South African Bureau of Standards & National Regulator for Compulsory Specifications turnaround progress; National Lotteries Commission allegations

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Trade, Industry and Competition

24 June 2020
Chairperson: Mr D Nkosi (ANC)
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Meeting Summary

Video: Portfolio Committee on Trade and Industry, 24 June 2020

The South African Bureau of Standards outlined the reasons it had been placed under administration in 2018 and the three-phase turnaround plan: stabilise the organisation, fix the business and chart a new course. It detailed how the various components of its business were being fixed, including the standards division, certification, laboratory services, training academy, group finance, human capital and marketing.

Committee members asked about duplication with other regulatory bodies, the status of laboratories, new revenue streams, streamlining, digitisation, labour relations and the regulation of COVID-19 personal protective equipment (PPE) such as sanitisers and masks.

The National Regulator for Compulsory Specifications outlined the problems that had necessitated a turnaround plan at NRCS in the areas of human resources, audit outcomes, pre-market approvals and  information and communication technology (ICT) modernisation, and what was being done to address these.

Committee members asked about the ICT modernisation, laboratory conditions, cyber security, plans to recover lost revenue, and if the NRCS could return to the South African Bureau of Standards.

The Chairperson said that he had asked for a legal opinion from Parliamentary Legal Services on the way forward to obtain the identity of National Lotteries Commission beneficiaries. He would circulate the legal opinion once it was received. The Committee had received allegations of maladministration at the NLC and had written to the Minister to ask if they were true. The Minister had responded that a report would be forwarded to the Committee once the allegations had been investigated. The NLC had asserted that it could not disclose the names of beneficiaries to Parliament. The legal opinion sought to determine if this was correct. This would be discussed at the next meeting.

Meeting report

Department of Trade, Industry and Competition (DTIC) introduction
Ms Thandi Phele, Acting Deputy Director-General: Industrial Development, Department of Trade, Industry and Competition (DTIC), said that the particular focus at the South African Bureau of Standards (SABS) was to stabilise the institution and reset it as the government’s key standards-setting body. The focus at the National Regulator for Compulsory Specifications (NRCS) was to address its recurring audit and performance challenges. A lot of work had been done to address the challenges that had been highlighted by the Portfolio Committee.

South African Bureau of Standards (SABS) turnaround progress
Ms Jodi Scholtz, SABS Lead Administrator / DTIC COO, introduced the delegation from SABS, noting that the large number of acting executives was due to the turnaround strategy looking at the micro and macro structure of the organisation. The position of Chief Executive Officer (CEO) had been vacant since Mr Garth Strachan resigned in February 2020 and the vacancy had been advertised. COVID-19 had had a significant financial impact on SABS, particularly as a large proportion of its revenue came from small and medium sized enterprises. A R100m revenue shortfall was expected. She gave the reasons for SABS been placed under administration in 2018 and outlined the three-phase turnaround plan that had been developed: stabilise SABS, fix the business and chart a new course. An external service provider had been appointed to develop a new organisational operating model and structure.

Ms Scholtz went into detail on how the various components of SABS were being fixed, including the standards division, certification, laboratory services (COVID-19 had exacerbated backlogs), the training academy, group finance (also affected by COVID-19), human capital and marketing. The presentation included an account of SABS’ contribution to government’s COVID-19 response.

Mr W Thring (ACDP) asked if duplications with other regulatory bodies had been identified and if so, what measures were in place to remove them. What was being done to turn around declining revenue? What progress had been made on the e-commerce platforms and the upgrade from manual to digital documentation across all departments of SABS, including plans to up-skill staff? What percentage of laboratories were dysfunctional or not in use, what percentage had be upgraded, and what percentage were operational? What ideas did SABS have for putting unused land and buildings to profitable use? What gaps identified by the Auditor General had been closed, and what form of consequence management had been imposed on those who had failed to exercise fiduciary responsibility?

Ms Y Yako (EFF) asked who SABS competed with and what DTIC was doing to assist it. What was the name of the external service provider who was helping SABS to develop its new operational model? Realistically, how long was the turnaround expected to take? Was it five, ten or fifteen years?

Mr J Mulder (FF+) asked if a new, updated turnaround plan would be developed that took into account the effects of the COVID-19 pandemic and the special adjustments budget to be released today.

Mr D Macpherson (DA) recalled that before Mr Strachan had resigned, he had talked about streamlining SABS as it had been burning through cash and looking for funding. He asked SABS to confirm that the cash burn had increased since then. Since SABS had not been able to get more funding, its only options were streamlining or bankruptcy. Bankruptcy seemed the more likely outcome at this stage. Had Mr Strachan resigned because he could not get any support for streamlining from the Administrators and the Department? If streamlining was not supported, did SABS agree that bankruptcy was the only option?

