Documemts handed out: Broad-Based Black Economic Empowerment Act 53 of 2003 as Amended by Act 46 of 2013 (Booklet)
The Portfolio Committee on Trade and Industry dealt with two matters in the meeting: The Strategic Plan for the B-BBEE Commission 2018/19 - 2020/21 and a follow-up engagement on the 2018/19 Annual Performance Plan of the Department of Trade and Industry.
The B-BBEE Commission recognised the need for the acceleration of B-BBEE and was intervening where B-BBEE agreements had not been properly executed. Fraudulent B-BBEE certificates had been discovered but the most common contraventions of the B-BBEE code related to instances of fronting. The apparent delay in reporting on cases was explained by the time that it took to investigate cases, especially with a limited number of investigators, and the legislative requirement to give the entity 30 days to respond to the Commission’s findings. The Commission wanted a change in the legislation so that it could publish relevant information about cases timeously for educative and educational purposes. Most complaints came from the Mining sector, but that could have been because several people from the same community complained about the same thing. Most complaints were around ownership and fronting.
Both companies and government departments had to provide statistics annually on B-BBEE compliance. Many government departments did not comply with the requirement as they believed that the B-BBEE compliance requirements did not apply to government departments. The lack of implementation of the B-BBEE Act by organs of state was frustrating as those were the bodies that had leverage to ensure implementation of the legislation by private companies. Data was essential for measuring progress in the black empowerment progress in the country.
The main challenges facing the Commission were the lack of budget, human resource constraints and suitable accommodation. National Treasury had not allocated additional funding for the entity and DTI had funded the Commission out of its own budget. No regulatory body in the country would ever have enough money so the Commission had planned according to the funds available to it. The Commission had a budget of R123 million per annum, of which R78.5 million was allocated to the compensation of employees.
Members requested further details about complaints made in respect of B-BBEE. One Member raised a number of technical issues in the report and presentation. Members asked what the Commission’s plan was to get government departments to report - were there discussions at ministerial or Director-General level? In respect of the initiated investigations, a Member asked if the investigation into South African Social Services Agency (SASSA) related to Cash Paymaster Services (CPS). How long did it take to sort out the documentation relating to a B-BBEE deal? Which companies had refused to give documents? What was the status of memoranda of understanding with related entities such as the South African Revenue Services? Was it possible to criminalise fronting?
The meeting turned its attention to the outstanding questions from the meeting of 20 March 2018 which had dealt with the Annual Performance Plan 2018/19 of the Department of Trade and Industry. Three issues were outstanding: the Auditor General’s Report, incentives and economic zones.
The Department had obtained a clean audit for a number of years and the only outstanding matter of discussion with the Auditor General was performance information. The Department had been required to reformulate its targets according to the SMART principle in line with the National Development Plan. Economists drove the Department, so it was trying to set economic targets.
The Department explained the role of incentives, industrialisation and jobs. In the Department’s incentive programme there had to be job retention or job expansion, otherwise the incentive was not paid. As many countries offered an incentive programme, those that did not offer incentives lost their industries. A good example was the case in Australia where the automotive industries left the country following the withdrawal of incentives. South Africa could not afford to do that as manufacturing employed 1.7 million people and sustained 5 million jobs in South Africa. The automotive industry made up 33% of manufacturing jobs in the country. Investment in machinery and equipment and leverage of those requirements was the way for industry to advance.
There were currently eight special economic zones, with Coega in the Eastern Cape having been the first special economic zone. The zones worked on a very simple principle of collaboration between state, province and city. Government provided world class infrastructure in respect of electricity, roads and so on. Upfront costs of a special economic zone were high. Infrastructure and the top structure of actual factories were a national responsibility while the province was responsible for the operational level.
13 Industrial Parks had been completed specifically to accommodate the growing black manufacturing businesses and were located in areas that had been neglected over the past 50 years. That was the growth engine for the economy as there was no shortage of companies interested in the industrial parks.
The Gambling Board complaints had been around a conflict of interest and a lack of management skills. The Board had been removed and the entity had been put under Administration. The entity had been turned around and had obtained a clean audit. The idea was to establish a Regulator, as per the Act, but there would be no Board per se. There was no fiduciary duty as the Gambling Board was concerned mostly with regulating the industry.
