In a virtual meeting, the Committee was briefed by the Department of Trade, Industry and Competition (DTIC) and two of its entities — the Industrial Development Corporation (IDC) and the National Empowerment Fund (NEF) — on interventions and support extended to distressed businesses affected by the recent unrest and looting in KwaZulu-Natal and Gauteng.
On the basis of an online survey it had conducted, DTIC estimated that the unrest had affected 991 businesses, had caused damages worth R5.8 billion, and threatened up to 10 373 jobs. It also reported on potential long- and short-term economic impacts of the unrest, and both agencies detailed the scale of the unrest’s impact on its own existing clients. The rest of the presentation outlined each entity’s response to the crisis, focusing on the R3.7 billion Economic Recovery Fund intended to assist companies in distress. The IDC had already approved R150 million, and the NEF R112 million, in disbursements. Cumulatively, these covered more than 63 enterprises and supported 3 800 jobs.
Members asked for further details about the total cost of the unrest — especially on the N3 artery, and in the citrus and sugar industries — and about its likely effects on economic growth and foreign investment. They were particularly concerned about the economic importance of shopping malls, asking when the malls were likely to be reopened. Had DTIC’s own infrastructure been damaged during the unrest? Would civil claims, as well as criminal claims, be laid against the instigators of the unrest? Was DTIC assisting in the ongoing court cases by helping the police to quantify the extent of the damages suffered by victims?
Members asked for more details about how the recovery funds were being financed and allocated, and about whether other programmes would suffer as a result of the requisite budget reprioritisations. One Member said that since the violence and looting had been indiscriminate, and due to the scale of economic interdependence, the assistance given to affected businesses should also be indiscriminate. Would the entities assist foreign nationals, rural businesses, businesses outside KwaZulu-Natal and Gauteng, and businesses whose financial records had been damaged or destroyed? Were the packages user-friendly, and what were the interest rates? How would DTIC prevent corruption and reduce red tape? Were businesses only allowed to seek funding from one source? What happened if borrowers could not make their businesses sustainable? Had informal traders been helped to obtain low-cost insurance, and should it not be mandatory for businesses who received DTIC funds to buy insurance? What was the role of the municipalities, the provinces, and private sector, especially the banks, in the interventions?
Members also asked how similar situations could be averted in the future, and what security measures should be implemented. They urged that Transnet should be protected against further cyberattacks, to prevent further implications for exports.
The Chairperson felt that the absence of the Ministry undermined the Committee, especially since the Minister and Deputy Ministers had attended a Portfolio Committee meeting that morning. He was also unhappy that Members had not been sent DTIC’s report until that morning, and he planned to raise both issues with the House Chairperson.
Opening and apologies
The Chairperson said that the Acting Director-General of the Department of Trade, Industry and Competition (DTIC) would be leading the delegation from DTIC. The Committee secretary had informed him that Mr Fikile Majola, Deputy Minister of Trade, Industry and Competition, would join the meeting late after receiving his COVID-19 vaccine. Minister Ebrahim Patel and Deputy Minister Nomalungelo Gina would not be able to attend.
The Committee secretary said that, in fact, Deputy Minister Majola would not be attending. She had received apologies from both Deputy Ministers, as well as from the Minister.
The Chairperson said that he was disappointed that nobody from the Ministry was present. The Committee had raised this before — it had written a letter to the Minister and received an apology. That morning, all three Ministers and Deputy Ministers had participated in the Portfolio Committee on Trade and Industry meeting. In comparison, the Chairperson had a feeling that the Select Committee was being “undermined.” He was very unhappy and thought that he would take the matter up with the Chairperson of the National Council of Provinces (NCOP).
Also, the Chairperson had not been sent DTIC’s report until that morning. He had been checking since Saturday with the Committee secretaries, asking when the Committee would receive the report. The secretary had said that she was interacting with DTIC’s parliamentary liaison officer. He had kept checking his emails until last night, and had woken up to see that the report had arrived. Members had come to the meeting from the plenary session, and had not had a chance to study the report. He would be raising both issues — the Ministry’s absence, and the report’s late arrival — with the NCOP Chairperson.
DTIC, NEF & IDC briefing: Economic recovery support interventions
Ms Malebo Mabitje-Thompson, Acting Director-General, DTIC, apologised for the late submission of the report. She introduced the delegates from DTIC and from the Industrial Development Corporation (IDC) and National Empowerment Fund (NEF), the two development finance institutions (DFIs) that reported to DTIC. She would open the presentation, and thereafter the IDC and NEF would contribute on the programmes they were implementing.
Ms Malebo Mabitje-Thompson reminded Members that widespread unrest, and looting of or damage to businesses, had occurred in parts of KwaZulu-Natal (KZN) and Gauteng from 9 to 18 July. The DTIC Group had developed an integrated response which also included the Department of Small Business Development (DSBD) and other national entities, as well as the KZN and Gauteng provinces and a number of municipalities.
Among other things, DTIC had:
• Conducted site visits;
• Communicated with businesses and international investors;
• Mobilised private sector support for small businesses;
• Conducted economic modelling;
• Published a special rebate facility for duty-free imports to affected manufacturers;
• Developed an Economic Recovery Fund with R3.7 billion earmarked; and
• Gazetted exemptions to the Competition Act to enable businesses to coordinate their efforts to secure essential goods.
