DTIC 2020/21 Annual Report, Audit Outcomes & 2021/22 Quarter 1 Performance, with Minister

Meeting report

Opening remarks
The Chairperson moved straight into the agenda, welcoming the Auditor-General’s team and inviting the team members to make a presentation

Briefing by the Office of the Auditor-General South Africa (AGSA)
Ms Corne Myburgh, Business Unit Leader for the Department of Trade, Industry and Competition (dtic) portfolio at the AGSA, She hoped that the insights gathered by the AGSA over the course of the year would assist the Committee in exercising its responsibility for oversight over the dtic portfolio.

Ms Fikile Gugulethu-Mashao, Auditor, AGSA, stated that the Competition Tribunal had not been included in the presentation. That entity had been clean for the past five years but it was not included in the findings as it was considered a small body but she acknowledged that she should have referred to it in the presentation. An attempt had been made to make it a section 43 audit entity but that had not happened as yet.

The overall outcomes in the portfolio have slightly regressed when compared to the prior year, with one auditee receiving unqualified audit opinions with findings on compliance with legislation compared to a clean audit opinion in prior year (NCR). Three auditees (DTIC, CIPC, and CC), representing 50% of the audits in the portfolio, have achieved an unqualified audit opinion with no findings (clean). This is a slight regression from 66% (4 audits) in the prior year. NCR regressed from clean to an to unqualified audit opinion with findings on compliance. Two auditees (SABS and NCR), representing 33% of the portfolio, received financially unqualified audit opinions with findings on compliance with legislation. NRCS remained stagnant with a qualified audit opinion with findings on compliance. There were instances of non-compliance are in the areas of expenditure management, and material misstatements identified in the financial statements submitted for auditing. In most instances, findings raised are reoccurring, indicating that audit action plans and a culture of consequence management are not exercised effectively.

The entities that managed to maintain their clean audit outcomes had a strong leadership culture, good financial and performance management, and effective governance. These entities have effective governance structures and stable leadership that ensures that actions are taken to address audit findings. The AGSA advised the Committee to enhance in-year monitoring processes to ensure that the good practices as indicated are implemented and maintained by all entities in the portfolio.

The AGSA highlighted that material misstatements to disclosure notes was due to inadequate review of financial statements by the accounting authority, and material misstatement on revenue is due to lack
of controls in place to collect all revenue due to the entity concerned. The findings raised are recurring for SABS and NRCS and this is despite discussions held with the auditees on the
implementation of preventive control measures.

In the current year there has been a stagnation in compliance with legislation. The NRCS received a qualified audit opinion with findings on compliance and SABS and NCR received an unqualified audit opinion with findings on compliance.

The AGSA made two recommendations for entities within the Trade, Industry and Competition
Portfolio:
-Develop and implement effective action plans to address audit findings
-Internal audit should adequately review both AFS and performance information prior to submission to AGSA

(See Presentation)

Discussion
Mr M Cuthbert (DA) asked why the National Lottery Commission (NLC) audit had not been completed. The presentation did not provide reasons for it being outstanding. Had the NLC been given permission for a late submission? Several matters relating to the NLC had been referred to AGSA by his erstwhile colleague, Mr M Waters (DA), regarding funding given to certain organisations. There had not been a positive response from the AGSA in respect of taking up those issues.

He commented that a broader issue relating to the NLC was that the organisation was under investigation by the Special Investigating Unit (SIU) but it regularly received clean audits. The AGSA had said, at the time, that it did not concern itself with organisations that received money from the NLC. He asked whether nothing showed up when AGSA tracked irregular expenditure patterns. Where public monies were being spent, officials should be held to account.  He believed that AGSA should be paying more attention to how monies were spent so that attention was paid to any issues of corruption, especially as that would present more problems further down the line.

Ms N Motaung (ANC) asked which entities fell under section 43. Was the AGSA doing follow-ups on the Department in respect of its recommendations following previous audits?

