Productivity SA challenges & alternative funding plans

Meeting report

Productivity South Africa: Challenges and alternative funding plans

Mr Mthunzi Mdwaba, Chairperson: Productivity South Africa, introduced his colleagues, Ms Monga Phaladi, Ms Jocelyn Vass, and Mduduzi Mbongwe, who were all members of the Board. Mr Mothunye Mothiba, the chief executive officer (CEO) was also present, and Mr Sibusiso Sabela, the chief financial officer (CFO) would cover other aspects of the presentation.  

Mr Mdwaba felt that it was important, from a contextualisation point of view, to state that when the annual general meeting of Productivity SA was held on 20 September 2018, comprising all stakeholders, which included the tripartite board and civil society, it had been instructed by its stakeholders, among other things, to firstly address the National Economic Development and Labour Council (Nedlac) regarding the challenges which they faced and to provide possible solutions to them. Secondly, they were tasked with addressing the Committee at the nearest available opportunity, which was why they were present at the meeting.

Slide 3 of the presentation dealt with the Productivity SA Mandate. Productivity SA was established in terms of section 31 of the Employment Services Act, and was a Schedule 3A public entity in terms of the Public Finance Management Act (PFMA). Its mandate is to promote employment growth and productivity, thereby contributing to South Africa’s socio-economic development and competitiveness.

Slide 6 dealt with change drivers, which referred to the expanded legislative mandate of the Employment Services Act of 2014, as well as other economic policies.
Mr Mduduzi Mbongwe, Productivity SA board member representing the unions, said that when the Employment Services Act was concluded in 2014, the significance of the year 2014 was that it marked a 20-year milestone since 1994. However, despite this, the challenge of unemployment remained. All political parties in South Africa’s political landscape spoke to job creation, but the challenge of unemployment remained. This was the case even in the year 2019. The government had pleaded with Productivity SA to empower them through the Employment Services Act. It was the view of Productivity South Africa that there was insufficient funding of the Employment Services Act by government.

With regard to the challenge of ongoing job losses, he said that last year there was a Jobs Summit.
Government had committed to a moratorium on retrenchment, but business had not. This was problematic, because one had to go to court to argue about the fairness of such retrenchments. This is where Productivity SA came in, because through industrial engineering, one can engage from an informed position. They did not think that Productivity SA had the capacity, enough industrial engineers to meet this challenge.
 
Impact of Globalisation and the Fourth Industrial Revolution on the socioeconomic industrial landscape.

On 1 March 2019, there would be the Global Commission on the Future of Work, South African version. This had already been launched internationally on 22 January thanks to President Cyril Ramaphosa, who is the co-chair of the Global Commission on the Future of Work. The Global Commission was happening at a huge rate. Productivity SA cannot be missing in ensuring that South Africa finds ways of creating jobs and retaining the jobs that are available. It is also important for one to look at where South Africa is ranked in the World Productivity Index. It creates certain connotations among other people. One thing which one cannot disagree about is how South Africa is rated among other countries in terms of performance globally. It is accepted that 100 is utopia and 60 is the global average that a country should have as a minimum. South Africa is currently at 51, which is 9 points below the average. This is a clear indicator that South Africa has a crisis in terms of productivity. SA must find ways to create jobs and retain jobs.

It is generally acceptable that SMMEs make up 90% of all businesses and employ 60% of all people. They also contribute about 35% to gross domestic product (GDP). The Turnaround Solutions Programme was suboptimal in application, because when someone knocks at the door of Productivity South Africa in an area where they will be losing jobs in a few months’ time, it had the unenviable task of turning them away because they did not have funds.

Ms Monga Phaladi, board member, said it was sad to see big companies closing down in SA, as this led to retrenchment. This is where productivity SA would be assisting these companies in ensuring that they had lower retrenchments. Productivity SA is supposed to be assisting SMMEs as well. When it comes to SMMEs, it is even worse because they are the future of employment in South Africa. However, due to a lack of funding and an adequate response, people and entities were not getting the most out of Productivity SA in terms of intervention with all the programmes that they have. Productivity SA has to stop some of the programmes that they have, which lhad led to some entities or individuals not being assisted in promoting employment growth. Due to a lack of funds at Productivity SA, companies do not get the assistance they ought to be receiving.

