgeting and reporting, and the DPME urged them to use that enhanced capacity to support their entities.

On the last question, the AG used the principles that were embedded in the planning, reporting and monitoring mechanisms employed by the DPME. The AG audits the quarterly performance reports, the reasons for the deviations and the connective actions. The DPME was also encouraging the AG to start using their frameworks and they had started using them.

The Chairperson said the questions had been focused on the repeated actions of non-compliance on the part of the entities and the EDD, and whether that influenced the audit opinions or not. The issues that had just been raised had also been raised before at previous meetings, and the concern was whether the entities that were involved in deviations and non-compliance were heeding the advice and guidance of the DPME. Despite the expertise and guidance provided, the deviations had continued. There was a need for remedial action to be undertaken. She acknowledged that the Committee also had a role to play in ensuring compliance, and it was not running away from this responsibility.

On the second quarter medium term strategic framework (MTSF) report, she observed that the EDD had been given the responsibility of establishing the Financial Sector Conduct Authority (FSCA) and the appointments of the Commissioner and Deputy Commissioner. She asked whether this was the responsibility of the Department, or whether it was just in the cluster.

Ms Zuma replied that it was in the cluster, but that the EDD was leading the discussions, together with National Treasury.

Ms Coleman asked whether the FSCA fell under the mandate of the EDD

Ms Zuma replied that it fell under the National Treasury, but in the cluster it fell under the EDD.

The Chairperson said there was a need to verify that information, because the mandate of the EDD did not include overseeing the FSCA. If the FSCA was under the EDD, the Committee would have known. She presumed that the Minister responsible for the EDD may have been involved in the discussions in the cluster as an individual, but she doubted that the FSCA was under the Department’s mandate. This needed to be corrected. The same thing could be said about the Centre for Competition, Regulation and Economic Development (CCRED), which was not under the mandate of the EDD.

She was surprised that the DPME had reported that the EDD was not providing support to the provinces concerning the alignment of plans, because the information that the Committee had received was that this support was being provided. This information was in the quarterly reports of the EDD, and indicated that the one responsible was the Deputy Minister. Perhaps what was required was the interrogation of the reports.

The Committee felt that work was being done, as was evidenced by the infrastructure development that was happening at both the provincial and municipal levels. However, if the DPME was of the view that these developments were not being clearly recorded, then that should be looked at. It was evident that departments were shying away from targets in their planning, as the targets made it easy for a department to be held accountable.

Ms Zuma said the DPME was different from National Treasury, for example, which could withdraw funding in the case of non-compliance. The monitoring and evaluation process was understood theoretically by the departments, but not in practice. The DPME did not have a legislative mandate that could help to enforce compliance.

Ms Moodley agreed that there was a need to remedy the situation. On support to provincial departments, she said she was personally responsible for driving that process, which entailed the EDD calling all nine provincial departments together and coming up with a set of indicators aligned to the MTSF. In short, the EDD would be playing its oversight and support role as a national concurrent function department. Many meetings had been held for the Department -- more than four. Despite the efforts made by the team at the DPME, this process had never got off the ground because there was always something coming up. The sad part was that the provincial departments wanted this support and leadership from the Department, but it were not being provided.

She did not know what the EDD meant when it said it provided support to the provinces. She questioned what type of support it was and whether it was being used to support the work of the provincial departments. The process had been introduced in about ten or eleven concurrent function sectors. Social Development had it, as well as Health, Education, Cooperative Governance and a few others, so it was nothing new. It was important to understand what was meant by support, and it was also important to get the EDD more involved in the provincial concurrent function space.

Regarding the repetitive findings, these were shared with the AG, and the AG did audit the departments and their entities. There were, however, other platforms within the DPME, like the provincial planners’ forum, the national planners’ forum, and the community of practice for public entities, where different kinds of reports were profiled and the departments and entities were given support for how they could perform better by introducing certain processes. National Treasury was usually brought on board to see how they could incorporate their budget processes. She was optimistic that they would get better as they moved on.

The Chairperson said she did not believe that the DPME needed powers, but that they just needed to understand that they had set up in the Office of the Presidency for a particular purpose, primarily to assist the Presidency to have a wider view of what was happening in the departments.

The meeting was adjourned.