Responding to Ms Motaung, Ms Gugulethu-Mashao stated that she would provide a list of the entities that were part of the section 43 audit processes. The entities included the National Empowerment Fund, the Industrial Development Corporation (IDC) and the National Tribunal. Most of the entities had previously been audited by AGSA but because they were small and the audits had been satisfactory, it had been recommended to the Auditor-General that the entities become section 43 entities. She assured the Committee that AGSA followed up and consulted with those entities and ensured that controls were in place, that all compliance processes were followed and a suitable auditor was appointed for three to five years, which AGSA reviewed annually. She said that every year, before the audit began, the AG followed up on previous recommendations during the risk audit and a final management report was issued in February each year. Communication took place throughout the year.
Ms Myburgh explained that the NLC audit had begun later than usual, one of the reasons being Covid instances on both sides, but the audit had been delayed because material findings had been uncovered by AGSA and the NLC had raised concerns about the audit process. To ensure a fair process, AGSA had responded to those concerns and was ensuring that it was comfortable that the correct methodology had been followed in the audit process. Currently follow-up work was being conducted. The audit would be complete early in December but she could not say whether there would be a clean audit.

She added that in the past two to three years, the AGSA had taken the environmental approach and had looked at risks. Those issues were built into the audit but no investigation had been conducted because AGSA was only responsible for an irregularity audit of financial papers. However, some changes had been made to audit processes and the change in the approach of the AG had resulted in more findings that year. AGSA was awaiting supporting documents and evidence.

A fellow AGSA Business Unit leader, asked for clarity regarding Mr Cuthbert’s question.

Mr Cuthbert explained that a request had been submitted for an investigation into the matter of monies being paid to an organisation, despite it being under investigation by other entities. Why had there been no follow-up by the AGSA? Was it because it fell outside of the scope of the AG or was there not enough available information?

The Business Unit leader had an idea of the request to which Mr Cuthbert was referring. A letter had been submitted to the AGSA but it had been noted that other public bodies were engaged in an investigation and it would have been a duplication of work for the AG to investigate. In terms of the AGSA’s own processes in checking the Covid-19 relief grants, the investigation showed that the matter related to Covid-19 spending but she could not respond further as the audit was not yet complete.

The Chairperson stated that the AG should keep the Committee updated in terms of anything that Members should be aware of.

Ms Gugulethu-Mashao said that she would have to supply further information regarding the NLC at a later stage. She would share the list of section 43 entities. She appreciated the feedback and would adjust the presentation in future so that the Committee received the information that it required for its oversight work.

Ms Myburgh thanked the entities that were doing well. She commended the auditees that had unqualified audits with no findings. She was encouraged by the work of the National Regulator for Compulsory Specifications (NRCS) that would be changing its regulations to ensure that the particular cut-off times that had resulted in qualifications and findings would be addressed. The special report had enhanced findings and that had been shared with the Minister. The slow process of approval had been raised by the AG. It was a case of being more active and supportive of business processes. She was encouraged by the work of the IDC. AGSA would do more real-time audits. She appreciated the opportunity to share the work of the AGSA.

The Chairperson stated that the Committee had not been provided with some of the detail regarding Mr Cuthbert’s question and he requested Mr Cuthbert to provide written information to the Committee on the issue he had raised with the AGSA so that all Members could have the same sense of the issues raised in the Portfolio Committee.

He thanked the Minister for his attendance and invited him to present the Report.

Presentation of the Trade, Industry and Competition Financial And Non-Financial Report for 2020/21
Minister Ebrahim Patel tabled the 2020/21 Annual Report for the dtic which covered the period beginning soon after the lockdown in response to the Covid-19 pandemic. The virus remained an issue. However, he believed that there was greater optimism by the end of the reporting period, particularly due to the vaccine being made available. He noted that working methods had changed in that time.

The report provided an account of the Department’s work but a few areas had been chosen for highlighting as it was a very thick report.  He referred to the Master Plan efforts that represented new partnerships and Coca Cola’s distribution of shares to thousands and thousands of ordinary workers. There were also challenges, such as audit findings and the work to build a new Department, consolidating the two former Departments of Trade and Industry and Economic Development. The Covid-19 pandemic did allow industry in SA to engage in new industries to produce personal protection equipment as well as the local production of vaccines to protect against the Covid-19 pandemic.