Communication with businesses had been important, because there had been some level of panic, with businesses taken by surprise. DTIC had also engaged with neighbouring countries, who were reliant on the Durban harbour and therefore faced possible supply chain disruptions.
The extent of damage
Ms Mabitje-Thompson said that the DTIC had drawn on multiple sources to quantify the extent of the damage. On 18 July, it had launched an online survey, allowing self-reporting by businesses. According to the results of this survey:
• 31% of respondents were uninsured;
• 991 businesses had been affected in KZN and Gauteng;
• Most businesses experienced a combination of direct damages and supply chain disruptions;
• The estimated damages had a cost of R5.8 billion;
• Potential lost orders over the next R12 months could have a cost of R22.8 billion; and
• 10 373 jobs could be lost.
The South African Council of Shopping Centres estimated that 3 881 stores had been affected. The South African Property Owners Association estimated that stock worth R1.5 billion had been looted, and that the total loss to KZN gross domestic product (GDP) measured R20 billion.
The production side of the economy had been significantly affected, albeit temporarily, due to:
• Damage, destruction, or interruption of productive operations and service outlets;
• Significant supply chain disruptions; and
• Logistics disruptions, due to destruction of vehicles and disruptions on key transport routes.
The pace of recovery would vary, depending on various factors (such as extent of damage, access to capital, and business prospects). Between 63% (non-insured businesses) and 74% (insured businesses) of the affected firms surveyed by DTIC indicated a likely resumption of operations within three months.
On the expenditure side, DTIC anticipated the following effects:
• Lower business and consumer confidence;
• Most severe effects likely to be in household consumption and fixed investment spending;
• Very limited-term effects on exports and imports; and
• Running down of inventories in the short-term.
A support package valued at R38.9 billion had been announced to support individuals and businesses that had been adversely affected by the unrest and level four lockdown. It included:
• R26.7 billion for the extension of the social relief of distress grant until the end of March 2022;
• Temporary Employer/Employee Relief Scheme amounting to R5.3 billion;
• Deferrals of PAYE and excise duties for qualifying companies;
• Expansion of the Employment Tax Incentive scheme for four months; and
• R4 billion Economic Rebuilding Package to assist companies in distress.
DTIC Group financial package
The package was to be funded by:
• DTIC reprioritisation of R700 million;
• National Treasury allocation of R1.3 billion;
• IDC reprioritisation/allocation of R1.5 billion; and
• NEF allocation and partner support of R250 million.
The package would offer various different kinds of support, generally as a “blended” product. This might include non-repayable grants; loans at concessionary terms; or bridging finance, to cover cash flow challenges until insurance payments were made.
To date, DTIC had approved applications that would cover a total of 63 establishments, as well as businesses belonging to the National Stokvel Association. This would support or save 3 800 jobs.
Risks of the package
Ms Mabitje-Thompson discussed how DTIC would manage various risks it had identified. These risks included:
• Small pipeline due to poor communication;
• Slow approvals due to red tape;
• Reluctance to take on debt;
• Potential corruption and fraudulent claims;
• Double-dipping/enrichment; and
• Limited resources.
Ms Mabitje-Thompson also reported on DTIC’s engagements with businesses, revised economic growth projections, and Critical Infrastructure Reconstruction Programme.
Mr Tshokolo Nchocho, Chief Executive Officer, IDC, presented on behalf of the IDC.
He said that the IDC had surveyed its 283 clients. Based on responses from 279 clients (99%):
• 38% (106 clients) were indirectly affected, and five were directly affected;
• 15 affected clients would consider applying for IDC funding, and 11 would request a deferment;
• 64 706 jobs had been affected.
Mr Nchocho said that the industries most affected were those that relied on regular deliveries of raw materials and other goods. The impact on the tourism sector had also been severe, given the existing strain created by the COVID-19 pandemic.
IDC Business Recovery Fund package
The IDC had tailored a recovery package, worth R1.5 billion in total. It included:
• R1.4 billion for the Post-Unrest Business Recovery Fund;
• R100 million in grants; and
• R10 million in social investment.
As of 19 August, 329 enquiries had been received, of which 111 were within IDC’s focus areas. R150 million in funds had already been approved, supporting 2 117 jobs.
The IDC was considering deferments on a case-by-case basis, in line with its deferment criteria and liquidity requirements.
Mr Nchocho also discussed IDC’s operational arrangements, especially for communicating with clients and applicants, and selected client profiles.
Ms Philisiwe Mthethwa, Chief Executive Officer, NEF, presented on behalf of the NEF.
She said that the NEF had also assessed the impact of the unrest on its existing clients in affected areas. It had found that:
• 39 businesses were affected, with a combined value of R413 million;
• 13 severely affected businesses had a combined value of R137 million and accounted for 1 500 vulnerable jobs;
• 26 firms, valued at R271 million, were back in business after disruptions of about five days; and
• R50 million in revenue had been lost to date.
NEF Economic Relief Funding pipeline
Ms Mthethwa provided the following update on the NEF pipeline for its Economic Relief Funding programme:
• 18 transactions (worth R112 million) had been approved, supporting 1 683 jobs;
• 39 applications (worth R63 million) were at an advanced stage;
• Applications worth R318 million were at an early stage; and
• Tangible leads worth R900 million had been identified.
To date, 118 business spread across 14 district municipalities had indicated interest in Economic Relief Funding. The pipeline had a jobs impact of 13 545 jobs.