A Committee Member asked how many of the people named in the Gambling Board report had been criminally charged. He also wanted a list of industrial parks in order to visit them. What did municipalities offer to attract investors to the industrial parks? Where was the business plan for industrial parks? What was the current the status of the special economic zones at Nkomazi in Mpumalanga and in Musina in Limpopo?
The Acting Chairperson welcomed the Director-General of the Department of Trade and Industry and the Broad-Based Black Economic Empowerment Commission and explained that the Chairperson was away on International Committee business in Brussels. He invited the Commission to make its presentation without delay.
Strategic Plan of the Broad-Based Black Economic Empowerment Commission (B-BBEE) 2018/19 - 2020/21
Ms Zodwa Ntuli, Chairperson, B-BBEE Commission indicated that she would report on activities completed so that the Committee could give direction for the rest of the financial year, if necessary. The Commission was happy to take direction from the Committee. In addition to the presentations, the Commission had provided a list of investigations, but some could not be investigated as the actions had occurred before the Amendment to the Act. The B-BBEE Act 53 of 2003 had been amended as per Act 46 of 2013. The Commission would be happy to elaborate for Members who had questions. She would be assisted in the presentation by Busisiwa Ngwenya, Director at the B-BBEE Commission and Joseph Melodi, Acting Senior Manager, Enforcements and Investigations at the Commission.
The Commission recognised the need for the acceleration of B-BBEE and the Commission was hoping to catch up on a decade of a lack of proper management of B-BBEE. The Commission could intervene where B-BBEE agreements had not been properly executed. Fraudulent certificates could be picked up. Websites claimed B-BBEE status, but site visits showed that that was not the case. The most common contraventions of the B-BBEE code related to instances of fronting.
Ms Ntuli explained what the legislation allowed the Commission to do in terms of reporting on cases. Where the Commission investigated and found something wrong, it had to give the entity 30 days to respond. Findings could only be published after the respondent had been given an opportunity to respond to the decision and to indicate whether it would be accepting the findings or whether it would be taking the decision on review. If the Commission decided to prosecute a company, the Commission could not publish details of the case until the NPA had made a decision as to whether it would prosecute or not. The Commission, therefore, wanted a change in the legislation so that it could publish relevant information about cases timeously for educative and educational purposes. All transactions above R25 million had to be registered for B-BBEE compliance. The Commission received the relevant documents and had 90 days to give feedback on whether the transaction was compliant.
Both companies and government departments had to provide statistics annually on B-BBEE compliance. There was a problem in that government departments were not compliant and did not submit the required statistics. Many departments believed that the B-BBEE compliance requirements did not apply to government departments, although the Commission had conducted an information and awareness programme. Gathering data was important if progress was to be measured. Initially, there had been no data to measure progress in the country as far as B-BBEE was concerned.
Ms Busisiwa Ngwenya made a presentation on the Programmes within the Commission. Programme 1 dealt with compliance and the Commission found many problems in respect of compliance. Trusts were frequently non-compliant. It was a common occurrence for companies to misrepresent their blackness, especially the exempted smaller enterprises. Vendor financing was another challenge as it was obvious that some shareholders would never be able to repay the amounts owing.
Programme 2 dealt with Investigations and Enforcements. The Commission had thousands of cases but only five investigators. Alternative Dispute Resolutions was an accepted method of resolving long-term disputes and had been successful in a number of cases to date. Programme 3 dealt with Research, Analysis and Reporting and allowed the Commission to provide information about B-BBEE in the country. Research showed that the Transport industry was doing quite well in respect of B-BBEE. Programme 4 addressed the relation-building and stakeholder relationships as required by the Act and had already set memoranda of understanding with relevant stakeholders. Corporate Services were addressed under Programme 5 where the two major issues were budget and staffing.
The Commission had held a conference on the issues of fronting because fronting was a major concern. The Commission was also addressing the misunderstanding that the Act applied to any black person. B-BBEE applied only to black South African citizens. The Commission had received numerous requests to make presentations to companies. Most complaints came from the Mining sector, but that could have been because several people from the same community complained about the same thing. Most complaints were around ownership and fronting.