Ms Malebo Mabitje-Thompson, Acting DG, dtic, introduced the Deputy Directors-General online and presented the details of the Annual Report.

The global economy contracted by 3.1% in 2020, reflecting a stronger-than-expected recovery in the second half of 2020 but global economic growth had been revised down to 5.9% in 2021 from April’s forecast of 6%, with the 2022 forecast remaining at 4.9%. Overall risks had increased due to the emergence of more transmissible and deadlier COVID-19 variants, more persistent supply-demand mismatches and shocks leading to inflationary pressures, as well as the start of monetary policy tightening.

In South Africa, real GDP increased by 4.6% in 2021 Q1, following another positive growth of 5.8% in 2020 Q4. SA had enjoyed four strong quarters of exports, increasing to R487 billion in 2021 Q2, from R406 billion in 2021Q1 while imports had been relatively subdued, leading to a strengthening trade surplus of R156 billion in 2021 Q2.

With regards to trade policy and negotiations, African Continental Free Trade Area (AfCFTA) negotiations had resumed in September 2020 with the objective of operationalising preferential trade. SA, as newly appointed Chair of the process, oversaw the negotiations that led to a Framework Decision endorsed by the African Union Summit in December 2020, providing the legal and technical basis for preferential trade under the AfCFTA. SA had assumed Chairmanship of SACU in July 2020 for a year and had successfully advanced more dedicated work on industrialisation in SACU as a basis for effective participation in the AfCFTA. Significant progress had been made with the Rules of Origin agreements. The Economic Partnership Agreement between the Southern African Customs Union (SACU), Mozambique and the United Kingdom (UK) had come into force  in January 2021 which had  allowed bilateral preferential trade to continue seamlessly with the UK as it exited the European Union. SA had submitted a proposal to the World Trade Organisation for a time-bound, targeted Trade-Related Aspects of Intellectual Property Rights (TRIPS) Waiver to address Covid-19 by boosting and diversifying the production of vaccines, diagnostics and therapeutics.

The Acting DG provided a detailed account of the ten dtic Programmes during the 2020/21 financial year.

Mr Shabeer Khan, CFO, dtic, covered the financial results and the audited outcomes of the first set of consolidated results of the Department of Trade, Industry and Competition following the consolidation of the two former Departments, i.e. Economic Development and Trade and Industry. The dtic’s priorities and budget were refined given the impact of COVID-19 on the global economy, the domestic socio-economic environment and government’s limited fiscal resources. There was a budget reprioritisation of R500 million towards a working capital facility at the Industrial Development Corporation (IDC) and the National Empowerment Fund (NEF) to assist distressed companies as a result of COVID-19. Additional funding support of R21 million was allocated to the Competition Commission to enable the Commission to carry out new functions assigned to it on 19 March 2020, arising from the State of Disaster and in terms of the Disaster Management Act, and an additional R120 million had been allocated to the global business support incentive programme as part of the presidential employment intervention to create over 100,000 new jobs by the end of March 2023.

Mr Khan stated that, as per the audited results, the dtic had spent 97.5% or R9.04 billion of its allocated budget of R9.27 billion, whilst achieving 94% of the set performance targets. The dtic had obtained a clean audit report.
(See Presentation)

The Minister concluded by complimenting the Acting DG and her team as well as the CFO and his team on the work done.

Discussion
The Chairperson stated that he had a list of concerns raised by the parliamentary research unit which he would share with the Minister and the Department, but firstly invited Members to engage with the report.

Mr S Mbuyane (ANC) appreciated the work done during the Covid period but asked about the Sugar Master Plan. Where was the process currently? He did not see much in terms of the foreign direct investments assisting in the rural areas. He noted the progress in the Special Economic Zone in Mpumalanga but noted that there was no progress the latest industrial park. What progress had there been in the Department’s dealing with the NRCS and what position was the dtic taking in dealing with the NRCS?