Mr Mdwaba said that the board had to make a painful decision: the suspension of certain programmes, which was a travesty. All parties needed to account for this.  It could not be that there were numerous deliberations which ultimately resulted in a state in which suboptimal outcomes were achieved in the area.  It was within this context, as well as the context of a sluggish economy, which had led to the challenges which were currently being experienced. Unfortunately, the National Development Plan says nothing about productivity.  This means that everyone at the helm was sleeping on the job. All parties needed to take responsibility for this. It also needs to be noted that the Department of Labour also has to take responsibility for this. Productivity SA also needs to take responsibility for this too. The top 20 countries which lead in productivity have at least one chapter in their national development plans on productivity.

Ms Jocylene Vass, board member, said that one of the major factors which foreign investors look at in making investment decisions about a country was policy certainty. SA has not been a leader in this area and has not been at the forefront in the receipt of foreign investment since the 2008/9 financial crisis. This was partly due to policy uncertainty. It would seem strange or unusual for policy institutions such as Productivity SA to play a key role in contributing to policy certainty.  When international businesses come to SA and want to invest throughout the value chain, they want to be assured that SMMEs are compliant with global standards. This will ensure that should they procure goods from such businesses, they will arrive at the right time, at the right quality and at a reasonable cost etc. There needed to be reliability and there would be no need to go to a country such as Singapore. Like other countries, South Africa had not recovered well post 2009. SA was still at below 1% economic growth. This was a travesty for a country with such great potential. When one looks at policy certainty, one wants  to assure foreign investors that they will work with reliable and efficient companies.

She said that, for example, if one did not show up well-dressed, nobody takes you seriously. If an organisation was struggling financially, it raised questions about support from domestic stakeholders and why foreign investors needed to take such an organisation seriously. The face of productivity in South Africa had not been well-supported. Countries such as Japan were able to attract billions in investment due to an assumed culture they project to the rest of the world. What is the culture SA projects to the rest of the world? The Japanese are known for hard work. The Germans are known for precision and excellence. What about South Africa? It is exuberant and precise when it should be precisein its own way. This is the culture which it should be promoting.

It was less known that South Africa also drives productivity culture in the rest of Africa. This is where the bulk of its investments need to go. A large amount of SA's manufacturing exports go to the rest of Africa. Manufacturing exports are incredibly important to South Africa. If other countries within the continent were able to absorb our output, with cooperation, the continent of Africa at large would be better off.

Mr Mdwaba said that Productivity SA serves as a secretariat for the Pan African Productivity Association (PAPA). South Africa is held in high regard by the rest of the African continent. In reality, they put into practice to a greater extent much more of what South Africa says. It is said that “If the gross domestic product (GDP) of a country was to be measured by rhetoric, SA would be the wealthiest country." South Africa talked a good talk, but it came short when it came to implementation. South Africa had come up with a productivity institute, and had probably thought about it before anyone else did. However, there seemed to be confusion about what to do with it.  There was an Employment Services Act which had been promulgated, but it had not been funded.

Mr Mdwaba also bemoaned the fact that when the minimum wage discussions took place, Productivity SA did not receive an invitation. This was unacceptable. One could not talk about wages without talking about productivity. Convention 131 of the International Labour Organisation (ILO), in which the minimum wage setting was based, talks about a lot of elements such as the relative cost of living, and the dynamics peculiar to specific countries. It also speaks about productivity. Mr Mdwaba said that it was unfortunate that Productivity SA had to push themselves into discussions in order to have a say towards the end of those discussions. Stakeholders are eager for some of the programmes that Productivity SA has, but they are unable to do this due to lack of funds.

On slide 8, Productivity SA spoke about how SA gets involved when companies are in trouble. Slide 9 of their presentation targeted industry and priority sectors. This was critical because they had to be in touch with what was happening in the market, to steer the ship in areas which would take the country on a positive trajectory.  On slide 10, they dealt with the additional obligations given to Productivity SA. At the Productivity awards in 2018, Mr Mdwaba recalled how he had mentioned that President Ramaphosa himself needed to embrace and champion productivity. This would be a good preamble to calls to investment into South Africa, because such investment would need to be utilised effectively.  Productivity SA should not have to beg their way into events such as the Jobs Summit. Productivity is not optional, but mandatory. Due to Productivity SA’s stance, a lot of responsibility at the Jobs Summit, in terms of the framework agreement, was eventually given to the institution.  In 2014, when the Employment Services Act was passed, there needed to be funds to support the Act. This was not done. It was problematic to go to the Jobs Summit and require more to be done, without the requisite funding.

