The Standing Committee on Finance, Economic Opportunities and Tourism (WCPP) convened in the Western Cape Parliament to deliberate on the 2022/23 Annual Reports of the Department of Economic Development and Tourism and its entities: Wesgro, Saldanha Bay Industrial Development Zone (SOC) Ltd, and Atlantis Special Economic Zone.
The MEC of the Department of Economic Development and Tourism said in the year under review, one of the most significant milestones of the Department in relation to the entities was the completion of the Growth for Jobs (G4J) strategy, which was achieved and worth celebrating. The strategy aims to dramatically lift the provincial economic growth rate and achieve breakout economic growth. It was also a year where the Department saw a recovery in the Tourism and events sector, a year of unprecedented load shedding, as well as a year where there was a crippling strike at the Port of Cape Town. It was also a year when the country was coming out of the COVID-19 Lockdown, which seems so far away now, but its remanence can still be seen reflected in this period.
The Department had to reposition itself to ensure that it could deliver on this strategy, and in the year under review, it commenced with a way of redefining its role in the execution of the strategy, supported by the work that it has already started that looks at organisational design to ensure that it has a fit for purpose and future fit organisation. that work is underway, and the Department hopes to finish it at the end of the current financial year so it can start the new year with a wholly redefined organisation.
There are still challenges faced by the Department as the economy is not growing as fast as it is supposed to be both globally and in South Africa, meaning the execution of the strategy becomes crucial to implement fully so that the growth of the economy can be taken to a new level.
Members commended Wesgro for its unqualified audit, noting the good work done by the entity to turn things around after receiving a qualified audit report in the 2021/22 financial year. Members also questioned the G4J strategy’s general approach to economic growth, noting that it does not target the specific geographies that fester poverty, specifically the cape flats, townships where the enclaves are very glaring, and wanted to know what the G4J’s response would be in dealing with the structured inequality and unemployment in the province.
Members also questioned Wesgro regarding its initiative to support the export of yachts and boats, as well as the boat building exercises, Freeport Saldanha regarding their support for the green hydrogen initiative and its relationship with Transnet National Ports Authority (TNPA), as well as Atlantis SEZ regarding its tax incentives.
The Chairperson welcomed the members and the representatives from the Department and its entities to the meeting.
He acknowledged the presence of the MEC for the Department of Economic Development and Tourism (DEDAT), Ms Mireille Wenger, as well as the Head of Department, Mr Velile Dube.
Members of the Committee introduced themselves for the record and were followed by the Department’s representatives.
The Chairperson said the Committee would consider the 2022/23 Annual Report of the Department and thereafter, parts A, B, and D would be tabled for the Committee to deliberate on so that the meeting moves slightly quicker.
Department of Economic Development and Tourism and its Entities (DEDAT) 2022/23 Annual Report
Ms Mireille Wenger, MEC, WCPP DEDAT, said in the year under review, one of the most significant milestones of the Department in relation to the entities was the completion of the Growth for Jobs (G4J) strategy, which was achieved and worth celebrating. The strategy aims to dramatically lift the provincial economic growth rate and achieve breakout economic growth. It was also a year where the Department saw a recovery in the Tourism and events sector, a year of unprecedented load shedding, as well as a year where there was a crippling strike at the Port of Cape Town. It was also a year when the country was coming out of the COVID-19 Lockdown, which seems so far away now, but its remanence can still be seen reflected in this period.
The MEC pointed out that she started in the executive a few months into the financial year so there are some projects that started before her time, but there were representatives of the Department who would be able to answer questions related to those projects.
Mr Velile Dube, HOD, WCPP DEDAT, said the Department was seized with completing the G4J strategy, which is an all of government strategy. The strategy distinguishes itself in that it takes a long-term approach to 2035, looking at a 4 to 6% growth that takes the economy of the Western Cape to a future fit economy by 2035. This is important because the province needs a much higher and faster growth so that it is a kind of growth that takes the people out of poverty creates the necessary jobs and can lift the rest of the South African economy as part of its contribution to the greater economy of South Africa.
The Department had to reposition itself to ensure that it could deliver on this strategy, and in the year under review, it commenced with a way of redefining its role in the execution of the strategy, supported by the work that it has already started that looks at organisational design to ensure that it has a fit for purpose and future fit organisation. that work is underway, and the Department hopes to finish it at the end of the current financial year so it can start the new year with a wholly redefined organisation.
The Department had a successful 2022/23 financial year in terms of the financials, as it had an appropriation of R510, 030 million, and it was able to spend 98.6% of that appropriation. The Department also had no unauthorised, fruitless, or wasteful expenditure, and last year, one of its entities, Wesgro, received a qualified audit report. The HOD was pleased to announce that through the work that was done by the entity, together with its Board and the support from the Department, there was some great improvement in its audit outcomes.