Ms N Motaung (ANC) asked who was responsible for the inspection of sanitisers that were not tested. How did consumers know that a face mask was certified by SABS? How much progress had been made on local content regulations?

Mr S Mbuyane (ANC) asked for clarity on some poor policy decisions, such as the cancellation of permits. What was the strategy to resuscitate SABS finances and aging infrastructure? How much progress had been made in the cancellation of the R300m digitisation plan in favour of a cost-effective alternative? He wanted information on the revenue generation related to an Ethiopian company. What had been done about the organisational structure and the skills audit, given that several executives had resigned? Was labour on board with the turnaround strategy? The Committee had been told that there were weekly meetings with organised labour.

Ms M Mantashe (ANC) wondered if clearing the SABS backlog by the end of June was realistic. What was the strategy? She asked for assurance that the concerns raised by workers during the Committee’s oversight visit were being addressed.

Ms J Hermans (ANC) commended SABS for its work on the turnaround and asked for time-frames to be included in its next report to the Committee.

Ms Scholtz replied that all the gaps identified by the Auditor General in the 2018/19 audit had been plugged.

Mr Lungelo Ntobongwana, SABS Acting Executive: Laboratory Services, explained that the usage status of labs depended on the samples that were sent to SABS, so some labs might not be in use because no appropriate samples had been received, not because they were dysfunctional. All the labs were operational and working on a rotational basis to clear the backlog. Some labs did have challenges with technology and human resources. The capital expenditure budget was being used to procure new equipment, but more than 50% of SABS’ equipment was more than ten years old and it would be good if the process could be expedited. Of 29 labs in the country, 13 had been identified for efficiency improvements or new revenue streams. Improvements at four priority labs and four others had been completed. This work had to balanced with the SABS cash flow.

He admitted that the backlog was caused partly by COVID-19 but was also partly due to legacy issues, and the latter was due to declining equipment and operational management capabilities. SABS was developing a forecasting and planning tool to assist with tracking samples through the system and also identifying demand more efficiently. The organisational review was expected to help identify areas where operations could be streamlined and gaps closed. The tender to the Ethiopian company had been submitted. The call for tenders had closed in May. The company had acknowledged receipt and was the procurement process was being undertaken. When it was complete, information would be shared with the Committee.

Mr Lizo Makele, SABS Executive: Human Capital, replied that the name of the external service provider was Four Chakras Consulting. It was very experienced in the public and private sector. Currently only three out of seven SABS executives were permanent appointees but this was a deliberate choice and part of the organisational review. SABS was looking to establish a flatter, leaner organisational structure. Management had been trying to improve its relationship with labour since 2018, and labour was involved in almost everything. Regular meetings involving labour and the Lead Administrator had been taking place, over and above statutory monthly meetings, where labour was updated and given an opportunity to make inputs. He recalled that the strike during the Committee’s oversight visit had been a general strike of DTIC entities, not SABS specifically. DTIC had got involved and the issues had been resolved. SABS management had started looking at new issues, but negotiations had not begun yet.

Ms Scholtz replied that the timeline for getting SABS out of administration was two years.

Ms Tina Maharaj, SABS CFO, replied that many of the Auditor-General’s findings had been technical findings that arose from organisational inefficiencies. Controls to address them had been implemented and a range of exception reports had been developed to help identify issues before they became a problem. The internal audit team had been asked to review the audit findings that had been addressed. The Auditor-General had also been asked to look at this and no issues had been raised so far. Technical accounting items were being addressed. The long-term property development strategy was to leverage the SABS unused real estate to generate rental income. COVID-19 had shown that SABS did not need a full staff complement at its offices.

Mr Katima Temba, SABS Acting Executive: Certification, replied that there could be duplication of activities in the area of consignment inspection. Market surveillance fell under the purview of NRCS and consignment inspection was complementary to this work, so information was shared from time to time with NRCS and other regulators. SABS main competition in the certification space came from large multinational companies such as SGS, TUV and Bureau Veritas.

One case in point of poor policy decisions that had led to cancellations was the stopping of partial testing, which had impacted on most of SABS activities. This had since been reversed and implemented under customer specific requirements. He explained that SABS was not a regulator, and it would only do market surveillance or random inspections of sanitisers or face masks in exceptional circumstances. Such a circumstance might be a company whose products had been certified and carried the SABS mark, or where the SABS mark was being used illegally. He suggested that the NRCS could elaborate on the inspection of sanitisers. He was aware of an initiative to introduce regulation for that but he did not know how much progress had been made. SABS had certified N95 masks but it could only focus on companies that had specifically applied for SABS certification. DTIC had in the past made funds available to SABS to do local content verification but this was limited to designated sectors. Proudly South Africa monitored tenders from all spheres of government and selected tenders which were forwarded to SABS for local content verification. The funding for local content verification had always been a challenge although DTIC had made an allocation. SABS had also been asked to play a role in local content verification in the mining industry, as the Mining Charter required that 70% of mining company procurement should be local content. The two-year window for mining companies to self-declare was coming to an end in September 2020, and SABS was bolstering its existing audit pool to ensure it had the resources to respond to the possible increase in demand.

