Economic Development Department Annual Performance Plan, with Deputy Minister

Meeting report

Economic Development Department on Annual Performance Plan and budget for 2018/19 financial year

Mr Madala Masuku, Deputy Minister of Economic Development, said there were no serious changes to the Annual Performance Plan (APP), only slight improvements with the priorities remaining the same with a focus on job creation; inclusive growth of the economy; the alignment of the state bodies around implementation; providing strategic direction to competition authorities and on competition policy. He spoke to the global and South African economic contexts. He said that while agriculture was growing, there were job losses in the mining and construction sectors which was worrisome. The Department would be seeking to increase the localisation content of products; support economic inclusion through a range of measures such as boosting youth and women entrepreneurs; fund black industrialists as well as tackling market concentration; and strengthen oversight on economic regulators and the development finance institutions reporting to the Department. The Department would be focusing on the outcomes of decent employment through inclusive growth; a skilled and capable workforce to support an inclusive growth path; an efficient, competitive and responsive economic infrastructure network; and a vibrant, equitable, sustainable rural communities contributing towards food security for all. He said the Department’s 9- Point Plan was:

• Resolving the energy challenges
• Revitalising the agriculture and agri-processing value chain
• Advancing beneficiation and adding value to mineral wealth
• More effective implementation of IPAP
• Encouraging private sector investment
• Moderating work place conflict
• Unlocking the potential of SMMEs, co-ops and township and rural enterprises
• Crosscutting areas to reform, boost and diversify the economy, such as the water and sanitation
• infrastructure
• Growing the ocean economy and tourism

There were three programs, six strategic objectives, 23 KPIs and 182 outputs.

Mr W Faber (DA, Northern Cape) said he had gone through the presentation and there were no budget amounts referencing the provinces apart from the mention of Saldanha. He said the presentation should be geared towards the provinces. There was nothing in the presentation on the Northern Cape for example.

The Chairperson said that the Department could be asked to find the provincial information, and this could be forwarded to the Committee.

Deputy Minister Masuku said he wanted to present the whole picture at the national level and members could then zoom in on provincial issues. He continued with his presentation and spoke to the strategic objectives and associated KPIs, in particular Strategic Objective 2: ‘Coordinating jobs drivers and implementation of the New Growth Path (NGP) economic strategy in support of the National Development Plan’ and the KPI 3 of this objective, namely ‘Support Provided to Provinces’ the Department and its agencies was going to assist provinces and municipalities to align their programs to the national agenda. One area of focus would be localisation because the Department had not done enough monitoring of the implementation of localisation programmes. The Minister was engaging with finance institutions on what their role was in the economy and in the townships and rural areas. He said the Department was responsible for SIP 5 ‘Saldanha-Northern Cape Development Corridor”. the Department ‘s work also encompassed unblocking challenges investors faced in investing in South Africa.

Mr Tom Monde, DG, EDD, spoke to the budgetary details of the Department’s programmes. The total budget was R1.1b with allocations of R86.5m for Administration, R34.4m for Growth Path and Job Drivers and R951.7m for Investment, Competition & Trade. The bulk of the budget was for transfers and the question was how these funds were monitored. He said SEFA, the Competition Commission, Competition Tribunal, ITAC and the Tirisano Fund (which was funded from fines by the construction industry), were monitored administratively only. The IDC and the trustees were the administrators of the Tirisano Fund. The fact that some entities were only monitored administratively resulted in some difficulties for the Department’s minister to exercise oversight.

Discussion

The Chairperson said the Committee expected to receive quarterly reports so that the Department’s work could be tracked prior to the Committee engaging with the annual report.

Mr J Mthethwa (ANC, KZN) asked the DG whether the IDZ budget came from the Department’s budget.

Mr Faber said other departments did give provincial breakdowns in their presentations. He understood that the bulk of the monies were transfers to entities, but the Department had to give some idea of what it was doing in the provinces in terms of departmental priorities like job creation, like for example on solar energy initiatives in the Northern Cape. He said the presentation noted that the Tirisano Fund monies would only be disbursed once trustees were in place. Was the fund operational and were funds disbursed in 2017/18?

Mr L Magwebu (DA, Eastern Cape) said that small businesses were the drivers of economic development and growth. When would the Department be promoting localisation? He would prefer that the Department - when it appeared before the Committee - report for example that they know that the Department of Energy had a budget of R22b for the procurement of goods and services and that the Department of Small Business was ready to provide small businesses to render goods and services. Was there still a challenge in this area and how was the Department doing to assist departments to coordinate their activities?