There are still challenges faced by the Department as the economy is not growing as fast it is supposed to be both globally and in South Africa, meaning the execution of the strategy becomes crucial to implement fully so that the growth of the economy can be taken to a new level.
The Chairperson tabled Parts A, B, and D of the Report for questions and comments by members.
Mr I Sileku (DA) congratulated the Department on its audit outcomes, specifically that there was no unauthorised, fruitless, or wasteful expenditure and encouraged it to keep it up. He asked the Department to expand more on the Small, Micro, and Medium Enterprises (SMME) Booster Fund 2022 in terms of its successes and challenges. Noting that the world is faced with times of uncertainty in terms of the country’s fiscal strength and the work that the Department does in terms of tourism, he wanted to know if the vacancies in the Department would be filled soon.
Mr A Van der Westhuizen (DA) said on several pages in the report, the Department spoke about trade agreements that it has signed, and in terms of trade agreements, he thought of agreements between countries, which often come with certain tax implications. He asked the Department to expand on the R3.1 billion in trade agreements and what they entail. The Department also highlighted a few countries, Norway, Germany, and the United States that have entrepreneurs who have invested in the Western Cape, and an interesting name that came up was Norway because historically, the country was not one of South Africa’s biggest partners in terms of investments.
The Department also mentioned that its model for skills development has changed where in the past, it supported training and then left it to the students to go and find employment by themselves. The model seems to have changed to that the student now must first find an employer, and the Department assists them with training. He asked the Department to explain their reasoning for this change in strategy, as the report also says the new model seems to be effective, but it is also expensive to execute.
The Department says the business confidence index has experienced a decline of 13 index points, as the Western Cape business confidence index is still below the neutral point of 50 which is discouraging for the provincial recovery trajectory and investment projects. He asked if there was something that could be done to turn the business confidence index of the Western Cape around.
Ms N Nkondlo (ANC) appreciated the G4J strategy and its broader intent of trying to grow the economy by bolstering job creation in the province. One of the features of any economic growth is the participation of economically active people in the economy and considering that youth unemployment is at its highest in the country and that the pockets of poverty and inequality in the province mirror the historical situation of the country, the G4J seems to be doing the same mistake that all past policies have done in the past.
It seems to have a general approach to economic growth but does not target specific geographies that fester poverty, specifically the cape flats, and townships where the enclaves are very glaring. What would be the response for G4J in dealing with the structured inequality and unemployment that has to do with where people are located, where they are residing, where they are born, which are circumstances that are not touched?
Currently, there is a challenge of Maths and Science regression in terms of the performance of the province, and in the same geographies, the issue of Mathematics and Science, or STEM subjects, has not gained positive traction to create an environment that will enable people that will be born into these geographies to have interest in these subjects. The survival of the fittest approach is an issue that goes against the noble intent of the G4J strategy of a faster-growing economy. Is there any data in the province that tells the Department about the performance of the province in terms of the SMMEs?
Mr L Mvimbi (ANC) wanted to know why the 10 positions in the organisational structure of the Department were not filled. On page 83, he said in terms of the notarial deeds, the Department is only allowed to lease for up to 10 years, so how did the Department end up having a 50-year lease?
The Chairperson said looking at the annual report, there are approximately 3 000 jobs created through DEDAT and its entities, which is welcomed, but she was curious about when the numbers will start to increase because of G4J. Is this something that could be anticipated in the next annual report? She commended the Department on the audit outcome for Wesgro noting the work done by the CEO of Wesgro with the support of the Department to turn the situation around within a year.
On page 12, she noted the 87% satisfaction rate of the helpline service and asked how that could be improved. She also wanted to know the nature of people’s complaints that could have led to the 13% not being satisfied with the helpline. Noting, that the numbers were at about 500 calls, is there a way that they could be bolstered and is there capacity? Has the Department considered partnering with private institutions to bolster the numbers?
Mr Joshua Wolmarans, Director: Enterprise Development, WCPP DEDAT, said the Booster Fund was developed in 2019 and it is based on what is demanded by the market. Through this fund, the Department goes to the market and asks the SMMEs for proposals on what they are doing, and typically it could be service providers, foundations, chambers of commerce, or Departments. They submit proposals to the Department, and DEDAT considers and assesses them in terms of how quickly the projects can start and how quickly the funding can be leveraged, as well as the number of businesses that are started. Once that is approved by DEDAT, the partner funds the SMME. It is called a booster fund because the Department looks at how the project can be expanded by putting more SMMEs within it or deepening the SMME’s services. It is a partnership-based fund and in a way, it also leverages funding in the private sector.
MEC Wenger said the organogram may be misleading in that it also shows unfunded posts, where the true reflection of funded posts and vacancies against funded posts can be found on page 143 of the report. The organogram is outdated and will need to focus on G4J, so the HOD and the team have been working on an organised layout for its development and redesign.