Dr Sadhvir Bissoon, SABS Executive: Standards, replied that there were probably more than 300 different regulators in South Africa, which might account for disparities and scope creep in the regulation of products and services in the country. Good regulatory practice should be built on national standards and SABS was the only entity with the mandate to develop these. Regulators should be using SABS knowledge and solutions. The relationship between SABS and the NRCS was a good example of this. It was possible that SABS had not yet developed a standard for a particular product, and enforcing a standard, as distinct from developing it, was the responsibility of regulators. Together with regulators, state-owned companies and other government entities, SABS was developing a matrix of national standards aligned with their policy objectives and it would engage with priority departments and regulators to ensure that they started using national standards. The Department of Health, for instance, had a standards division while SABS had technical committees developing standards for medical supplies, so there was an element of duplication and the standards might not be the same.

Ms Scholtz replied that as part of consequence management, warnings had been issued and corrective counselling had taken place. DTIC was assisting SABS through its Offices of Industrial Development and the Chief Economist to identify critical sectors, giving SABS critical policy guidelines. SABS was looking at streamlining through the organisational review to try to reduce duplication. The CFO was ensuring that cash flow projections were correct and exploring other revenue generation opportunities. She had engaged with the National Consumer Commission (NCC) to identify sanitisers on the market that consumers were complaining about as the NCC had a mandate to do inspections and collect samples. The R300m digitisation strategy had been cancelled as it was unaffordable, but a number of elements were being implemented, such as the certification system, the e-learning platform and the laboratory software system. An updated turnaround plan was already being developed in response to COVID-19. It would have a stronger sector focus, looking particularly at personal protective equipment (PPE) and food.

National Regulator for Compulsory Specifications (NRCS) turnaround progress
Mr Edward Mamadise, NRCS CEO, gave an outline of the problems that had necessitated a turnaround plan at NRCS. These were in human resources, audit outcomes, pre-market approvals and information and communication technology (ICT) modernisation. He reviewed the 2018/19 audit findings, and spoke about the human resources problems. All critical financial management positions had now been filled, including the head of supply chain management, the financial manager and the CFO, albeit on a short contract basis. The organisational review was expected to be finalised by end of June 2020.

Ms Phetsile Magagula, NRCS CFO, spoke about the audit qualification from the Auditor-General about NRCS revenue. She looked at four areas that had led to the qualification (failure to declare all actual declarations, levy estimates, new customers not being taken into account and revenue completeness and cutoff) and what was being done to address the problems in these areas.

Ms Abigail Thulare, NRCS Chief Operations Officer, spoke about pre-market approval performance during 2019/20. She gave special attention to electro-technical approvals, which constituted a large percentage of all approvals.

Ms Nomathemba Majola, NRCS Acting Chief Information Officer, spoke about the progress that had been made in six ICT areas: information technology (IT) infrastructure review, IT skills, capacity and competency programme, application modernisation programme, data integrity and security programme, ICT governance programme and excellence of customer service programme.

Mr Mamadise gave a brief overview of the impact of COVID-19 on NRCS and its response to it.

Mr Mbuyane applauded the changes made by NRCS. He asked if it would be feasible to fix the current financial system (JDE) as part of the turnaround strategy. Delays in implementing the ICT modernisation programme remained a concern, as this was connected to many parts of the NRCS’ operations. What progress had been made to address the less-than-ideal laboratory conditions in the legal metrology division? How was the NRCS dealing with cyber security? Did the turnaround strategy address the loss of revenue, including the database maintenance procedure?

Mr Macpherson said that it was becoming obvious that the NRCS needed to become part of SABS again. He suspected that the NRCS was burning through cash just as fast as SABS was, particularly as a result of COVID-19. Was this possibility being discussed?

Mr Mamadise replied that the JDE upgrade had been abandoned as it would be wasteful to upgrade a system that would soon become obsolete. The current priority was to implement the enterprise resource planning (ERP) system, which would handle all financial reporting. The appointment of the ERP system provider was at the final stages, so he did not want to give further details. The legal metrology laboratories were rented from SABS, and the electrical interruptions had been raised with SABS and a meeting with the lead administrator was being arranged. He could not say if the possibility of NRCS becoming a part of SABS was being discussed as it was the responsibility of DTIC as policy maker. However he did say that the two entities had evolved since separating to the extent that a merger might be difficult.