Mr E Makue (ANC; Gauteng) asked why the Committee was not getting the reports the Department had promised in their APP of the previous year. He said that Gauteng had two universities - Wits and UJ - but that the Department was not tapping into civil society organizations like these and he linked that to the Department’s work on ‘social dialogues’. Was the Department considering bringing in organs of civil society? He said young entrepreneurs were not coming together and he saw this as part of the responsibility of the Department, to monitor whether the municipalities and the provinces were doing this. Was this part of the Department’s plan?

He said the Department talked of priorities identified by the provincial legislatures and he wanted to appeal that the Department share those priorities when they received it.

The previous day the DoE presented and spoke on solar water geysers and the problem of local content. But they had no budget and were hoping that Treasury would give them money they did not use the previous year. What was the level of skills transfer and what would happen when geysers started giving problems. Was this part of the Department’s planning?

He said the presentation did not say anything on the Youth Employment Summit (YES). He saw YES creating great opportunities to provide entrepreneurship opportunities.

What were the blockages the Department had identified? One of the blockages had resulted in what happened in Mahikeng, where foreign nationals’ shops were attacked, because foreign nationals were considered a blockage to their own development.

He said economic development could not happen if multi-national companies took their profits offshore. Was the Department looking at legal and illegal money flows offshore? How could the Department unlock money to circulate within South Africa? Was the Department going to monitor this space?

Ms M Dikgale (ANC, Limpopo) said what was worrying the people of Limpopo was that Eskom sabotaged the Departmental initiatives, by putting in transformers but with high monthly fees even when people had not used electricity, resulting in projects collapsing. The Department needed to talk to Eskom to resolve this matter as projects were failing because of a lack of electricity.

The Chairperson said the 2016 planning of the Committee’s schedule placed the focus on departments and little focus on entities, so 2017 saw the Committee’s focus turn to entities. He said the slides indicated a drop in jobs in the construction sector, yet the country had massive infrastructure development programmes. Construction jobs should be increasing. He said that from the Committee’s point of view, it appeared as if there was no monitoring of localisation because it did not appear that entities were sticking to localisation, especially Transnet and Eskom.

Deputy Minister Masuku said he accepted the criticism on not providing reports and would submit the provincial breakdowns also.

He said the Department of Trade and Industry dealt with IDZs

He said the EDD facilitated when investors for example had difficulties getting established in IDZs.

On the challenges in coordination, he said institutions were like silos and this was a general challenge and the Department was dealing with integration. Part of the intervention on the assessment and analysis of programmes was the ability to asses and identify challenges, like for example the geyser rollout using only imports initially, so the Department had insisted on a localization element and the same applied to green energy investments. PRASA was also a concern regarding the trains contract and the analysis assisted in consolidating integration. President Ramaphosa had placed emphasis on the area of integration.

On universities, he said the issue was important and the Department did work with universities on specific areas and was currently active with the UJ and Wits, working with the Vhembe district municipality on developmental plans.

On facilitation and mobilising civil society, he said it was in the Department’s programme for the youth accord. The Department did not have much interaction with religious communities. There was a god-based organisation represented in seventy countries that the Department had been studying. The organisation had members in different sectors of the economy and politics and a pool of investors. The Department was interacting with them to see how the Department could work with them and also to reach out to churches.

On the youth, the Department was working with the national youth structures and structures in Mpumalanga and KZN were now very strong. Their framework of doing things had been accepted by Treasury. The youth structures did mentoring and training and recruiting. The Department wanted to assist them in consolidating their structures. On the issues of YES, he said the Department had interacted with them and had done an analysis.

He said the blockages were a silo mentality and corruption tendencies, both at the level of political offices as well as at the level of junior staff which the Department had to deal with.

He said issues on Illicit money flows were discussed in joint committees.

On the unlocking of capital investments to ensure partnerships and mobilisation, he said the Minister had already started identifying sectors and the financial sector, banking and insurance, was being focused on.

He said the Eskom’s cost structure was a problem and COGTA was looking into that.

On Ms Dikgale’s question on Limpopo, he said it was not only small businesses but also municipalities that suffered. Bigger industries were in a position to negotiate but not small businesses.

The Chairperson asked if part of the Tirisano Fund monies should not go to the Competition Commission

Mr Monde said the Committee’s observation about issue of fragmentation and coordination was correct and was being addressed through coordination efforts within entities. He said entities driving programmes were at national, provincial and municipal level. National government was trying to deal with the spatial economic disparities. The question was then how these coordination efforts were reaching the household level. The Department’s importance lay in being able to bring in other parties and other departments like the Department of Agriculture for example in the food value chain. In beneficiation, it was the Departments of Trade and Industry and Energy. The Department was engaging with the economic cluster and the focus areas were job drivers like agri-processing, mining and trade.