Mr Joseph Melodi discussed examples in which alternate dispute resolutions had been applied. He presented details of six cases that had been resolved using alternate dispute resolution.
Ms Ntuli presented the financial plan to the Committee. National Treasury had not allocated additional funding for the entity and DTI had funded the Commission out of its own budget. No regulatory body in the country would ever have enough money so the Commission had planned according to the funds available to it. The Commission had a budget of R123 million per annum, of which R78.5 million was allocated to the compensation of employees. The main challenges facing the Commission was the lack of budget, human resource constraints and accommodation. The Commission was sharing offices with the Gambling Commission. The lack of implementation of the B-BBEE Act by organs of state was frustrating as those were the very bodies that had the leverage to ensure implementation of the Act by private companies. Clarifications issued by the South African National Accreditation System (SANAS) had caused regulatory uncertainty while the Sector Council also issued clarifications, as well as advice. Other challenges were that charters were frequently not aligned. The Commission found that when it issued a summons, certain respondents simply ignored the summons.
Ms N Ntlangwini (EFF) requested that the Commission provide information in writing on the companies not discussed in the alternate dispute resolution presentation.
Mr M Mahlobo (ANC) raised a number of technical issues and added he had other comments about substantive issues. He thanked the Commission and understood that it was a new organisation, but he noted that that there was a lack of alignment between various graphic representations in the Annual Performance Plan (APP). There was a SWAT analysis and a risk analysis. The analyses were actually one matter and should have been placed one after the other in the document, not pages apart. There was no correlation in the table on intervention and the table on the SWOT analysis. Often, when people did a SWOT analysis or a risk analysis, they did not differentiate between risks because they had not done a risk verification and therefore risks had not been identified as low, medium and high. Perceived risks were developed in a boardroom and did not always take contextual factors into account. Risk verification methodology was important.
There was no alignment between the PowerPoint and the APP document. In the PowerPoint presentation, there was a baseline, but in the APP document, there was no baseline, audited or non-audited. There needed to be alignment between the two. The past performance had to be included to give a baseline. The Commission had a baseline from the previous year. Targets should not be lower than previous targets. For example, a performance of 83% had been lowered to 80%. The Personnel indicators were not correct because the Commission had initially used the number of days but later a different measurement was used.
Another technical issue was on page 32 of the main document around the Human Resources (HR) plan. The organogram was incomplete as the drafter of the document had not left space for vacancies or the vacancy rate. Again, the two documents were not aligned as in the final composite in the PowerPoint, the staff complement was 115 in 2018/19 but in the APP, it had been programmatised. There had to be an increasing target. The Chairperson of the Commission had indicated that two interns had been appointed but they were missing from the HR plan for 2018/19. But it was early days for the Commission and it was doing a good job. The alignment of the Commission’s planning with the National Development Plan (NDP) and the strategic plan was a point that had been missed at the level of functionality. In the plan, there was no sense of the inter-linkages, but the performance had to be measured against those interlinkages. The Commission had to look at how it couched its plan in respect of the NDP. The team needed to look at the tenents of the NDP and the Department of Trade and Industry’s plans.
Mr D MacPherson (DA) referred to a discussion that he had had with the Commissioner in her office when he had complained about three Gupta-linked companies that did not comply with the B-BBEE code. She had then said, and had re-iterated in the meeting, that government departments were not reporting. So, what was the Commission’s plan to get government departments to report? What discussions were happening at ministerial or Director-General level? In respect of the initiated investigations, he guessed that the investigation into South African Social Services Agency (SASSA) related to Cash Paymaster Services (CPS), its obvious misrepresentation and the fronting that had taken place so that it could distribute grants.
In respect of self-initiated investigations, why, when there was such a public interest and ventilation of the false information around companies such as Trillion, did he as an MP have to ask the Commission to investigate? How active was the Commission about obvious cases of fronting?