Slide 11 was the most important slide in the whole presentation. It showed the expanded role of the institution, but there was no funding appropriated by Parliament for Productivity SA to carry this out. This was at the heart of Productivity SA’s financial woes. It had led to persistent bailout applications at the Department of Labour. Furthermore, this point was not the cause, but had exacerbated the situation. When the Department of Labour had decided that the Unemployment Insurance Fund (UIF) would be the ones giving Productivity SA funds, it created hurdles for the institution. When the money arrived late, which was the case all the time over the years, the situation became horrific. All the board had done over the past four years was to clean up  fraud, maladministration etc. When these investigations were taking place, it was criminal not to continue funding Productivity SA. People in South Africa were being failed in this respect. The board had been through a lot, even with their masters, with whom they are supposed to be working.

The Workplace Challenge programme had been successful, and had received R9.2 million worth of funding. However, this was not adjusted for inflation. In actual fact, they should be sitting at a minimum of R22 million for that programme in order to do a decent job.

There was notice received that there would be a budgetary cut of 1.5% for Productivity SA. This was cutting in the wrong place from their allocation by the Department of Labour. Every year, the Department returns about R200 million to Treasury, despite important entities needing to function. This did not make sense to Productivity SA.

Slide 15 dealt with the Turnaround Solutions Programme, which had had been troublesome. Productivity SA must be given its recognition by government and business. Productivity SA had also had a meeting with the UIF board, which had proved to be useful. The main aim of the meeting was to exchange ideas. There would be a follow up meeting to this on 6 March. There was communication taking place, albeit it having taken a long time to take place. The CEO of Productivity SA, Mr Mothiba, also had a meeting with the Director General on 6 February 2019. It was a positive engagement in the sense that good promises were made. Progress was being made, but it was taking too long.  SA takes too long as a country to do things. Things needed to be implemented swiftly. It was failing as a country in doing this. The people on the ground suffer as a result.  

The term of the board ends in November, and it is hoped the new board does the work which they should be doing: strategic thinking, helping in the creation and keeping of jobs. The new board ought to benefit from the work of the current board. One of the ways to do this was to ensure that problems pertaining to the funding model were resolved. The Department of Labour must fund Productivity SA in order for them to do what they need to do. The Department must pay all the time. There must be full funding from Parliament via an appropriation.

The Chairperson said that before the CFO could delve deeper into the financials, it was important to ask what the reason was for Productivity SA expecting funding from the UIF. What had occurred that had led to the organisation expecting funding from avenues other than the Department of Labour? Why was it necessary to have a revolution in the funding model?

Mr Mothiba, the CEO, said that the history of Productivity SA is that it was a Schedule 21 company. However, in 2008, when it was changed to a Schedule 3(a), funding issues were not fully addressed. When there was a financial crisis in 1998, there was a decision at Nedlac to look at a turnaround strategy in order to save jobs.

At that stage, there was funding for skills development. It was at this point that funding for Productivity SA would come from the Skills Development Fund. There was also a decision to improve the competitiveness of enterprises. The fruits of this was the Workplace Challenge programme . The decision from a Nedlac point of view was that the programme would be funded by the Department of Trade and Industry (DTI). Therefore, there would be three sources of funding: one appropriated by Parliament through a department Budget Vote, a portion of the funding would come from the Skills Development Fund, and a portion from the Department of Trade and Industry, over a 20-year period.  When the Skills Development Fund was moved to the Department of Higher Education, there was a gap. This was when funding from the UIF came into the picture. In 2014, during discussions about the Employment Services Act, this is when the two functions were codified, stating that Productivity SA would perform certain functions. It was at that point that what was being brought to the Committee now should have been brought forward then. It was at that point that it should have been made clear that funding should not be coming from different sources, but should be from a single source. As communicated by the board, this matter had continued for too long. This was from a Nedlac discussion 20 years ago. This model is unsustainable. Funding should come from one source -- from an appropriation.