Mr D Macpherson (DA) said that he had been dealing with Annual Report presentations since 2014 but this had been the worst one that he had come across. It was nothing but a laundry list stating that nothing was the fault of the Department. It was a box-ticking exercise. There was zero leadership and zero innovation. There was patting on the back but no one acknowledged the record unemployment levels. There was a misleading slide of a developing country and SA would not get to even half of the economic forecasts presented in the slides. The Department lacked vision and commitment to get any real things done and was just repackaging the same things over and over again, hoping for different outcomes. The country was on stage 4 load shedding which meant job shedding and it was accepted as it was. The Minister and the Department did not seem to be up to it anymore and they had no plan to turn things around.

He noted that the Department still had an Acting DG who was supposed to have acted for only three months before an appointment was to have been made. There was no notion of how to turn things around. There was talk of investment but no talk of disinvestment or of the closing of factories and businesses because municipalities could not provide services. From Koster Municipality to many other municipalities, big business was leaving municipal areas in droves and the Department could not do anything about it. There was no focus on taking advantage of the African Continental Free Trade Agreement. The Minister and the Department simply picked winners and the big winner, according to them, was localisation but that would not help the economy. Regulation had to be reduced and the Department had to get rid of job-killing policies. BBEEE did not help the country and simply made a few cadres and politically connected people rich. BBEEE had not contributed to the reduction of inequality and it had not contributed to the reduction of unemployment. It was not growing the economy. There was no game plan and localisation was not the panacea. It would not increase competition; it would only increase prices.

Mr Macpherson stated that he and most South Africans could not see a way out of the situation. The Department had run out of ideas, lacked steam and imagination and was trying to revive policy ideas of the last decade. If he were the Minister, he would not be happy with the presentation. Covid could not carry the blame forever. A lot had been self-inflicted on the country during Covid. The Minister had closed down all sorts of industries from clothing to chicken to alcohol. The Minister had promised a V-shaped recovery and it had not happened. The employment rate continued to spiral. It was a totally uninspiring presentation.

Mr M Cuthbert (DA) stated that he had been led to believe that a significant input was made into the world exhibition in Dubai as it was to be used as an opportunity for trade facilitation and investment promotion but he had been told by several stakeholders that no one was manning the stall there or courting investors. What did the Minister know about that and what kind of report had he received from the team that was there?

He also asked about the Steel Industrialisation issue. He acknowledged that there would be more opportunity to discuss the matter when the Minister finally presented the Steel Master Plan, but Duferco Steel Processing had decided that it would import all of its steel as a result of the government policy regarding steel. The company had reduced employment to cover costs. Other companies were going the same way. He was certain that it was a matter of time before that company, and other companies, decided that it was just not worth continuing in the light of the onerous policies.

Mr Cuthbert also referred to the localisation of cement. Looking at fiscal expenditure over the past ten years, which coincided with the Minister’s tenure, the country had largely had an expansionary fiscal policy that was infrastructure driven, but a lot of the money was lost to corruption and there were fiscal leakages. There were short term gains for some companies, but in all likelihood it would result in rising costs for houses, etc. What was the Minister’s position in the light of the negative feedback on the effects of the localisation policy? Was he prepared to reconsider his position?

The Chairperson stated that the research unit had raised a number of issues for consideration. The Minister and Department were complimented for ensuring local manufacturing and local goods, including the manufacture of ventilations and PPE, during the Covid-19 pandemic.  Five Deputy Directors-General in the dtic had been in acting positions for more than a year as per page 22 of the Annual Report. When would those critical positions be filled? On page 35, the dtic said that it was developing the Patent Bill, the Design Amendment Bill and the Trademarks Amendment Bill. When would they be submitted to Parliament, especially as they did not feature in the 2021/22 Performance Plan? R37.1m had been spent on professional services in 2020/21: what were the services procured and for what purpose had they been procured? How many companies had been supported through the Economic Distress Funding and how much funding had been approved?

The Chairperson invited the Minister and the Department to respond to the questions.