Ms Ntlangwini noted that most complaints came from the mining, transport, construction and engineering sectors. She understood that the Commission was still analysing the complaints, and so she asked that it report back to the Committee in writing once the analysis had been completed. The SWOT analysis presented the very same information that had been presented previously. Why had the weaknesses not changed? How could the Commission still have the same weaknesses? What could the Committee do to assist the Commission? On HR planning, the permanent staff was presented as 113. However, there was no plan for additional staff and yet the Commission complained about a lack of staff. It seemed that there was no forward planning. The APP also indicated that there was no budget, HR constraints and no office space. From where were they operating if there was no office space? The organisation could be struggling to do its work.
Ms Ntlangwini noted that some companies had refused to give documentation. How long did it take to sort out documentation? Which companies had refused to give documents?
Mr J Esterhuizen (IFP) agreed with his colleagues regarding the need for a baseline. The Commission had not provided a baseline. He also noted that another colleague had to inform the Commission of problems with Trillion. A Committee Member should not have to ask the Commission to do its work. Everyone complained about slow pace of transformation, but it seemed that it was not important. How could black shareholders sell their shares and yet the white companies stayed empowered? How come SAPO and SABC had changed their heads to white males? In the case of the SABC, the appointee was not even a South African. B-BBEE seemed to be developed and designed to benefit only a few individuals.
Mr S Mbuyane (ANC) welcomed the Commission. He noted in the presentation that SANAS was the only service-provider issuing B-BBEE certificates but was that so? He was also not sure that the reference to a R25 million threshold was correct. What about the companies that had a turnover of less than R25 million? He noted that signatures were pending on the memoranda of understanding (MOU) with the South African Revenue Services (SARS) and the National Prosecuting Authority. What was the status of those MOU’s? How were they going to rectify that? SARS had documents for all companies in South Africa so it was important to work with SARS. The report was not clear about whether anyone had been prosecuted? Events were held in Gauteng only. Was B-BBEE for people in Gauteng only? He was very concerned about the fact that 83% of non-compliance related to fronting. Did the Commission have the capacity to investigate? Regarding HR management, was there a skills development strategy? He wanted an analysis of the staff in terms of gender etc. Concerning the political threat, he wanted to know about the lack of political buy-in because politicians were right there in the meeting, listening to the Commission.
The Chairperson noted that B-BBEE was the main tool for transforming the economy but after 15 years of the Act, there was still massive non-compliance. He requested a list of companies that were non-compliant. He also wanted to know the size of the companies so that he could assess the economic size and impact of non-compliance. That list should include government departments, where applicable. What about criminalising fronting? What was the DG’s opinion of such a proposal? If the government did not resolve the problem, people on the streets would take the matter into their own hands. He also asked the DG why DTI was not giving the Commission sufficient funding.
Mr October, noted that the B-BBEE Act was the first attempt by the government to ensure economic empowerment. In the Amendment of the B-BBEE Act, which was a voluntary Act, there was no enforcement. An incentive-based approach had been adopted. Companies that wished to do business with government departments or businesses that required a licence, etc. were required to have a B-BBEE compliance certificate. The establishment of the Commission was another effort to promote transformation of the economy. DTI had established many entities to work towards transformation, but Treasury had not provided any additional funds for those entities. Even the Black Industrialist Programme was funded from DTI funds. If the Department gave additional funding to one entity, it would have to cut from another entity. The Department gave priority to establishing jobs and ensuring transformation. Everyone in the meeting who was representing the Commission, was a DTI staff member who had been moved to the Commission.
Mr October noted that the Standing Committee on Finance had summonsed the banks and asked them what they had done to promote black empowerment. He suggested that the Portfolio Committee for Trade and Industry could summons the largest players in each sector and ask what they were doing about B-BBEE. There are only about six companies that controlled each sector of the economy and so if approximately 20 companies were called to report to the Committee, many issues could be resolved. The state-owned enterprises generally gave at least 50% of their business to black companies. It was necessary to focus the Act on the sector that had to do the transformation, and that was the private sector.
Mr Esterhuizen mentioned that Exxaro had changed its Board to 50% black Board members.
Ms Ntuli informed the Chairperson that the legislation was based on voluntary engagement but if one wanted to engage with government, one had to comply with black economic empowerment requirements. The strategy was for government to leverage compliance. The Commission had not been given the required reports by a large number of companies and government departments. A number of government agencies had said that they did not need to comply with black economic empowerment. Many government departments had not changed procurement policies from what they had been ten years previously.