Ms Mthethwa said that many of the leads identified were among retail and industrial property owners. It was critical to support these entities, because their infrastructure was required for small and medium businesses to return to trading.
The NEF also wanted to ensure that reconstruction projects employed local people. It was also examining the sourcing for the inputs — for example, it might consider sourcing products from women-owned companies, or using black-owned construction companies. The idea was not that white-owned companies should not benefit from the reconstruction, but that local communities should also benefit, since much of the damage had fallen on townships.
Ms Mthethwa also discussed other the criteria for NEF funding, other NEF interventions including recruitment of trainees, and selected client profiles.
Ms Mabitje-Thompson thanked the Chairperson for the opportunity to present DTIC’s work in the post-crisis reconstruction process.
(See report for details.)
The Chairperson thanked the delegates for the presentations. The Committee did not have control over the NCOP programme, but it would have preferred to hold a joint meeting with the Portfolio Committee. He knew it might be frustrating for the delegates to repeat the same things they had told the Portfolio Committee that morning.
Ms H Boshoff (DA, Mpumalanga) said that it was very difficult to follow the presentation without having had the time to prepare. However, she wanted to know about the N3 artery between Gauteng and KwaZulu-Natal. What was the actual cost there? That is, what was the cost inclusive of the losses from burnt heavy vehicles and wasted products like foodstuffs? Moreover, had DTIC done a study of the losses to the citrus industry? She had had many calls from businesses in Mpumalanga and Limpopo which transported citrus to the harbour in Durban. Those businesses had either had their vehicles burnt or been told to turn around and take their fruit to the harbour in the Eastern Cape.
She asked whether DTIC had had any engagements with municipalities on special rebates.
She noted that Ms Mabitje-Thompson had mentioned discussions with international markets. Was the international market still as eager to invest in South Africa as it had been prior to the riots?
She said that the Committee had met with the South African Special Risks Insurance Association (SASRIA), and had asked SASRIA to engage more openly with informal traders. Informal traders were not aware of the option of getting insurance at low rates. Had DTIC engaged with informal traders to explain that insurance was available to them?
She said that the effects of the unrest were not limited to losses for businesses and traders. Prices had gone up since the unrest, and many consumers in impoverished households would be unable to carry the increase. This would add a burden on the state. When the presentation referred to businesses that would be up and running within a month, were those mostly corporate businesses, or were they small, medium and micro-enterprises? Moreover, when the presentation said that 50% of workers were at home, were those workers still receiving pay? If not, were they being helped to apply for unemployment benefits?
She asked about anti-corruption programmes. Were anti-corruption programmes in place to ensure that corruption did not occur in DTIC as it had in the Unemployment Insurance Fund (UIF)? And how would government reduce the red tape?
She noted that the presentation mentioned a Cipla Medpro in Durban that had been damaged and unable to produce antiretrovirals (ARVs). How many people’s ARVs had been paused and how would this affect them?
Finally, Ms Boshoff asked whether assistance would focus on urban businesses, or whether rural areas would also be assisted. Members heard many heart-rending stories of people who had nowhere to go for help. Moreover, was the NEF package user-friendly? Not everybody was on the same page as the NEF. What happened if a borrower was unable to restore or increase jobs within the 12-month period of the loan? What happened if the business could not become viable? That is, what happened to the loan if its recipient discovered that he could not take his business forward?
Mr M Mmoiemang (ANC, Northern Cape) asked about the impact of the unrest on the South African economy according to DTIC’s own analysis. From the sparse information the Committee had, he suspected that economic growth would be affected by the supply chain disruptions. The supply chain had been disrupted, with many areas affected, and that had delayed fresh produce exports. As a result, one feared the worst during the third quarter. Should one expect economic contraction in the third quarter? What did DTIC expect?
He thought that the Committee needed a sense of the profiles of those who owned property in the township malls that had been affected. Had DTIC studied that? Shopping malls definitely added value to communities. They employed people, but they also expanded access to markets and increased market competition. In addition, they helped mitigate the effects of South Africa’s spatial patterns — which the Committee had identified as a structural constraint on the economy that had to be addressed. Had DTIC done that profiling, and what could the Committee do? There was a narrative that the mall properties were not part of their communities. That narrative was problematic, because it lent credibility to the attacks and looting. It was therefore important for the Committee to know the profiles of the owners.
Mr Mmoiemang said that, as the Committee had observed during its visit to Orange Farm, most of the owners and occupants of the affected properties were black. However, in Orange Farm, many of the victims of the looting — those who owned the properties — were not South Africans. Some of DTIC’s incentives were available only to South Africans. What was DTIC’s policy on this aspect of recovering from the unrest? There seemed to be a “loophole” whereby which foreign residents would not receive help.
Mr Mmoiemang noted the presentation’s reference to “certain investment plans postponed/reconsidered” (see slide 18). What did that mean? What were the details of these plans? Should this be taken to indicate an impact on the investment drive announced by Minister Patel and the President? A lack of security would affect investors’ confidence. Moreover, where were the relevant investments located — in KZN or Gauteng? Only 30 of 500 malls in Gauteng had been affected. To a greater extent than the National Assembly, the NCOP had to pay attention to the localisation of the impact of such decisions.
Mr T Brauteseth (DA, KZN) agreed with the Chairperson that the Committee should have received the report earlier. It would have been good to have the Ministry present so that Members could put questions directly to the Minister and Deputy Ministers.