The Minister responded to Mr Mbuyane’s question on the Sugar Master Plan. The Department had worked with the large procurers of sugar to ensure a greater localisation of their sugar procurement. It had a significant effect as the supermarkets and beverage companies had responded strongly and the dtic had been able to see a growing quantity of local sugar used in the supermarket and food value chain. Secondly, to promote the greater inclusion of small-scale sugar farmers inside the value chain, the dtic had worked with the South African Farmers Development Association and others on the regulations. The third element had been to support alternative products in the value chain and the dtic had worked with the Department of Mineral Resources and Energy around the development of policies on biofuel, and development of sugar as a feedstock. Fourthly, dtic had worked towards a greater level of support at the industrial level and, as a result of a Competition Commission settlement, a large procurer had agreed to purchase more sugar from small-scale farmers in KwaZulu-Natal and Mpumalanga. Outside of the period of the report, additional support had been given as a number of small-scale farmers who had been left destitute as a result of the burning of their sugar cane fields during the July unrest and support had been rendered in such cases.

The Minister noted that Mr Mbuyane had raised a good point about the promotion of rural development but there were 18 entities that reported to the Department and he had been limited in how much he could report on. However, some of the development agencies would highlight the work that they did in rural development in their reports. It was an area in which more work was required and the Department and entities had been requested to work through the district development model as that had a better dashboard that looked at where the resources were going and at the impact of those resources. Obviously there was a significant number of people in urban areas, but there was also a large rural population and deep levels of poverty in many of those areas.

Regarding the special economic zones (SEZs), the Minister stated that previously the growth in SEZs was not backed by investment but that weakness had led to a change in the model to require a stronger business case before an SEZ was launched. Industrial parks posed a significant problem that the Department would have to deal with. The management of industrial parks was at a provincial level and not with the Department. Unfortunately, despite the enormous potential, the resources were not well-maintained and whilst it required a provincial competence, the dtic would to get involved in the weak performance pertaining to industrial parks in some provinces.

The Minister explained that the NRCS regulations required a particular type of treatment of its income and the AG had found challenges with that. The solution was to change the regulations for future audits. He asked the CFO to elaborate and also to talk about the consultant budget, which he knew related to the development of information technology amongst others.

Mr Khan, explained that the NRCS challenge was an accounting issue. Accounting standards required an entity to account for its revenue in the year in which it was accrued, i.e. accrual accounting. The NRCS raised levies for the inspection of goods brought into the country but the period in which the levies had to be paid was not aligned to a financial year which created an accounting challenge. The NRCS was looking at implementing a new financial system that would address those issues. From a departmental and executive perspective, the key issue was to align the revenue period with the accounting period. It had been an ongoing issue but the key problem had now been identified and was being addressed.

Mr Khan informed Members that the consultancy fees related to consultants who assisted the Department, such as researchers who complemented the Department in the area of research and provided insight into the economy; other consultants were those who advised on investments. To manage the investment programme, professional engineers and such were employed to provide expert opinions on industrial businesses and to provide an independent view of potential industrial investments by the Department. Finally, the fees related to the upgrade and changes in computer programmes to accommodate the new ways of working imposed by Covid-19, such as Zoom meetings. That expenditure had been closely monitored and all consultant contracts had adhered to the guidelines provided by National Treasury.

The Minister said that Mr Macpherson had missed an opportunity for thoughtful comment. He should change his notes. Mr Macpherson had begun by fundamentally misunderstanding the purpose of an Annual Report. An Annual Report was a backward-looking report which looked back what a Department had done; it was the Budget Vote that was forward-looking. He would arrange for a copy of his May 2021 Budget Speech to be sent to Mr Macpherson. That was forward-looking and set out key areas and key milestones.

He stated that Mr Macpherson had a most interesting take on the times in which they were living. Everywhere that he went, leaders were talking about Covid and the changes that it had imposed on the world. It had even, in some cases, given rise to new opportunities. It was the dominant conversation. Sometimes one had to open one’s eyes and ears to what was happening in the country as a result of Covid-19. Closing one’s eyes and ears to Covid-19 did not make it go away. One did not have to view it only as a problem; one had to recognise the dramatic changes in economies around the world and the shortages that manufacturers faced as a result of Covid. It had shaped economies and, in some instances, damaged economies. Had there been significant health challenges, protests and legal challenges as governments and societies figured out  a way to deal with the pandemic? There had, and it took a significant amount of visual blindness to see a world in which Covid was not a significant reality.