Ms Phele, DTIC DDG, said that the Department had been instructed by Cabinet to look for synergies among its entities. DTIC had instituted quarterly engagements between the four technical infrastructure entities to ensure seamless integration of their work and to support sectors identified as critical to the re-imagined industrial strategy. DTIC was leading ongoing technical work on identifying synergies and duplications among the four entities. Once a workable proposal had been developed, it would be presented to the Minister.

Ms Majola replied that the main focus of cybersecurity efforts had been to ensure sufficient bandwidth. NRCS had partnered with Microsoft to manage the patching of all its servers. Open source programs were being looked at and run in the server environment, and firewalls were being established within local area networks.

Mr Mamadise replied that sanitisers were not currently regulated by the NRCS although it had developed a compulsory specification that was awaiting ministerial approval, after which the NRCS would be able to monitor the quality of sanitisers on the market. NRCS regulated certain types of masks. The Southern African Pharmaceutical Regulatory Affairs Association (SAPRAA) also regulated masks.

Ms Phele thanked the Committee for the guidance it had given to SABS and NRCS. Both entities had made strides in addressing the challenges identified, although this remained work in progress. The Department was sensitive to the issues raised by COVID-19, especially when it came to raising revenue.

Dr Tshenge Demana, SABS Administrator / DTIC Chief Director, Technical Infrastructure Institutions, replied that the work of the entities was supposed to be complementary but he admitted that there were currently some overlaps. For example, legal metrology was conducted by the NRCS but there was also a whole entity, the National Metrology Institute of South Africa, set up to do metrology. He clarified that although the NRCS had developed regulations on sanitisers, testing was to be done by the SABS. This was also an area that could be optimised.

Update on the National Lotteries Commission process
The Chairperson said that he had asked for a legal opinion from Parliamentary Legal Services on the way forward on obtaining the identity of National Lotteries Commission (NLC) beneficiaries. He would circulate the legal opinion within the Committee when it was received.

Mr M Cuthbert (DA) asked if the legal opinion would take precedence over the outcome of the management committee meeting. What was the legal opinion supposed to decide, given that there was a clear precedent for other entities within the DTIC presenting information to the Committee? Had the Chairperson thought about the information he had forwarded? When was the legal opinion expected to be made available? Had the Chairperson received any further complaints about how this matter was being handled by the NLC?

Mr Mbuyane said that the Committee should wait for legal opinion before deciding on the way forward. The Committee should not rush and cloud the issues.

Mr Macpherson asked for a copy of the Chairperson’s letter to legal services requesting the opinion. What had informed the Chairperson’s request for legal advice in the first place? He was concerned about how the Committee was handling the matter. This seemed in his opinion to be an attempt to obfuscate very serious concerns. The Committee was within its rights to request any information from any entity that reports to Parliament. A legal opinion was not necessary. If the Committee did not look into the NLC, the DA would seek a judicial review. The Committee needed to act in a manner that protected the public purse, not those who had something to hide.

Ms Mantashe said that the ANC would support the Chairperson’s decision, and would not consent to be labelled as a friend of any entity or be threatened with legal action.

Ms Hermans said that the ANC had a very clear interest in accountability and the oversight role of the Committee. She recalled that no-one had raised any objection in the previous meeting when the Chairperson had indicated that he would seek a legal opinion.

Mr Cuthbert disputed that the Chairperson had indicated his intent to seek the legal opinion and called on Ms Hermans to withdraw her comment.

The Chairperson said that the Committee had received various allegations of maladministration at the NLC and had written to the Minister to ask if they were true. The Minister had responded, saying that a report would be forwarded to the Committee once the allegations had been investigated. The Committee had received communication from stakeholders requesting that beneficiary information should not be published unless legislation governing its publication was followed. Members of the Committee had also requested that a list of beneficiaries should be submitted to the Committee. The NLC had asserted that it could not disclose the names of beneficiaries to Parliament. The legal opinion he had sought was to determine if this was correct. He would give an update at the next meeting.

Committee Report on DTI & Economic Development Department Quarter 4 performance
Mr Andre Hermans, Committee Secretary, noted that he had received no further conclusions or recommendations from Committee members. The Committee could now formally consider the report.

Ms Yako abstained from commenting on the Committee Report on behalf of the EFF.

The Committee Report was adopted.

Committee Programme for 3rd Term
The Committee Secretary presented the programme, drawing attention to the fact that the Minister’s appearance had been postponed.

Ms Margot Sheldon, Content Advisor, noted that the programme included monthly COVID-19 updates.

Mr Mbuyane, Ms Mantashe and Ms Motaung agreed with the programme in principle.

Mr Macpherson was surprised that there was nothing about the Copyright Amendment Bill and the Performers Bill on the programme. Would there be a session to explain why those bills were sent back from the President?

The Chairperson replied that this had been summarised and he would update the Committee on this.

The Committee Secretary explained that the matter had not yet been referred to the Committee by the Speaker. It would be accommodated on the programme when it was referred.

The meeting was adjourned.


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