The Commission only had 14 full-time staff members. The rest were interns. Only five people were responsible for all the investigations. The 113 staff members was a target, but the Commission did not have that number of staff currently. She did not want the public to know the Commission’s weaknesses. She accepted the points made by Mr Mahlobo about the technical issues and promised to respond to the comments going forward.
The Commission monitored the media on a daily basis and intervened where it could. In response to Mr MacPherson, Ms Ntuli said that it was not an issue if Trillion had not misrepresented itself as a black company. However, if the company had presented itself as a B-BBEE company when it was not, then the Commission would act. There were many other issues that had been dealt with by the Commission in the course of the year that the Commission was not able to report on during a discussion of the strategic plan.
The SASSA issue had been finalised but that matter had also been subjected to a decision by the Constitutional Court. The Commission was interested in what information about black ownership had been presented to SASSA when CPS made its bid for the SASSA contract and whether it had remained the same. That was being investigated. The Commission was waiting for a response and would publish a report when the matter had been finalised. Similar situations existed with the other investigations, but the reports would be published as soon as everything was finalised. Where matters were presented to the National Prosecuting Authority (NPA) for criminal prosecution, the Commission could not publish the report until the NPA had made a decision to prosecute.
Ms Ntuli promised to provide a written response, as requested by Ms Ntlangwini, once the Commission had analysed the information about the complaints. A reading of the graph did not provide the context. For example, in mining, one would find that a number of people had lodged the same complaint, so it seemed that there were more complaints in mining. All the complaints had been by local communities that said that they had derived no benefit from the 26% black shareholding in the mines.
As far as office space was concerned, from its inception the Commission had co-habited with the Gambling Board and had no space for additional staff, but the Commission was engaging with DTI in respect of office accommodation. She confirmed that all the verification agencies had to be accredited by the South African National Accreditation System (SANAS). If the auditors were not accredited, any certificate issued by such an auditor was not valid. As far as the R25 million cut-off for small enterprises was concerned, the Minister had said that any company that had a turn-over of under R25 million could be registered automatically. However, if there was a problem, the Commission could investigate. The Commission had plans for a mass media campaign as the Commission did not have the funds to hold events in the various provinces. She informed Mr Mbuyane that the MOUs had been finalised, although they had not all been signed off. That would be done soon.
What was encouraging was that a number of entities did not approach the Commission for assistance because they wanted to do business with government, but because they wanted to be competitive and to get ready for transformation. She thanked the Committee and said that political support was critical. Once Parliament had accepted the B-BBEE principles, she hoped that everyone would support the principles.
Mr Mahlobo remarked that he had found fundamental issues with the documentation, but he believed that the Committee could support the plan of action. The Committee required a written analysis of the legislation and any gaps in the legislation. When the Committee met with DTI, the Committee would look at the leverage that was in the hands of the state that could be used to drive the legislation, such as permits, incentives, etc. It was the country’s problem, and not that of the B-BBEE Commission alone. The Preferential Procurement Act, which applied to government departments, had made B-BBEE more difficult. The Commission needed an analysis of economic crimes. He was particularly worried about fronting which could lead to corruption and money laundering. The Commission had to ask whether the legislation made sense or not. The Act was clear regarding enforcement: a transgressor could be thrown away in jail for ten years. The issue there was to ensure integrated law enforcement. Other government entities would assist. The Commission should look at SARS and the Department of Labour as well as National Treasury. It was not necessary to develop a new IT system when all the data was already there. The Commission simply needed to superimpose an IT system so that the Commission could use the data that was already available in other government entities.
The Committee Members had to look at the BEE Report and ask themselves a couple of questions. How could the legislation be implemented so that it was more effective? Currently, people were buying into businesses and the Commission did not have the capacity to check at the point of entry of companies into the B-BBEE system. Was there a gap in the Act? The Commission needed to inform the Committee if that was the case. In his opinion, there were too many administrators. The Commission needed more investigators.