The Minister said that Covid brought out the best in many people and situations and that applied particularly to South Africans. He had pointed to a turnover of R28 billion in market value, and that was a significant sum of money, of products that had been produced in SA to counteract Covid from face masks to ventilators to the production of anaesthetics. The Aspen factory had produced over 100 million doses of vaccines whereas a year ago it did not have the capacity to produce such vaccines. Covid was a challenge but it was also a call to action, to do things differently and to find opportunity even in the darkest and most difficult moments. He stated that was innovation, not a tired list of complaints.

Minister Patel stated that the dtic was engaged in a number of strategies to grow the industrial economy because the industrial economy provided employment. Unemployment remained a problem in the economy. Recently he had been present at the launch of the new Toyota Corolla Cross which would be coming out in the traditional and in a hybrid form. More than 1 000 jobs had been created in the assembly of the vehicles and in the supply industry. Other factories had also opened, although they needed to be scaled up. The dtic was working on expanding markets in the AfCFTA. The Acting DG had referred to a few of the products that SA was working on to sell in that arena and for that there had to be agreement on the rules of origin. Despite the Covid conditions, African Ministers of Trade and senior trade officials had met virtually and in person and rules of origin had been agreed upon in a number of significant areas, such as milk and cheese. That was the work that the officials were involved in.

The Minister responded to Mr Macpherson’s comments on hybrid cars. He agreed that energy security for SA was very important but it was also necessary to look at greening the energy. He referred to the hybrid vehicle that had been launched by Toyota: it was not a plug-in vehicle but had a petrol engine in combination with an electric motor and battery. Energy was either harvested via regenerative braking or generated by the petrol engine, an indication of the different types of hybrid vehicles available. The focus on electric vehicles was about emissions in SA but also about the exports to Europe and the United Kingdom. Most Hilux and Ford Ranger pick-ups currently in use in Europe and the UK had been manufactured in SA but those markets would be closed to internal combustion engines from about 2030.

The Minister acknowledged that loadshedding was a critical factor in growth. Investors had identified a list of concerns which they had raised with him and a key concern was the supply of electricity. Loadshedding caused real damage to industries and unless the energy problem was resolved, it would cause real damage to the country’s industrial development. Some investors were now looking to a hybrid of self-generation and energy from the grid. Toyota was looking to producing its own solar energy to supplement the power supply. A large company in the oxygen supply area had plans for green energy. Together with Sasol, the company would produce some 600KW of renewable energy which would make it the largest private generator of power. He agreed with Mr Macpherson that loadshedding was damaging to growth and to jobs.

The Minister acknowledged that he had been involved in identifying clothing during the Covid-19 lockdown. It had been in response to requests from clothing manufacturers so that everyone would understand what could be sold but he had also come to accept that Mr Macpherson would not miss up on the opportunity for a cheap jibe. With time and growing maturity, and a cup of coffee, he might get a more interesting critique from Mr Macpherson.

The prediction of the U-shape, the V-shape and the L-shape recovery models had been a mistake by a journalist who had got it completely wrong. The Communications Officer from the dtic had corrected the story at the time and the journalist had left that particular media house, but the Minister accepted that people made mistakes. However, when wanting to score points, people did not pay attention to the corrected version of a story.

He thanked Mr Cuthbert for the feedback regarding the manning of a trade stall in Dubai. Feedback from the Expo had been both positive and negative. He asked Mr Cuthbert to submit details to his office so that he could follow up on the issue. It seemed, from pictures he had been sent, to be the world’s largest shopping mall. Some countries had spent an enormous amount of money on stands and exhibits at the Expo, building multiple storey buildings for the six months of the Expo. He hoped for an opportunity to provide a more detailed report on the industrial expo in Dubai.

The Minister said he would be discussing localisation with the Committee at a later stage so he would not go into those details, but in response to the cement issue, he acknowledged that corruption had been a huge issue. In 2017, the Economic Development Department did a study on corruption in the specific area of infrastructure and discovered that in that one area alone, the impact was a loss of R27 billion to the GDP per annum and cost 76 000 jobs.  Closing the loophole on corruption was not only a moral but also an economic imperative.