Mr Brauteseth noted that the presentation referred to violence in KZN. He was speaking for his home province — he did not know the scale and character of the damage in Gauteng. In KZN, however, “the violence knew no bounds from a racial point of view.” Both street traders and massive stores like Massmart had been looted. Street traders’ stalls and small spaza shops had been burnt down, as well as massive stores like Ted’s Home Store. The looting and violence had been indiscriminate — “a free-for-all.” He wanted to get it on the record that the aid given to the victims would also be indiscriminate, and would be allocated, within the bounds of DTIC’s budget, solely on the basis of who was worthy of the help. He did not want to get into the same arguments that had been pursued at the start of the COVID-19 pandemic. A street trader was directly trying to feed one’s family, and the owner of a larger business like Tekkie Town was employing 30 to 40 people. All of that was tied to each other — they were interdependent economically. If aid focused only on townships and not on other businesses, everyone would be negatively affected. Everyone would, once again, become a victim. Could DTIC assure the Committee that the help would be broad and indiscriminate?
He echoed Mr Mmoiemang’s question about foreign nationals. Foreign nationals employed many South Africans. Until their businesses got up and running, those South Africans were sitting at home without income, and their families were going hungry.
Mr Brauteseth said that, slowly but surely, people were being picked up and instigators arrested. Had DTIC considered instituting civil claims against the instigators? Would it sue such people for their role in causing R50 billion in damages? The instigators could not pay back R50 billion, of course, but legal processes should be used to pursue those who were civilly liable, as well as those who were criminally responsible. Perpetrators could not “walk away” with a suspended sentence — they also had to be “hit in the pocket” for the damage caused by the unrest they had instigated.
He said that, in criminal cases, mitigating and aggravating circumstances were considered after evidence had been presented and the court had made a determination about the guilt of the accused. In the ongoing criminal cases, the magnitude of the damages would be a crucial aggravating factor. Was DTIC working with the South African Police Service (SAPS) to help assess the damage, so that SAPS was not just “making a thumbsuck assessment”? SAPS needed to know how much had been lost when a given shop was burnt, including losses in future revenues and so on. That way, the courts would fully understand the true extent of the financial damage suffered by the victims.
The Chairperson noted that there had been a 1.8% increase in the second quarter. What was the cause of this increase? He thought the second quarter economic figures did not include the effects of the unrest, and expected the third quarter figures to be affected by the unrest.
He noted that DTIC and DSBD were launching a R4 billion Economic Rebuilding Package. This was broken down into a DTIC reprioritisation of R700 million, a National Treasury allocation of R1.3 billion, an IDC allocation of R1.5 billion, and an NEF allocation of R250 million (see slide 24). How were these amounts being administered? For example, the NEF mentioned funding leads totalling R900 million, but it had only allocated R250 million to the package. Where did the additional R700 million come from? One assumed that the IDC and NEF allocations were reprioritised from their own budgets, but it was not explained where the Treasury allocation went to. Where did the R1.3 billion from Treasury and R700 million from DTIC go?
He also asked about the implications of the budget repriorisation. Which programmes at DTIC, IDC, and NEF had been affected? How would the reprioritisation affect the implementation of those programmes?
He asked to what extent DTIC and its agencies would assist businesses outside KZN and Gauteng. One might think that prioritising those two provinces for funding would exclude others. Would the budget reprioritisation affect how much assistance was extended to businesses in other provinces?
The Chairperson asked about investor confidence following the unrest. To what extent had it been affected, and what was government doing to restore it?
He said that the Committee had met with SASRIA to hear about its work and mandate, and about the status of the claims that it was likely to process. He had heard from Ms Mabitje-Thompson that DTIC hardly worked with SASRIA but had resolved to build a close relationship. Should it not be mandatory for uninsured businesses to take up SASRIA insurance, as a precondition for receiving DTIC funds? SASRIA had reported to the Committee about its rates, which were very affordable — much cheaper than normal insurance.
He asked whether the unrest had affected any of the offices or infrastructure of DTIC and its agencies. If it had, how would DTIC deal with that? When the Committee met with the Department of Public Works and Infrastructure about the fire that damaged Parliament’s roof, it had learned that government buildings and departments were not insured. He was not sure if they were insured through SASRIA.
He said that the sugar industry had been affected by the unrest. To what extent had this affected the implementation of the Sugar Master Plan?
He noted that money had been allocated by DTIC, its agencies, and the National Treasury. There was also the Gauteng Propeller Fund. To what extent were municipalities and provincial governments involved in the interventions in both KZN and Gauteng?
The Chairperson agreed with other Members that limiting funding to South African-owned businesses was short-sighted. It did not take into account the fact that South Africans were employed by foreign-owned businesses, and therefore would indirectly benefit from any assistance given to those businesses. On the Committee’s oversight visit to the Orange Farm mall in Gauteng, the Small Enterprise Development Agency (SEDA) had indicated the same criterion — namely, that assistance was limited to South African-owned businesses. What interventions would assist foreign national-owned businesses?
He noted that DTIC had mentioned the importance of law and order, and asked for elaboration. How could South Africa prevent this situation from reoccurring? What additional security measures would be implemented to protect businesses?
He also noted that DTIC had mentioned mobilising private sector resources. Could DTIC elaborate on the private sector’s role in mobilising resources to assist affected businesses?