Mr Dube said in response to G4J, the order of the Department had to change, including the types of functions and the type of activities, and a big part of the changes have been about business development and business support, as well as growing investments and exports as part of the main activity. It also involved preparing to ensure that the right skills for what the economy requires are acquired, which is workforce development, and the organogram is also looking at clustering like-for-like so that the Department can benefit from skills residing in a specific area to ensure that it gets economics of scale and to look at cost optimisation.
The Department is currently developing the draft of the organogram and by the end of the current financial year, it should have the process with the necessary approvals signed off to start the new financial year with a completely redesigned organisation. With the approval of the organogram by the end of the current financial year, there is further work that will need to happen, so the new organogram will not appear in the new financial year, but the year after.
Ms Wrenelle Stander, CEO, Wesgro, said the investment was R4.13 billion, and a part of it was from Norway, and all of the investments are listed on page 31 of the Wesgro annual report, which is a total of 14 new projects that were facilitated across multiple sectors, with about 50% coming from foreign investors, Norway, Germany and the US. The investment from Norway is for a company called Proteus, which is an aquaculture investment feed for aquafarming and is a partnership with a BEE company called Pangaea Fishing, which is fully transformed with black shareholders, African pioneer marine, 90% owned, and the remaining 10% owned by the employee share ownership trust.
The amount was R3.13 billion in new trade agreements, and all of the agreements are listed on pages 36 to 39 of the Wesgro annual report. About 83 trade agreements were signed and the markets were from the USA, UAE, Cameroon, France, and Namibia. The sectors were food and beverages, manufacturing services, primary agriculture, and clothing and textile.
Mr Neezam Jozeph, Chief Director: Skills Development, WCPP DEDAT, said the previous approach to skills development of the Department used to be to look for occupations in high demand and then provide the necessary skills and accreditation, and then have individuals find work. The Department found that skills development is fairly complex, and the reason individuals were not getting employed even when they have the qualifications may have included the lack of on-the-job experience, individual behavioural deficits, restrictive labour regulations, as well as an asymmetry of information between what the learner can do and their behaviour and what the company thinks and can do. DEDAT then developed experiential learning programmes, which provide qualifications, accreditations, on-the-job training and that deal with the behavioural component as well as on-the-job skilling, which is very expensive, but it resulted in more than 80% absorption after the programme.
In recognition of the tight fiscal space DEDAT was in, the Department knew that it had to do this with partners, and it partnered with SETAs, the national government, and the private sector. Last year, out of its budget of R85 million, DEDAT leveraged more than R200 million in external funding. A review was done by the Government Technical Advisory Centre (GTAC), National Treasury, and provincial Treasury which confirmed that this is one of the cheapest programmes in the country that results in a job, R15 333 in a job versus over R60 000 in Expanded Public Works Programme (EPWP). The absorption in EPWP is shockingly low, and the DEDAT skills development programme is above 80% whether the occupation is high or low demand.
Ms Jo-Ann Johnston, Deputy Director General: Strategic Economic Accelerators and Development, WCPP DEDAT, said the business confidence index is an indication of how business currently feels about the economy and about the prospects going forward, so it is essentially a measurement usually done across several companies regularly. It is an important index because it shapes where the business is considering expanding or employing more people, so if businesses are not confident then there is a contraction that must be anticipated or a growth in unemployment.
In South Africa, specifically post-COVID-19, there was an expectation that there would be a bounce up because the country emerged from the Lockdowns, but what might have caused the lack of confidence in the country was load shedding and the knock-on effect that it had on companies and affected their trading ability. Increasing business confidence for the Western Cape and the country would be about how the province creates an enabling economy, and over the past few financial years, the Western Cape has outperformed the rest of the country.
The last measurement reveals that the province went up four points to 35, although 50 is considered to be a positive and below 50 is considered to be negative. Businesses are mindful of the load shedding and the threat of load shedding, so that is why the province has prioritised its focus on the energy component of its G4J strategy. The province understands that if it wants to build the economy, it must deal with the binding constraints of the fundamentals of what is an enabling economy, and one of the key aspects of that is energy.
Mr Dube said one of the key principles of the G4J strategy is that it advocates for employability and entrepreneurship, and the role of government is to create an environment and a space for everyone who is keen and wants to succeed to thrive. While the Department recognises that, it also understands that its role is to provide the necessary information and the necessary skills for people and businesses to thrive. The key aims of the G4J strategy are to grow the economy by ensuring that everyone is employed and allow opportunities for people to thrive as entrepreneurs.
Mr John Peters, Chief Director: Economic Enablement, WCPP DEDAT, said data for SMMEs has always been found wanting across the entire country and not just in the Western Cape. The Department recently signed an MoU with the Department of Small Business Development (DSBD), and part of the MoU includes how data can be captured so that successes and failures in the SMMEs can be recorded.