The other leakage was in imports. Minister Patel explained that SA imported R1.1 trillion non-oil products in 2019, i.e. 25% of the country’s GDP. SA was a significant outlier in terms of imports in comparison to other developed and industrialised as well as developing and industrialising countries. An element of the strategy was to build a culture of local purchase but the state needed to assist in building the capacity as well as a culture of competitive dynamism.
The Minister cited the example of a company that had benefitted from the dtic support schemes and was now able to produce the drug ‘Diprivan’ (which was used medically for general anaesthesia) under very specifically controlled conditions and had ended the country’s dependence on the imported product. The company would be localising products worth R1.2 billion which would not only the supply the country but would also earn valuable foreign exchange in the same way that products such as hand sanitisers, etc. had earned foreign exchange when surrounding countries had been unable to import from abroad.

The Minister stressed that countries were focusing on localisation, particularly India and China. Europe had determined to take a strategic approach about which products Europe wanted to produce, even if they were available more cheaply elsewhere in the world. The United States had a “Buy America” Office under President Biden. A large SA retailer said that every African President that he met asked him how he could assist in localising the production of clothing. Everyone recognised the need for localisation. When he had attended the launch of the new Toyota Corolla Cross, the Head of the Toyota Africa Division, said that what Toyota recognised in SA was that the localisation process was creating some stability in the supply chain and that was greatly appreciated as international supply chains were subject to interruption.

Minister Patel agreed that not everything could be localised but one did not want to sell only raw materials and import all the manufactured goods. Africa did not have to be at the bottom of the industrial value chain. SA had the right to be part of sophisticated value chains and sell its products elsewhere. He agreed that it would be strategic localisation. Opportunities to localise would be grabbed with both hands but he also noted that there would probably be some failures. A local media report had noted that SA did not refine palm oil but he was talking to an investor who wished to set up a factory refining crude palm oil in Richard’s Bay that would add 20% to the value of palm oil before it was exported. The dashboard in the new Mercedes Benz was being manufactured locally. He urged Members to support and promote localisation.

He noted that Mr Macpherson was concerned about the Department being obsessed with making regulations but he wished to state that he was opposed to excessive regulation. Some public entities were far too highly regulated and were not helpful to businesses. During the Covid pandemic, the IDC had advertised its support programme but the uptake was very small. Partly, the balance sheet was under pressure but the IDC had been hamstrung by outdated regulation that was not suited to assisting small business. However, the Department had persuaded the IDC to lift some of the red tape during the aftermath of the situation in KwaZulu-Natal in July 2021 and when that approach found traction; small businesses were happily surprised and efficiently assisted, saving jobs, etc. There would be a long battle against red tape, especially in municipal structures. There was hard work to be done to change that.

In responding to the concern about the vacancies at top management level, Minister Patel explained that consideration was being given to consolidating some of the divisions within the dtic following the amalgamation of the two Departments, Economic Development and Trade and Industry. The Department was looking for efficiencies but also possibly changing its model. For example, Division 3 had dealt with BBEEE issues but a BBEEE Commission had since been formed and now the Department had to assess whether there was a need for that division. Those decisions had to be made before permanent appointments were made. He was looking at how the Department was working in practice. He had identified one or two areas where a permanent DDG was required and those appointments would be made shortly.

Regarding Mr Macpherson’s strawman attack on BBEEE, the Minister stated that the fundamental question was about how to promote broader transformation in the economy. One had to choose a world view of whether the colour of one’s skin was an indicator of talent or not. However, the SA economic sphere showed that black South Africans were under-represented in the economy and so where the past had shaped the present and the future, one had to take action to address the issue. It was a painful past that should not keep people prisoners of the past. He was aware that some people would take advantage of a scheme such as the BBEEE scheme to gain riches for themselves but it was not only in BBEEE companies where corruption occurred and Steinhoff was an example of how anyone could engage in corruption. Investors and poor people had lost billions of Rand as a result of that venture. A transformation agenda should not be equated to corruption, although it was susceptible to corruption, as could be seen during the personal protection equipment scandals during the Covid-19 pandemic. Nevertheless, law enforcement agencies had stepped in to stamp down on those things.