Mr MacPherson suggested that he and the Commission would have to disagree on how the Commission was going to look at things in the public. Trillion, with zero percent black ownership, had received work worth R1.5 billion from Eskom. He was not sure why the Commission had not taken up the matter. He expressed concern about the declaratory order regarding the ‘once empowered, always empowered’ approach to black empowerment. He asked the DG for his view on the matter. In his view, it was a good decision as it stopped double dipping and companies did not have to continuously top-up. Did the Department agree?
Mr Esterhuizen remarked that the state had failed in promoting genuine black empowerment and had to start somewhere with the consequences of that failure. For example, Mr Koko, the former acting CEO at Eskom had been giving contracts to Exxaro at exorbitant prices. It was unacceptable as Eskom was a state entity.
Ms Ntlangwini asked about the penalty provisions in the Act which allowed for ten years’ imprisonment for transgressions. How many cases or individuals had been prosecuted following that route. The Commissioner should not be scared to tell the Committee about her weaknesses. Her staffing was not correct. The Commission was not going to be successful with five investigators. Parliament could assist her. Parliament and government had to work together. She should not feel the need to hide challenges from the Committee.
Mr Mbuyane pointed out that his initial question about skills development had not been responded to. One needed to establish a second level of leadership. He suggested that the Commission provide written input regarding the challenges related to B-BBEE with recommendations as to how Parliament could assist.
The Chairperson noted that the DG had said that black empowerment was not compulsory but was there not some mechanism that could be used to make things change? The response should be provided in writing.
He thanked the Commission but reminded the Chairperson of the Commission to provide the requested answers in writing.
Department of Industry Annual Performance Plan 2018/19
The Chairperson explained that the Committee was having a follow-up meeting with DTI as the Department had not responded to all questions put to it on the Annual Performance Plan 2018/19 at the previous meeting of 20 March 2018. The DTI had been asked to clarify various issues.
Mr October thanked the Committee for the opportunity to complete the process. The Department had responded in a letter sent to the Committee, but he would go through the responses. Three issues had been outstanding: the Auditor General’s Report, incentives and economic zones. He informed the Committee that he offered apologies from those DDGs who were at the Commonwealth meeting in London. They had been replaced by their chief directors. He pointed out that the recently appointed DDG, Evelyn Masoga, DDG: Consumer and Corporate Regulation Division had been awarded her doctorate three weeks earlier and congratulated her on her achievement.
DTI responded to the questions about audit reports. The Department had received clean reports for the past years and in the current audit, the only matter of discussion was performance information. The Department had been required to reformulate its targets according to the SMART principle in line with the National Development Plan. Targets should be SMART, i.e. specific, measurable, attainable, realistic and timely.
The DTI had a system where there was a meeting at ministerial level prior to the audit to set parameters and the DTI Audit Committee met with the Auditor General at least three or four times during an audit. The DTI was driven by economists, so the Department was trying to set economic targets as agreed to by the economists. The Auditor General had completed financial part of the current audit.
The DG turned to questions on the role of incentives, industrialisation and jobs. For all incentives, there had to be job retention or job expansion, otherwise the incentive was not paid. A large company which was receiving an incentive had embarked on a retrenchment process and so the incentive had been withdrawn to show that company that it had to at least retain the workforce, even if it meant re-training the workers.
Manufacturing employed 1.7 million persons directly and each job in manufacturing created four jobs. Therefore, manufacturing sustained 5 million jobs in South Africa. Investment in machinery and equipment was critical for a successful business and the leverage in that area was the way for industry to advance So, for every R1 that DTI put into capitalisation of a company, the company had to put in R5. It was an incentive that leveraged capital investment. The automotive industry made up 33% of manufacturing jobs in the country. Those jobs were there only because South Africa offered incentives. If there was any reduction in incentives, there would be a reduction in jobs. Australia was a good example of what happened when the government ceased to incentivise an industry. There were no longer any automotive industries in Australia. The companies that had been based there had moved to a number of European and Asian countries. Every state in the United States of America, in Europe and in the East incentivised jobs. In South Africa, for every Rand the state put in, the state extracted added value such as black empowerment, a move to the special economic zones, etc. Incentives was only one leg of the strategy as it affected only the supply side and not the demand side. If there was no demand for a company’s products, it went out of business. DTI was, therefore, breaking the stranglehold of massive companies on the demand for various products. That was the reason that 30% of a company’s procurement had to go to a black company.