He said that the presentation provided expected recovery times for businesses. Some said they would be operating again in five months to a year, and others said it would take over a year. Could DTIC break these estimates down further on the basis of its survey? For example, could it tell the Committee when the shopping malls specifically were expected to reopen? When malls were not operating, it had a domino effect on other businesses, especially informal traders, who tended to sell around the malls. The Committee had seen how informal traders were affected on its oversight visit to KwaMashu.
He said that in past briefings the Committee had heard about the slow uptake of the Loan Guarantee Scheme administered by the banks. What was the role of the Loan Guarantee Scheme in this situation? Moreover, the ex-Minister of Finance had spoken about swiftly implementing economic reforms for growth and fiscal improvements. Could the Committee get more information about that?
He asked about “double-dipping.” If assisted businesses were facing shortfalls, were they allowed to double-dip? For example, could they get further assistance from the IDC, the Small Enterprise Funding Agency (SEFA), or from another source outside the DTIC group, like the provinces or municipalities? Or were businesses only allowed to receive assistance from one source?
He asked what happened when a business’s records had been lost or damaged, such as in cases where whole buildings had been destroyed during the unrest. How did those businesses meet the criteria for assistance?
Finally, the Chairperson said that the DSBD had set a 5% limit on the interest rate. What about the IDC? It had also mentioned restructuring the interest rate, but had not provided a specific percentage rate.
Responses from DTIC
To Ms Boshoff’s question about the total costs of the unrest, Ms Mabitje-Thompson said that cost estimates were changing day by day, though they were becoming clearer as the claims process progressed. SASRIA had said in the Portfolio Committee meeting that the cost was a moving target — claims were still coming through. Currently, she could not specify the extent of the damage related to the N3 artery, because SASRIA was still looking at that. What DTIC could say unambiguously was that there had been a cost, such as through supply chain disruptions.
She said that DTIC was working with the Department of Agriculture, Land Reform and Rural Development (DALRRD) on the impact on the agricultural sector. Two effects in the citrus sector had been brought to DTIC’s attention: products had been unable to enter the port, and transportation had taken longer in general. Some shipments had been stopped before the trucks had even entered KZN. The unrest had affected some of the sectoral master plans, including some of the targets for the agricultural sector — for example, in the sugar industry. DTIC had had to reconsider the plans with industry representatives, who had helped draft the plans. They had asked what could be done better now, given the current circumstances. The Minister was meeting with some of the sectors. The forum that oversaw the master plans had agreed that there was a need to build back and build better. There was also agreement that employment procurement had to take the local perspective into account. This would help bring communities closer to the functioning of the enterprises, giving them a stake in the sector’s sustainability and growth. These were some of the discussions taking place in the wake of the unrest. They focused on increasing community involvement and inclusiveness. The big issues were still important — domestic procurement, for example, and ensuring that DTIC made markets available to domestic manufacturers. But now it was also about the manufacturers trying to make markets available to the domestic community. It was about building shared ownership, which was critical for “building back better.”
Ms Mabitje-Thompson said that some international partners had reached out to DTIC. Others would have reached out to the Minister of International Relations and Cooperation. Minister Patel had taken some calls. He had said in that morning’s meeting with the Portfolio Committee that, while it was disturbing to see unrest, these kinds of things did happen occasionally in vibrant democracies. The most important thing was that the rule of law was sustained, and that people were seen to face consequences for breaking the law. This was precisely what companies wanted to be assured of. Once those assurances had been made, one or two companies had made commitments not only to continue investing but to expand their investments. It was not the first time that multinational companies had dealt with such a situation in South Africa. Even if it was the first time that unrest had occurred on such a broad scale, there was occasionally unrest in various localities in which multinationals operated. Companies wanted to see the presence of infrastructure and systems which minimised the risk as far as possible. Government had engaged with international partners and would continue to do so.
She said that, in DTIC’s understanding, investment was right on target for its investment drive. Here, again, DTIC had had to reassure investors. The international investment community was familiar with such situations in various localities. Most investors — depending on the type of investment — tended to have a long-term perspective, rather than focusing on short-term disturbances. DTIC had to explain the situation to investors, and explain what actions government was taking. While such a situation did endanger investor confidence, the appetite for investment remained, provided that investors had a sense that something could be done about the situation, that systems were in place, and that matters were being taken care of. As the presentation showed, DTIC was providing these explanations and assurances.
She said that many small traders had responded to the DTIC survey. DTIC had been trying to put together a partnership with DSBD, to work together, through SEFA, to support informal traders. DSBD already had systems in place to support informal traders, and the idea was to latch onto those systems to make support available as quickly as possible. DSBD had already set aside funds — she thought R300 million or R400 million — and had begun the process of extending support to small traders and especially informal traders. Some of the R1.3 billion and R700 million amounts that had been allocated to the Economic Rebuilding Package would be used to support the informal traders, primarily through DBSD and DTIC agencies.
She said that DTIC had not worked with SASRIA before, because of the type of support that SASRIA offered. SASRIA supported companies in the event of riots, strikes, terrorism, or public disorder. Under normal circumstances, there was no need for this kind of support. Even when there was some level of public disorder affecting businesses, DTIC did not necessarily need to approach SASRIA. However, the scale of this unrest required partnership. SASRIA had agreed that bridging finance might be required. It had agreed that, while it was looking at claims, DTIC agencies could step in to support certain enterprises in the meantime. There would be an agreement between SASRIA, the enterprise, and the relevant DTIC agency. SASRIA had to do certain assessments of claims, and the point of a close relationship with SASRIA was to minimise the period between the disruption and the enterprises’ recovery to being fully operational.