The Minister was disappointed as he had been hoping to see a fresh, energised Mr Macpherson with a positive outlook on BBEEE and not the depressed person that Mr Macpherson was. He had hoped that Mr Macpherson would want to celebrate the thousands and thousands of workers who had been given shares in the companies in which they work. He wanted to encourage companies to engage in shareholding schemes, giving them a real stake in their workplace. He cited the example of Japan after the Second World War when managers had tapped into the insights of ordinary Japanese workers to build an industrial nation.

The Minister responded to the Chairperson’s concerns about the Bills that the Department needed to complete. He stated that his Budget Vote had shown what legislation the Department wanted to address. The Companies’ Amendment Bill was out for public consideration but the Department had been delayed by the need to address the remitted Bills; that had not been in the plan.

He observed that the Annual Report was out of alignment as it should be presented before the Budget Vote, but time did not permit that logical order, owing to the time taken to complete an audit. The Annual Report was the mirror in which one could look at the work that the Department had done, while the Budget Vote was the forward-looking document.

The Chairperson was impressed by the energy of the Minister in responding to the questions.

Mr Cuthbert said that the Minister had to share what he was taking to have such levels of energy after an election campaign. He referred the Minister to his response to a written question of a year ago. The Minister had promised to provide details of the number of people supported by his Department through the BBEEE programme, how many jobs had been created and investments gained. He had heard the anecdotal evidence provided by the Minister but documented information would assist in enabling an understanding of the impact of the Department and provide a holistic view of the impact of BBEEE since its inception.

The Chairperson requested the Minister to respond and round off.

The Minister replied that he had presented those details to the Portfolio Committee. The presentation had indicated the number of companies involved, the impact on GDP and job numbers over a five year period. The Department had also released a Black Industrialist Report that was available on the dtic website. The Department was requested to provide Mr Cuthbert with a copy of the presentation and the report. He agreed with Mr Cuthbert that it was important to evaluate the impact of programmes: he was asking the right questions because government had to be able to evaluate the results of its policies.

Minister Patel reminded Members that he had not dealt with the entity reports but he hoped that there would be a more integrated report the following year as a consequence of the integrated KPAs in the Department and across its entities.

Presentation of the  dtic 2021/22 First Quarter Report
Ms Mabitje-Thompson presented the First Quarter Report, noting that the Minister had already touched on many of the issues contained in the First Quarter Report.

She was particularly pleased to report that the AfCFTA had reached 86% agreement in relation to the Rules of Origins Agreement. Rooibos had been recognised by the European Union as a South African local product. The SEZ investments were increasing, although more investment was needed. Technological hubs were doing well. Worker schemes and employee-ownership schemes ensured a more broad-based approach to empowerment.

She noted an increase in 25% of locally produced sugar and R300m investment in developing automotive leather. Regarding the development of electric vehicles, SA simply had to produce such vehicles, adding that the auto sector plan had resulted in several companies benefitting from the development in the sector. She referred to support given in the export markets.

Mr Khan, explained that the dtic had a R9.7billion budget for the year. He referred to the way in which the dtic was making international savings. The dtic had spent 30% of its budget by the end of June 2021 but he was comfortable that the expenditure pattern would improve as the year progressed.  There was, however, a lag in the projection of 14.4% in some of the dtic programmes and economic classification items, namely, transfer payments as well as goods and services. Various factors contributed to the situation: lower disbursements in a number of activities in trade, export missions and export pavilions which were still being affected by the COVID -19 pandemic; slow disbursements to the Tirisano Construction Fund as some of the construction companies were not able to make their financial contributions, and savings due to exchange rate fluctuations on a number of international memberships payments, of which South Africa was a member.

(See Presentation)

The Minister stated that the officials had presented a good report and he had nothing to add.

Closing remarks
The Secretary stated that the Committee would look at the Fourth Quarter 2020/21 Report the following day and he requested that parties and Members submit contributions for the Conclusions and Recommendations to be captured in the report.

The Chairperson concluded the meeting. 

The meeting was adjourned.