The Department was interacting with provinces directly in aligning the province’s economic development to the national agenda. In, for example, the food value chain, Treasury was doing an assessment of all the townships and informal settlements and their particular strengths and plans would be aligned to this study.

On Mr Magwebu’s comment that the Department of Energy was working on its own, he said that in a value chain those problems would not arise. Eskom had reported a surplus of 6 000MW and the Department was engaging with Eskom on how it could use its excess energy for development purposes. There was therefore a plan in place to address the fragmentation that existed.

On provincial engagements, Mr Zeph Nhleko, DDG, EDD, said there were projects in the Eastern Cape like the science and techno park and the macadamia processing plant and in the North West the Department was part of the coordination of small towns, there were agri-processing projects in Vhembe in Limpopo, and in Mpumalanga, projects in the steel value chain. In KZN the Department was coordinating the formalising of the informal economy.

Regarding the involvement of entities within the Department, he said the IDC created and saved 20 000 jobs of which 6 000 were in Gauteng. The IDC had a R60b exposure to provinces with R12b in the Northern Cape and R6b in the North West and had unblocked or fast-tracked projects across the country, like for example Naledi Foundries in Gauteng.

On the solar water geysers, he said the PICC was monitoring this and the Department could provide details to the Committee on its progress.

On illicit money flows, he said the Department was not doing specific work. SARS had a dedicated unit on transfer pricing. The Department had expressed their need to be part of the financial innovation workgroup. If not, the Competition Commission could be part of it.

On the delisting of Old Mutual offshore, he said it was a positive thing if they listed in South Africa.

On how much the Tirisano Fund disbursed in 2018/19, Ms Irene Ramafola, CFO, said it had not disbursed anything for 2018. There was an allocation of R214m. in 2017/18, R107m was transferred to the trust administrator, the IDC. Treasury had placed specific conditions and one was that there be a plan between the Trust, the Department and the IDC before funds were disbursed to projects. A draft plan was in place and there was a Memorandum of Agreement between the Department and the IDC.

On the monitoring of the fund, she said the IDC would provide quarterly financial statements to the Department, as well as audited financial statements.

On whether the Competition Commission could use Tirisano Funds, she said the Department was researching the funding model for the Competition Commission to address its funding challenges. The Competition Commission could not take funds from Tirisano because it would be regarded as a conflict of interest.

On the Competition Commission funding, Mr Len Verwey, Economist, said there would be an increased mandate for the Competition Commission and there were five possible funding model options but the most likely was a budget allocation and therefore the Department needed to understand what the cost drivers were.

On Trump and the performance of the US economy, he said the world economy was better and had growth of 3.2% GDP growth in 2016 and 3.8% in 2017. There was the lag effect to consider, so policies Obama had put in place would only come into fruition in the Trump era, like for example low interest rates. He said the Trump presidency was business friendly and had a short-term focus and this did bring to the fore the need to look at other performance metrics.

On localisation, Mr Mahomed Vawda, CDD: Investment, Commerce, Trade, said the Department of Trade and Industry and Treasury was responsible for designation and monitoring of localisation by SOEs. The Department’s role was oversight and coordination between departments. He used the example of the Massmart settlement which included support for import replacement. 31 small businesses were established through this program and it had been so successful that that at the end of the agreed period of support, Massmart had decided to continue with the program because they had seen the benefits. In the clothing industry, Foschini had imported its goods but now 80% was manufactured locally because sourcing locally had the benefit of quicker response times and the same applied to Edcon. He said Cotton On, H&M and Zara imported all their goods. The Department had lined up samples to encourage them to source their goods locally.

He said that when Highveld steel was closed 2000 jobs were lost. The Department had spoken to AMSA over raw materials and the factory was restarted and produced structural steel and railway lines however the problem was getting PRASA to buy its products. This was brought to the attention of the Minister of Transport. If there was no domestic offtake Highveld Steel would close down again. Other endeavours were that coal was being stored on site and maize crops were being grown on Highveld Steel land. Mine dump trucks were also being repaired at the site. There was a need to get state agencies to buy highveld’s structural steel and railway lines.

On Eskom, he said there was an energy intensive factory in Limpopo that had closed down because of the energy crisis. With Eskom having a surplus of energy, the Department had gone to NERSA to get a two-year tariff relief and created 2 000 jobs.

Committee Report on Budget Vote

The Committee considered and adopted the Committee report on budget vote 28.

Committee Minutes

The Committee adopted the minutes of a Committee meeting on 18 April and discussed adjustments to the planned Committee meeting schedule because of changes to the NCOP programme.

The meeting was adjourned.