The Chairperson said that he wanted the Committee to be made aware of the history of this item.

Mr M Bagraim (DA) said that at the previous meeting, the DG had made mention of funding coming from the UIF because they had promised to help Productivity SA for only one term. They did not rely on the UIF.

The Chairperson thought that the UIF had an interest in Productivity SA. That is why it was a problem that they could not be certain if funding came as a result of interest. Then, when that interest waned, funding would disappear. This was not sustainable.

Mr Mdwaba said that the things the Chairperson was saying are not mutually exclusive. It was easy to say that an element was just an ancillary part. When funding moved to another department, the UIF did have a benefit it derived from a programme of this nature. It looks after unemployed people. The more unemployment increases – for example, a 4% point increase -- a proportionate amount would need to come from somewhere. It needed to come from people in a business activity, from enterprises being successful, not from closing businesses and retrenching people. It was flawed to say that if and when there is a challenge at the UIF, Productivity SA needs to be chasing the UIF. This is not where their mandate was derived. Productivity SA’s mandate is to be funded by the Department. They needed to be funded for specific activities as per the Employment Services Act.

Mr Sibusiso Sabela, CFO, said that Slide 19 would deal with the financial projections of the entity.  

He said that funding which had been confirmed for this financial year (2019/20) was R56 million. Before the year had even been started, R56 million was available for administration, yet projections were R50 million, plus R12 million. There was a deficit from the onset. This explained why year in and year out, the organisation had to go back to the Department with a deficit. This had nothing to do with operational inefficiency, but it was a failed programme from the word go. This was the reason why the Chairman of Productivity SA asked for assistance from the Committee with regard to an appropriation solely from Parliament, because the funding, as matters stands, was insufficient to cover just the administration. The other two programs, the Workplace Challenge and the Turnaround Programme, were funded externally. One was funded by the DTI at R22 million. This was a best case scenario. What was currently being received from the DTI was R9 million. Once again, there was a deficit from the start. The last programme was the Turnaround Solutions programme, funded by the UIF. The impact of this could clearly be seen. Projections were R132 million. The problem was that there were fixed costs, such as employees, who had to be compensated. Office space needed to be paid for, together with other operational expenditure. Projections made for the next three years were prepared and logged with National Treasury: R229 million, R232 million and R238 million. This was a best case scenario.

The business model of Productivity SA speaks of the footprint. They had to be visible in the metros: Gauteng, Western Cape and in Durban. There was no visibility in smaller areas such as the Northern Cape. Once again, this was an issue of funding.

The next slide grouped items according to classification. For example, all employees, irrespective of the programme, were grouped together. The combination stood at R73 million. There were 107 employees in total.

The Chair asked what the acceptable level of compensation for employees is.

Mr Sabela said that R73 million represented fixed costs. The government only funds R56 million. By the same time next year, the entity would be going back to the Department for a bailout again. The proposal was that they get R229 million for 2019/20, R234 million for 2020/21 and R264 million for 2021/22.

The Chairperson asked what the acceptable ratio for the compensation of employees within state organs was.

Mr Sabelo responded that the number was driven by sector. Some sectors are capital-based, which would lead to less compensation. Others were knowledge-based. The The Public Servants Association (PSA) was a knowledge-based organisation. As a result, their machinery was people.

Mr Mdwaba said that Productivity SA was knowledge-driven. Therefore, people were the most important asset, or most expensive asset.

Slide 21 dealt with recommendations which were being made by Productivity SA. Slides 10, 11 and 21 were the most important slides in the presentation.

The Chairperson asked for an explanation as to what it meant to be a schedule 3A public entity, and why it differed from other public entities.

TMr Mothiba said that there was an attempt to explain this on slide 21. In terms of the PFMA, Productivity SA fulfills a responsibility, which was a socio-economic responsibility in terms of the Act. It was not a profit-making entity. This was confirmed in terms of Section 31 of the Employment Services Act. The functions were covered on slide 7. It was given this mandate of employment growth, job preservation as well as providing information to the country about productivity. There was an expectation that revenue could not be generated anywhere. Therefore, funds needed to come by way of an appropriation.

The Chairperson said that they were a component of the Department of Labour and not an independent entity. They were a part of the Department of Labour.