On corruption, Ms Mabitje-Thompson said that DTIC, the IDC, and the NEF were committed to ensuring that their work was in the public interest and that their processes were fair and free from undue influence. All three were already in the business of disbursing funds to industry, in one way or another, in support of various priorities. Anti-corruption mechanisms were already built into the way DTIC operated. That was why, for example, no DTIC programmes or agencies had been implicated in personal protective equipment (PPE) corruption. In addition, Minister Patel had asked for an anti-corruption hotline to be put in place, so that any malfeasance could be reported. She assured Members that DTIC was paying attention to the corruption issue and would do everything in its power to ensure that corruption did not undermine its work.
She said that the crisis had happened at the beginning of the quarter. When economic statistics came out at the end of the quarter, they might show a temporary increase in consumption and other expenditure, as businesses restocked and began producing again. Economists were telling DTIC that there was not likely to be a contraction in quarterly output because of the unrest — indeed, there might even be a spike in GDP from the expenditure side. KZN and Gauteng, taken together, also accounted for the bulk of economic activity in South Africa. However, DTIC was worried about the long-term effects, particularly South Africa’s ability to retain and grow its productive capacity. Because profits in some manufacturing sectors were not as dynamic, investments in manufacturing had a longer-term horizon. This meant that attracting manufacturers to a given locality required stability and security, maybe to a greater extent than it did for other industries.
She said that, within DTIC, the budget reprioritisation required DTIC to reconsider some of its infrastructure programmes in industrial parks. Perhaps what it came down to was how DTIC scheduled payments. Most likely, the timing of certain payments and projects would be rescheduled. DTIC was not going to cancel programmes in other provinces — that would only weaken the economy and economic growth. She agreed that DTIC would have to be careful to ensure that prioritisation did not marginalise the provinces which were not prioritised. DTIC had been looking at this to ensure that the programme did not have perverse incentives or result in other provinces being deprived of support.
She said that no DTIC buildings or DTIC-owned infrastructure had been destroyed during the unrest. However, it worked closely with affected industrial parks. It had heard from Ithala, which owned some of the industrial parks, that it was insured with SASRIA.
She said that “double-dipping” was a situation in which a business received the full scale of the funding it needed, and then went again to a different source to try get the same amount for the same expenditure item. So it did not qualify as double-dipping for a business to seek further assistance if it was facing a shortfall. When there was a shortfall, it usually meant that there was some expenditure item which had not been catered for. In the context of industrial parks, DTIC was working closely with SASRIA and the Development Bank of Southern Africa to ensure that such shortfalls were catered for.
On the allocations to the Economic Rebuilding Package, Ms Mabitje-Thompson said that DTIC had already transferred R500 million to the IDC and the NEF. It was working on a system whereby money could be released as required, so that it reached the enterprises that needed it instead of sitting in a bank account. It was important to have flexibility in redirecting funds. DTIC replenished the funds once the DFIs submitted reports showing that the previous funds had been spent. It had instructed the DFIs to put certain process improvements in place, and its agreements with the DFIs set out the manner in which the funding was dispersed.
On expectations for recovery, she said that DTIC had conducted its survey around 18 July. A survey was a snapshot at a specific point in time, and, at that particular time, companies had still been assessing the implications of the unrest. DTIC was now trying to return to those companies to see whether their initial assessments still stood, and to see how many had returned to full production. The presentation highlighted some of the companies that were already returning to full production. DTIC fully expected for some companies to have underestimated how much time it would take for them to recover — but other companies might have overestimated. Some companies were considering innovative temporary arrangements to get back to servicing orders. For example, some companies were working at the sites of other companies.
She said that a company’s eligibility for DTIC support did not depend on the nationality of the company’s owner. The company had to be registered in South Africa. Beyond that, DTIC assessed the company’s standing and observance of applicable laws. It did not look at individuals’ nationality.
On the role of the private sector, she said that several companies had approached DTIC. The IDC was in discussion with the Banking Association of South Africa (BASA), and DTIC had already engaged with some banks, who were interested in supporting the informal sector in particular. DTIC was still finalising those matters. It was waiting for the banks to finalise the costs of their own proposals, so that DTIC knew how much it had to set aside. In principle, however, DTIC had given the green light to that initiative — pending the banks’ responses on the details of their proposals. DTIC had to be careful about administrative costs diluting its funding to enterprises. If financiers proposed such initiatives, they had to propose some value addition. DTIC had to get as close as possible to its target client in a cost-effective manner. That was why it had asked one particular bank to provide details about what it would contribute, and had even offered to consider matching that contribution.
Mr Stephen Hanival, Chief Economist, DTIC, said that the unrest had occurred during the first two weeks of the third quarter of the calendar year. It had affected businesses located primarily, but not exclusively, in two provinces. He thought the general consensus among economists was that GDP would probably fall by between 0.3 and 0.7 percentage points. This did not mean that there would be a recession — instead, economic growth would probably slow down. The South African Reserve Bank had initially estimated a 4.2% growth rate, and the unrest meant that the growth rate might instead be 3.5% or 3.8%. That was still a very strong growth rate compared to the last few years.