There were currently eight special economic zones (SEZs), with Coega in the Eastern Cape having been the first SEZ. The SEZ worked on a very simple principle of collaboration between state, province and city. Government had provided world class infrastructure in respect of electricity, roads, etc. Upfront costs of a special economic zone were high but Chinese investors had chosen Coega because of the quality of infrastructure and the excellent management service that they had received. The Industrial Park was equal to any in Shanghai and the Chinese had built enormous infrastructure for Beijing Automotive works in Coega.
The DG would provide a list of companies that operated in the SEZs, but he could say that they had created 7, 900 jobs in manufacturing, which meant a total of 32 000 jobs. The zones had attracted 84 investors and R9 billion in investment. There was one zone for each province. The zones had been re-vamped when the Minister and MECs Forum, MINMEC, had determined a new set of criteria, which included that the zones had to be economically viable. To create a special economic zone, DTI had to apply for approval from the Minister and rigorous planning and assessment was undertaken before it was signed off by Minister. MINMEC had settled on ten special economic zones because certain provinces had historically been excluded from industry. A deal had been struck with provinces regarding special economic zones. Infrastructure and the top structure of actual factories would be a national responsibility while the province would be responsible for the operational level. Provincial Boards for SEZ had been appointed by the MEC for Economics in each of the provinces.
There had been a change in the incentive scheme so that it was currently an inbuilt incentive system of ‘first come, first served’. That had changed the dynamic. If someone brought an investor and signed the person up, then that investor received the incentive. DTI’s role was to cajole and entice provinces. The national Department provided operational costs for the first three years only. Thereafter, the province was responsible for operational costs. DTI then had ownership of the zones, but it was more practical for provinces to manage operations. A delegation had gone to China to present all the SEZs to Chinese investors.
13 Industrial Parks had been completed. That was the growth engine for the economy as there was no shortage of companies for the industrial parks.
The Gambling Board complaints had been around conflict of interest and a lack of management skills. The Board had been removed and the entity had been put under Administration. The entity had been turned around and had obtained a clean audit. The idea was to establish a Regulator, as per the Act, but there would be no Board per se. Bodies such as that did not need a Board as there was no fiduciary duty. The Gambling Board was concerned mostly with regulating the industry. Most of the issues in the complaints had related to conflict of interest and the Board had therefore been removed. The decision had led to the Board challenging the Minister in court, but the Minister’s decision had been upheld.
There had been a question about a summons issued to the National Lottery Board but, in fact, no summons had been issued. The matter had been dealt with in detail in the letter.
The Chairperson requested that Committee Members engage only on the responses given by DTI to the outstanding questions.
Mr MacPherson said that he could not get a straight answer on the forensic report that had been used to place the Gambling Board under Administration. How many of the people named in the Gambling Board report had been charged? He also wanted a list of industrial parks so that he could visit them. What did municipalities have to offer to attract investors to the industrial parks? There had to be more than infrastructure for companies to choose to go to the parks. Where was the business plan? There had to a be a sound business plan for new entrants in the industrial parks. How far was DTI with rebates from provincial governments?
Mr Mbuyane asked for an update on the status of the SEZ in Musina and of Nkomazi in Mpumalanga.
Mr October replied that the report on the Gambling Board had been presented to the Committee. After the whistle blower had gone to DTI, the Department had identified serious management weaknesses during a forensic audit of the Board. The Gambling Board itself was an entity and had turned itself around to the extent that it had received a clean audit. The audit committee had implemented all audit reports. He was not aware of any criminal allegations against former Board members. The practice was for the Minister to refer the report to the audit committee in the entity, which he had done, and the Gambling Board had responded by turning itself around.