Mr Mdwaba responded that they were an independent entity established via an Act which was moved by the Department of Labour, with a board appointed by the Minister, with a fiduciary duty to the organisation. The CEO was an Accounting Officer in his own right. When the CEO sat with the DG, it was an Accounting Officer to Accounting Officer engagement.

The Chairperson asked who identified and appointed the board.

Mr Mothiba, said that in terms of Section 35 of the Employment Services Act, the CEO was an accounting authority. The Minister is the executive authority who appoints the board, the chairperson directly, and the other six members are appointed through the Nedlac process as constituencies. In terms of Section 31 of the Employment Services Act, it clarifies that the entity is a juristic person. Linked to the responsibilities of the board in terms of Section 50 of the PFMA, the legal standing of the board and what the entity should be doing, was clarified.

The Chairperson asked whether, when Productivity SA expected funding from the Department and not anywhere else, they were saying that they were a shareholder.

Productivity SA had gone through a very difficult history. They had a change in funding models, with some good Samaritans who had come to the party. His main question was who had the responsibility of sustaining jobs? Who had the responsibility of creating jobs? When looking at the Department of Labour of Productivity SA, who needed to worry about the delivery of this service, irrespective of the model? The challenge at the moment was that Productivity SA was suspending some programmes because of non-funding. Those with an interest in this entity were negating their objective.

Mr Bagraim said that it was disheartening to hear what Productivity SA was saying. According to him, their role was sustainability, job retention, and productivity. He wanted to know whether Productivity SA had approached the Department’s DG to try and sort out their internal problems. It was not the role of the Committee to do this. Secondly, the entity was formed by an Act of Parliament. Why were they funded by the UIF? He did not understand why they got their funding from the Department, which regarded them as a step child. Thirdly, productivity in SA is low. Their function is vital. The only interaction he had had with Productivity SA was in industry in the wake of mass retrenchments. As far as he was concerned, job creation came from small businesses and needed vital skills. He believed that Productivity SA could be the cornerstone of the economy. Mauritius had also created a vibrant small business sector. Not only was the entity meant to be a stand-alone organisation, he also believed that the organisation needed their own budget in order to allow them to plan for the future. With 10 million people unemployed, Productivity SA had a lot of responsibility.

Ms L Theko (ANC) said the Productivity SA board was conceding that they had a crisis. The funding model was chaotic. At a previous meeting, the Committee, as well as the DG, were dealing with the issue of transferring that fund. The Committee was told that the matter had been finalised. The CEO had confirmed that there would be meeting to finalise this matter and that things were all well. After Christmas, things had remained the same. The little that was received from UIF, should be used to address challenges. Nevertheless, the board was making progress.

On the issue of a bailout, the Minister had asked if all these entities were needed. There needed to be a model to integrate some of these entities.  The Act had established the Productivity SA board. There was a recommendation from the board to fund the entity independently. There was confusion because the funding was coming from different quarters. How did the entity budget, when some funds were received late?

Referring to the legacy report, she suggested that Productivity SA should receive priority from the next Parliament. This entity could not be neglected, because an entity of their calibre was saying that they could not play their role -- they are were receiving the money to play their role as Productivity SA, such as coming up with an Act and not funding it. She was uncertain about the accuracy of the statement. It needed to be investigated by the Department. The DG needed to be tasked with an investigation to test the accuracy of everything Productivity SA had said. Regarding the UIF, it was incumbent upon the Commissioner to clarify where the problem was, and why they were not transferring funds. The Minister needed to change the system itself. The PFMA was straight forward in terms of budgets.

Productivity SA also said the Skills Fund was transferred to the Department of Higher Education and Training (DHET). If it was transferred, what was the effect? What about the gap? There were a myriad of challenges reported, as opposed to positive feedback.  One could not tell people to vote, despite falling productivity. Productivity SA needed to communicate what success stories they had from the time they came into office. The Committee needs to know what strategies are there to improve productivity. How is this entity relevant to the state?

She thanked them for their frankness. She had been able to find out what was the key problem was.
There was a blame game between the Department and Productivity SA. Policy uncertainty was also a challenge. How was it that the turnaround strategy was suspended? Was it because of the budget? Mr Bagraim had put it clearly. Unemployment was a huge problem. If it went to 30%, she did not know what could be done. Maybe the chairman of the board would be able to propose something good. With regards to sustainability, unemployment was a challenge.