Mr Hanival said that DTIC had been in touch with the citrus sector, as well as with DALRRD and the Agricultural Business Chamber. According to the Agricultural Business Chamber, and as of last week, this citrus season remained likely to be the best season on record, and to beat last year’s export tally of about $10.2 billion in citrus exports. It was fortunate that the unrest had taken place well into the citrus season, so many shipments had already been exported. Of course, the unrest — and the Transnet cyberattack — had slowed port operations. But the industry had responded quickly, and had been able to delay delivery of some export containers to the port. The schedules were now back on track and the costs had been mitigated somewhat.
Responses from the IDC
On foreign nationals, Mr Nchocho said that the key criterion for assistance was the company’s jurisdiction. Provided that their companies were registered in and paid tax in South Africa, foreign nationals would not be excluded from industrial development programmes.
On budget reprioritisation, he said that the IDC had allocated R2 billion for COVID-19 relief last year. It had not used about R900 million of that allocation, and that was the amount that had been reallocated to the recovery package. This year, the IDC had allocated about R11 billion to various projects in sectors such as mining, infrastructure, energy, and agriculture. It saw no risk that any of those programmes would have to be sacrificed. If necessary, the IDC would go to its board to seek an additional appropriation to meet enterprises’ funding needs. There was no risk whatsoever of adverse effects to financing programmes in any of the sectors that the IDC served.
He said that IDC officials had been working across the length and breadth of the sugar fields in KZN, for its on-the-ground assessment. The assessment had indicated adverse effects on the sugar industry. The IDC had nine existing clients in that area, with whom it was working. In the immediate term, the IDC was providing those clients with relief — for example, by not requiring that working capital facilities had to be paid now. It would look at working capital support with a moratorium on repayments over the next 12 months or so, so that clients could recover their production cycles. The IDC was also engaging at an industry level to find a holistic package that it could provide to assist. It would be happy to report back to the Committee in writing about the measures it designed and packaged following these engagements.
On municipal engagements, Mr Nchocho said that, so far, the IDC had been engaging with the Gauteng Enterprise Propeller. The Propeller was driven at the province level — that is, through the Gauteng Department of Economic Development. This model could be replicated in other provinces.
He said that he recognised that a producer or supplier based in Limpopo or Mpumalanga might have been affected by the unrest through its logistics system — for example, if one of its trucks had been intercepted somewhere in KZN. Such businesses could seek assistance from the IDC. Government had to publicise this, and make it very clear that there were no geographical preconditions for receiving assistance. The assistance was limited to businesses affected by the unrest, whether or not they were based in KZN or Gauteng.
He said that he had not spoken directly to the Loan Guarantee Scheme, but Minister Patel and the IDC agreed that it was necessary to cooperate and partner with banks. Banks had a massive distribution network — they were present at every town and every corner. The IDC thought that it could achieve a lot by working with the banks, and seeking their assistance, on this specific programme. He had already initiated discussions with BASA. The IDC could send a written update on those discussions in about a week.
Mr Nchocho said that the IDC had to be innovative in cases where companies’ financial records had been lost or damaged. The fact that physical records had been destroyed should not be a limiting factor. Electronic data could be obtained — bank statements, which could be accessed from the banks, could give an indication of the company’s status and transactions. The owners could also make representations through affidavits and so on. The IDC was running a programme supervised by a team of executives — in fact, he chaired the committees himself. The committees looked at ways to provide assistance in difficult circumstances, within a verifiable, auditable framework of assessment and decision-making.
He said that the IDC interest rate was a prime-linked instrument. It had been prime-plus-one, but the IDC thought that it needed to be reduced, given the experiences of the last couple weeks. Unfortunately, he was not able to provide a specific number, because the IDC would be taking a recommendation to its board of directors tomorrow. It needed the board’s permission to lower the rate, because that would mean introducing a subsidy element to its funding programme.
He said that there were a few measures being implemented to reduce red tape. There was an IDC committee which had agreed to sit daily, instead of weekly, to consider applications, sift through any problems, and assist the transaction teams. The reports that were prepared for IDC committees had been simplified. An average report to the IDC investment committee would usually be about 40 pages, with annexures. Now, some documents were like forms, only fix to six pages in length, and could be completed in a day or two. The IDC had also seconded 15 dedicated investment professionals to work full-time on the programme over the next four to six weeks.
Mr Nchocho had asked to be excused from the meeting early. The Chairperson said that any follow-up questions for the IDC could be answered by Ms Mabitje-Thompson or answered in writing later.
Responses from the NEF
Ms Mthethwa responded to Ms Boshoff’s question about whether the NEF package was user-friendly. She said that the package followed a simplified version of the NEF’s investment processes. The application forms were not very long or detailed, since, in this programme, the NEF was supporting businesses that had already been fully operational — they were not new ventures. The NEF also supplied applicants with the funding criteria and a checklist of all the information it required, such as lease agreements or breakdowns of funding requirements. One very pleasing aspect of the current initiative had been that NEF employees were physically visiting the affected enterprises. This meant that NEF employees could sit down with the enterprises and even help them to complete the application forms. If an enterprise had lost equipment during the unrest, NEF employees would even go to the equipment suppliers to negotiate on the enterprise’s behalf. The face-to-face contact with employees had been very helpful, because the NEF had found that some of them were traumatised. The unrest had affected the people at the companies, as well as the companies’ assets and finances.