Municipalities owned all industrial parks. They were located close to townships, specifically to facilitate employment. One could look at any other industrial park in the country and there was infrastructure, but there had been no infrastructure in the black areas. For example, the Botshabelo Industrial Park was 60 km away from the market, which had imposed additional costs to the businesses located there. It should have been created within a reasonable distance of Mangaung, which was where the people were. In the Vulindlela Heights Industrial Park in Umtata, all the roads were gravel roads which meant that one’s car was damaged before one even got to the business. Tarred roads were essential, so DTI was giving Umtata R10 million just to incentivise the municipality and get things going. So, instead of big plans, the DTI simply made provision for basic infrastructure for the industrial parks. The aim was to bring the industrial parks in black areas up the standard of industrial parks throughout the rest of the country. Municipalities could offer low rentals if they wished to do so. Those areas were a priority because of 50 years of neglect. The economy was under-performing because 90% of the entrepreneurs were excluded from the market. There had to be proper management of the industrial parks. For example, a fence may seem unnecessary, but it was essential to ensure security in the park.
DTI had created an association of industrial parks so that the Department could promote best practices for industrial parks. Low rentals could be encouraged but the Department had only a catalytic role: the municipalities owned the industrial parks. Municipalities had to have a record of who was in the parks. Currently, many municipalities had no idea who was in the industrial parks. DTI wanted to create legislation to ensure that provinces and municipalities looked after the industrial parks to ensure that they continued to be upgraded and to attract investors. The DG cited the example of a world class company, Nestle, which had chosen to build a factory for producing cereals in Babelego Industrial Park to support the DTI initiative, but there were only gravel roads in that industrial park. DTI would take over the function of kickstarting industrial parks.
In response to Mr Mbuyane’s question, the DG stated that there was good news in respect of Nkomazi in Mpumalanga. The matter was before the Committee for SEZs for approval. Officials from DTI were in China to address the matter relating to the SEZ in Musina. One of the persons who had been active in that SEZ had appeared on a list of people wanted by Interpol. The Minister had stated that he would withdraw the licence unless there was a proper due diligence explanation. In the meantime, DTI was looking for other investors and was visiting some of the SoE’s in China to get the first phase going.
Mr MacPherson wanted confirmation that the DG was not aware of criminal activities by former members of the Gambling Board. He stated that he had been to 80% of the industrial parks. In Umtata, he had seen a funeral parlour, a tuckshop and a bed shop right next door to one another in the industrial park so he was not sure exactly what was going on in the parks. There seemed to be a lot of non-industrial activity taking place in the parks because they had been left to do whatever they wanted to do. If he were the DTI, he would be telling provinces what they should be doing before DTI would invest. He would talk about rental incentives. Isithebe Industrial Park was charging market-related rents, but it was rurally located 180 km from Richard’s Bay, and water was more expensive there than in Richard’s Bay. So why would a business move out there? The whole point of being in an industrial park was to enjoy discounts on services, etc. Roads and fences were nice, but not an incentive to get black industrialists to open factories or to invest in those industrial parks. There was a need to ensure value. He saw a business plan as being a guideline to municipalities for how to get to a successful industrial park and how to get new entrants, such as black start-up businesses, to the industrial parks. They needed incentives.
Mr October reminded the Committee that the Department had presented a business plan two or three years previously when the programme had begun. DTI had worked with the Development Bank SA to prepare the business plan. Diagnostic work had been done before the work on the plan had begun so that a relevant plan could be developed, based on the conditions in the park. The development was planned in phases.
Isithebe was one of the most developed industrial parks. DTI has raised the issue of high rentals with the municipality, but it had been insistent that businesses be charged market-related rents, and that they could do that, if they wished to do so. There was no requirement that municipalities charge reduced rates in the parks. Unfortunately, most industrial parks did not have tarred roads and he did not know what investor would invest in an area where there was not even a tarred road. In other industrial parks, the criminal elements had taken over and so the first thing that had to be put up when developing a new industrial park, was a fence to protect the investors. He did not understand why they would need another business plan. The main thing was that provinces had to be locked into supporting the industrial parks. He believed that Mr MacPherson agreed with that premise. At the last conference, all industrial parks had decided to work together, and they would decide what to do. Apart from the details, what was needed was investment in those under-invested areas. The way to transform the country and the economy was to make industrial parks work and, for that, incentives were required.
The Chairperson accepted the responses of the DTI and announced that the next meeting would be on Tuesday 24 April 2018.
The meeting was adjourned
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