Ms T Tongwane (ANC) said her contribution would be brief. Given that fraud and corruption was found during investigations, how many cases were fully resolved?

Ms S van Schalkwyk (ANC) said that she would not re-emphasise concerns made by previous Members. Challenges had been experienced in this entity for quite some time. It was clear that transfers to this entity are insufficient. She requested that a turnaround strategy be formulated to explain how they expand income to assist in terms of transfers and financial sustainability. She could not find those proposals in their presentation. During the Minister of Finance’s budget presentation, it was revealed that things would get tougher. If there was no other source of income except these transfers, it was a concern. It was a concern that the DG was absent. It was problematic to engage about problems regarding the Department in the absence of DG.

With regard to maladministration, she echoed Ms Tongwane's sentiments. What had been done as far as consequence management is concerned?

She wanted to hear from the UIF Commissioner. The UIF said they had stopped the transfers. There needed to be evidence produced of what was done with the money before more could be given. In the process, the Committee did not want Productivity SA to close down because of their importance as outlined in their mandate and SA’s current economic climate. The continuous poor performance of Productivity SA left much to be desired. In quarter 1, 34% was achieved. In Quarter 2, 32% was achieved. The Quarter 3 performance was a mystery. There was a blame-game when it came to reporting before the Committee. Was there a strategy or intervention which could be looked at without looking at the Department or UIF in ensuring the sustainability of the entity? The responsibility was shared, but the buck stopped with the board.

With regards to the statements made by the chairperson of the entity, such as 'We were never involved in National Minimum Wage discussions,' the entity needed to be proactive. There was nothing stopping them from making proposals without being requested to do so.

 If there was a communication breakdown, there needed to be communication to the Committee to deal with the matter. The Portfolio Committee secretary needed to include this as a recommendation in the legacy report for the attention of the incoming Portfolio Committee. She urged the reopening of the lines of communication between all stakeholders. This was because as an ANC-led government, the needs and objectives of the entity needed to filter down to the people on the ground.

 If things like a turnaround strategy were suspended, it needed to be addressed. The Committee appreciated that Productivity SA came to it with the board and had presented matters before it. It was a pity that there were only two weeks left before the end of the term, as the Committee would have loved to do more. An attempt could be made to manoeuvre outside the meeting to engage with the Department and DG to try and fast-track service delivery in terms of this entity.


The Chairperson said that Schedule 3A entities were defined as an extension of a public entity, with a mandate to fulfil a specific social or economic responsibility of government. As such, such entities had the least autonomy, unlike Chapter 9 institutions, which had reasonable autonomy. A Schedule 3A entity like Productivity SA was a government component -- a component of the Department. They were unable to perform certain activities such as issuing bonds and dealing with shareholders as is the case with entities such as DENEL and all other state-owned enterprises (SOEs). Therefore, because they were established to fulfil a specific mandate, it was the responsibility of the Department to ensure that they fulfilled their objective. If the Department did not fund them, it was stopping them from executing their duties.

He engaged the Commissioner of UIF and DG in terms of the implications of what was happening. Productivity SA was supposed to assist in saving jobs. They needed funding in order to do this. It was in the interest of the UIF to save jobs.

It could not be celebrated that if Productivity SA was implicated in fraud or mismanagement, it was calling for investigations. This was counterproductive. The call needed to be made to stop this. Mismanagement needed to be stopped. Stopping of the mismanagement of funds should not stop the entity from being funded and functioning, otherwise the non-delivery of services and lack of funding would be a double tragedy. In pursuit of financial discipline at Productivity SA, the UIF could channel resources elsewhere and assist unemployed people.

There would be a shift of funds on the expenditure line. Productivity SA did not have a responsibility for sustaining jobs. It was its function to create them. It was the responsibility of the Department to sustain jobs. It was using Productivity SA as a tool to do this. There needed to be clarity about this, as there would be confusion in the interpretation of what Productivity SA was doing.  