On Ms Boshoff’s question about unsustainable debtor enterprises, Ms Mthethwa said that the NEF had had, for many years, a dedicated unit for workouts and turnarounds. If a debtor business was doing well, it received attention from the post-investment division, which provided advisory support. On the other hand, if a business started experiencing financial distress, it went to the turnaround unit. NEF turnaround strategists worked closely with those businesses. So the NEF provided strong post-investment support. It also had a well-established mentorship programme in all the provinces. It trained retired executives and managers to mentor businesses in their sectors. The race of the mentors did not matter, as long as they were willing to extend advice to the companies that the NEF supported.
She said that the NEF had been visiting companies which had lost their information technology systems and financial records. It was working with those companies to try reconstruct their financial records from scratch, which was possible if the companies could still access some of their records from financial institutions. The NEF approached the financial institutions for bank statements and other records.
To Mr Mmoiemang’s question about the ownership profiles of township malls, she replied that the NEF knew the property owners at the Protea Glen and Dobsonville malls. The NEF had invested in the sector in the past, so it had already worked with many of the relevant companies and individuals. For example, most of the malls around Soweto were owned by the Masingita Group, a black-owned company with a complement of experienced managers, executives, and owners who understood the sector thoroughly. It was pleasing for the NEF that, because the malls happened to be in townships, the properties were owned by black companies. The NEF had funded the Orange Farm mall, which Mr Mmoiemang had mentioned specifically, so she knew its shareholding structure. The NEF had been working well with the Orange Farm community, which had used NEF funding to acquire a stake in the mall. The NEF had been involved in the property development, but it also wanted to ensure that it protected the interests of the community, who might not be familiar with the details of the transactions and investments occurring on their behalf. The model used in Orange Farm had really worked, and it would be good for the NEF’s future property development initiatives to follow a similar model. Umlazi Mega City — the largest property development in Umlazi — was also funded by the NEF with a community stake. That was one of the shareholding or ownership models that should be considered going forward.
To Mr Brauteseth’s question about how widely assistance would be allocated, Ms Mthethwa replied that the NEF’s mandate was to support black-owned enterprises. The NEF would gladly fully fund white-owned businesses if Parliament changed the legislation to allow that. For now, its mandate focused exclusively on the provision of financial and non-financial support to black-owned enterprises. However, other South African DFIs could fund businesses owned by other racial groups. If a white-owned business wanted to access any of the NEF’s funding packages, it would have to sell an equity stake to a black-owned company, or partner with black-owned companies, or indeed form a joint venture partnership with a black-owned company. At this stage, all applicants — including foreign nationals — had to comply with all the relevant South African laws, and could only receive NEF assistance if they partnered with black-owned companies.
Ms Boshoff acknowledged Mr Hanival’s response about the citrus industry, but asked how DTIC had worked with Transnet to ensure that the latter’s systems would not be hacked again. The cyberattack had precluded exports, which had led to large losses in the citrus industry as citrus products had been held up at the ports or elsewhere.
Ms Mabitje-Thompson replied that DTIC had been following the Transnet matter closely, and was quite concerned about the cyberattack. However, DTIC knew that institutions across the world had to contend with cyberattacks. Members were probably aware that cyberattacks had occurred in many countries, with devastating outcomes — there had been hacking of electrical grids and so on. Some of those countries were much richer and more developed than South Africa. DTIC had been working with the affected companies, including Transnet. Transnet had tried to get its systems up and running as quickly as possible, and DTIC took comfort in the fact that Transnet had systems in place. It now seemed to have the matter under control. However, she did not want to speak on Transnet’s behalf, and Transnet might be better placed to brief the Committee on the details of the systems and measures that it had put in place, as well as on its turnaround and recovery strategy.
Mr M Dangor (ANC, Gauteng) asked whether DTIC was considering foreign sovereign wealth funds as a source of investment, as part of its engagements with international companies and partners. He thought sovereign wealth funds might provide better interest rates than normal commercial interest rates.
Ms Mabitje-Thompson replied by drawing a distinction between “the brick-and-mortar people” and “the paper money people.” When DTIC dealt with investors, it was mainly with the brick-and-mortar people, primarily manufacturers. National Treasury, under its mandate, dealt with the paper money people of the international community. Treasury had reached out across government departments and stakeholders.
Ms Mabitje-Thomson thanked Members for their questions. DTIC was committed to putting its strength into ensuring that the recovery involved building back better. DTIC would continue to be available to account to Parliament.
The Chairperson said that Ms Boshoff’s remarks about Transnet had reminded him that Transnet had declared a force majeure. He supposed that some businesses which borrowed from the NEF and the IDC might be unable to meet their obligations because of the unrest. Could those businesses declare a force majeure?
Ms Mthethwa replied that the NEF had provided interest rate holidays and moratoriums to such businesses. This was not technically a force majeure as applied to Transnet, but it was a way of catering to those companies through financing arrangements.
The Chairperson thanked the delegates for the presentations, which had been been comprehensive and helpful. It was a pity that the Committee had only received the report on the day of the meeting, but the Committee would continue to engage with the information therein.
The Committee had two sets of minutes to adopt, but the Chairperson suggested that they should be deferred to the next meeting, which would take place next Tuesday.
Mr Mmoiemang and Ms Boshoff agreed.
The meeting was adjourned.
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