Regarding Parliament not giving them money, Productivity SA was a policymaking institution. The piece of legislation which they were established from had been proclaimed, together with which, the  Minister was responsible for that legislation. All of the obligations of that legislation became the responsibility of that Minister and the Department. Even if the entity was given some responsibilities, some of these responsibilities came from the Executive. Policy proposals were brought to Parliament. As policymakers, if Parliament agreed, they would be promulgated. Once that policy was passed, it would be assented to by the President.  If the President wanted something to be implemented, it would be done. This would be followed by the relevant Minister, as the responsible executive authority, to ensure implementation. If Productivity SA needed money, they needed to go to the relevant DG. Productivity SA needed to engage in the budget process in order to ensure that their demands are met. The budget process started about eight months before the budget was tabled. It was a progressive process. Now that the budget was out, the next cycle of preparations would begin.
If there were gaps in legislation, there needed to be an effort on their part to communicate this and to convince the Department of Labour to attend to such areas in legislation. There would then be an Amendment Bill which came to Parliament. The Executive authority lay with the Minister and the Department.

The Chairperson said that he also needed clarity about the item raised by Ms Theko. If the Skills Fund had Productivity SA as an expenditure wing, and if it was taken to the DHET,  why was there no subsequent discussion about that expenditure line? The entity seemed to have allowed the kitty to go without discussing the implications of this.  There was also a discussion necessary regarding the funding with the UIF. There needed to be sustainability of funding.

UIF’s response

Mr Teboho Maruping, UIF Commissioner, said that he he did not think ‘stingy’ was the correct description of the UIF. Mr Mothiba had started in April 2016, while he had started in December 2016 as a Commissioner. Mr Mothiba had approached the UIF and indicated the need for an investigation. The UIF had agreed to take on the burden of the investigation for the benefit of Productivity SA and the UIF. Productivity SA’s success was for the mutual benefit of these organisations. In a sitting with the DG, Mr Mothiba and Mr Maruping, the findings of the investigations had been shocking. Some of the issues picked up also included suppliers. Some of the problems were internal at Productivity SA. Disciplinary action was taken. About half of the executive team were lost due to the investigation. There was a case reported to the police. The investigation was ring-fenced, and funds distributed. The investigation had its own implications. Panic signals were sent to the finance team at UIF due to words such as ‘irregular expenditure’ being used by the regulator. As such, they were very cautious in financial matters pertaining to Productivity SA. One could not continue to fund an area where there was fraud. Cases of fraud needed to be sorted out first, regularising activities before continuing as per normal. A risk was taken by Mr Mothiba and himself, and they had ring-fenced that piece and allowed them to continue operating for the remainder of 2017.

However, during 2018, there was resistance from the finance team at UIF, and justifiably so. They were of the view that irregular expenditure and fraudulent activity picked up must lead to their not incurring further costs, as per the PFMA,.  

Mr Mothiba and his team decided that there was no point in coming up with a turnaround solution if funds were not forthcoming. This was understandable. A management fee of about R4.2 million was paid to Productivity SA. There was also a legal opinion sought about whether or not to pay Productivity SA a legal fee. They decided to pay Productivity SA the fee despite the legal opinion stating otherwise. As an Accounting Officer, one had to apply one’s mind. They decided to pay the fee because they wanted to honour the agreement they had with Productivity SA. The UIF would be willing to discuss the implications after that.

They were finalising the legal agreement with Productivity SA for the new financial year. The intention was to finalise it within the next few days, by the end of February, so that they could pay the first tranche in March. What Mr Mothiba and his team were saying was that they needed a funding model which was simplified. For example, Public Employment Serviceed works for the UIF. They do counselling and curriculum vitae (CV) capturing before a person applied for UIF. The UIF did not have to set aside funds for Public Employment Services, but simply sent an invoice every month for services rendered. The Labour Policy and Industrial Relations also worked for the UIF. The UIF did not set aside a budget for them, but every month they sent an invoice -- a dole claim.   Instead of looking at the UIF for funding, the Department needed funds set aside for them.

What Mr Mothiba and his team was requesting fwere unds which were set aside specifically for Productivity SA by the Department, which would free them from tussling with the UIF on a regular basis. Otherwise, Public Employment Services must do the same. One of the main tasks that the Commission for Conciliation, Mediation and Arbitration (CCMA) does is done for the UIF because they assist companies on the brink of closure. They assist these companies with training lay-off schemes, which come to the UIF to pay them. However, the UIF did not have an agreement with the CCMA to pay them every now and again for what they do. As a result, the view from Mr Mothiba and the chairperson of Productivity SA was that if it was defrayed from the vote of the Department, it would simplify the movement of funds from the Department. It was already guaranteed that they would be doing certain things at the beginning of the year. Therefore, the Department ought to set them aside. How it got deducted from the UIF or Compensation Fund was another matter altogether. The Compensation Fund and UIF were supposed to fund them, but they had defrayed from the Department’s vote of the budget.

The Chairperson said that he thought what was presented was fine. This exercise did not need the Committee, but the UIF, Productivity SA and the DG to sort out the funding model. For some reason, these entities had operated on a gentleman's agreement for more than two or three years. An analysis of this arrangement would show that this was undesirable. The UIF and Productivity SA were both entities of the Department of Labour, but one needed to ask for funding from the Department. This was a misaligned arrangement.

The chairperson of Productivity SA said that some things which were mentioned by the Chairperson of the Committee were not in isolation. He wanted to categorically say that there was no blame game here. There was no time for this. Productivity SA loved what they did. They do what they did for love and to serve. They had exhausted everything they could think of. Productivity SA used far more time than they should in terms of doing certain things.
 
With regard to maladministration, they would receive emails from people alerting them about this, and they decided to check. In one incident, someone in the Department was playing a game, and some people got fired as a result of this. Charges were laid. Had the funding model been correct from the onset, would there be maladministration? This was a question he asked. There was no money that went into anybody's pockets. Money had just gone from one kitty to another. No money had left the organisation.

Productivity SA said they could not continue to have a 'stepchild' situation. Communication had always been open, but there was a misunderstanding about how this was supposed to work. The Department needed to appropriate to them the money at the beginning of the process in order to enable them to plan predictably for SA's people. They had a mandate to lift South Africa from 51 to between 60 and 100 in terms of the productivity index.

In terms of Productivity SA being a possible lifeblood for the economy, he agreed with this. If life was going to get tougher, this was so because there were vital decisions which needed to be made initially. Productivity SA sits in the middle of certain aspects. Productivity is important for South Africa. Productivity SA should not have to be pushing themselves as a party into certain areas, like the National Minimum Wage. They were a necessary partner. There needed to be change. He and his team were asking for slide 21 to be implemented. Good conversations had taken place, but there needed to be a predictable environment and implementation.

The Chairperson of the Committee said that there was a clear understanding. What was pertinent was to provide a history of how the problematic funding model had occurred. This was now understood. When the funding arrangement was instituted initially, there were no problems, but problems were experienced later, which led to some programmes being suspended as some resources were not forthcoming.

According to the PFMA, Productivity SA needed to be disciplined in terms of finances. Being irresponsible would not be tolerated. An analogy of moving an egg with a golf club from one end of the room to another needed to be heeded. There were risks that needed to be carefully considered in running the organisation.
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There was a need for Productivity SA to cleanse itself from financial misbehaviour, but it should also handle problems with funding bosses simultaneously. It had less autonomy as a Schedule 3A entity. They were a baby of the Department of Labour. There was an intervention space. The entity was not like DENEL or Transnet. They could not dictate to the Department how things should be done. The Department needed to ensure they did what needed to be done. It was not in the interest of the Department of Labour to throttle the neck of Productivity SA, because the service which Productivity SA delivers would not be delivered. The Department needed to guide Productivity SA. People needed to comply with all laws to ensure that mismanagement did not occur easily. He asked whether ‘dealing’ with people implied 'firing them'.

The Committee was sending them back to the Department. The DG of the DTI also needed to participate in resolving items mentioned. Money being sent to Productivity SA could be sent through the Department of Labour. He did not think the Skills Fund ought to be left in isolation. If it had an impact in Productivity SA, the engagement still needed to be made and should include all aspects. Departments were prone to operate in silos and there are cases where a DG refuses to release funds as if it is their personal funds they are dealing with. Some even went to court and spent even more money. Building walls between departments creates problems.

The Chairperson said he hoped the 6th Parliament Portfolio Committee would prioritise this entity.

The meeting was adjourned.