DEDAT also had a meeting with the Development Finance Institutions (DFIs) including the Industrial Development Corporation, the National Empowerment Fund (NEF), the Small Enterprise Finance Agency (SEFA), as well as the Small Enterprise Development Agency (SEDA) with an intent to appeal to the Director-Generals of those institutions to make statistics on the funding coming in the Western Cape SMMEs through incentives and loan funding available. This will help DEDAT track the amount of money that is coming into the Western Cape SMMEs and assess the pinch-points in DEDAT not increasing the numbers. If only 10 SMMEs are succeeding in NEF, DEDAT can find out why the other 90 did not succeed.
The Department also wants to emulate the Global Entrepreneurship Monitor (GEM) report, which looks across 152 countries and measures entrepreneurship rates. From 2001 until recently, the rates were determined at a national level, so DEDAT will enter into an agreement with GEM to disaggregate the entrepreneurship rate so that they can see what the entrepreneurship of the Western Cape is. The entrepreneurship rate that is measured by GEM has two parts, the early stage: which refers to people who want to start businesses. The other part is on existing rates, so the GEM reports reveal the number of new businesses that are started as well as the existing businesses that are either falling off or increasing.
Ms Johnston said G4J has very specific spatial lands and the spatial filter crosses all the priority focus areas. The strategic framework has four pillars, and one is on how the economy is enabled, how growth opportunities are catalysed, stimulating market growth, and optimising domestic markets. The filters across those pillars are spatial because the idea is not only that the strategy goes broad, but also narrows down to the level of townships and communities. When considering the priority focus areas for each of the pillars, there is applicability for communities and there are explicit interventions for townships.
The approach is twofold, first, it is structural and looks at dealing with systemic challenges of communities living far away from economic opportunities. Here, two approaches could be taken, either take communities to live close to the economic activity or alternatively, strengthen economic activities where communities are, as well as the mobility that connects economic opportunities with where people live. The second approach is action-based plans, and the overall thrust for that is how to coordinate what the government does in communities so that there are no sporadic interventions if interventions were coordinated across various departments, the individual interventions could have much more impact in communities.
The Department moved away from the idea that there is one magic intervention that could solve everything and came up with an approach around the action plans that cuts across all the relevant departments, and most importantly also draws in the community stakeholders to help guide the government on what is appropriate and what is desired in the communities.
Mr Joe-Mark Arnold, Head of Communications, WCPP DEDAT, said looking at the Department’s 2022/23 figures, 55% of its support in terms of the Booster Fund has already gone to township-based businesses, and for 2023/24, 64% will be allocated to township-based businesses and/or entrepreneurs. The broader strategy and the guidance received from the G4J specifically speak about making the spaces more vibrant and attractive for investment, but most importantly getting people who are unemployed in the townships to get opportunities outside. This includes decent transport and skills development and arming the youth with the ability to take opportunities outside of the townships. The biggest challenge that must be considered in the townships is extortion and crime. There are three targets for the extortionists, and that is entrepreneurs, youth, and women. That also must be considered when trying to mainstream the township economy.
Ms Kaashifah Beukes, CEO, Freeport Saldanha, said the expression of interest that was published to the market for the development rights to 20 hectares of land for 50 years was on land that is owned by Freeport Saldanha, so they can place tenants on the land for more than 10 years. To date, Freeport Saldanha has signed a 99-year lease for one tenant. The expression of interest is part of a capital raising initiative that the Freeport is doing because it wants to investigate all avenues to ensure and create an environment where the Freeport is self-sustainable.
MEC Wenger said the G4J strategy is premised on the enablement of the private sector because it is the private sector that creates jobs, and it is the government’s job to make it as easy as possible for the private sector to do so. DEDAT is trying to achieve an economic growth rate of between 4 and 6% by 2035 in the province, and their modelling suggests that if they get that right, there could be about 600 000 new jobs in the province. That is why economic growth is the pathway selected by DEDAT to create jobs in the province. She said they are proud of the hard work that was put in by Wesgro and it is remarkable for them to go from a qualified to an unqualified audit in one year.
Mr Peters said the business support helpline is the only such service in the country, so when the Department started with the initiative, it had a target of complaints, which was difficult to measure, so they decided to have a satisfaction rate instead. The 500 refers to the number of calls that came in and the satisfaction rate was measured by calling the client and enquiring about the extent to which they felt they were assisted after their call, and about the person who managed the case. In most cases where the clients were dissatisfied with the services, it had to do with the solution not working out in the client's favour, for example, if they were the ones who were wrong in the situation.
The Department also cut its budget for the support helpline because it increased its outreach programmes, as it attends all the banks’ supply development programmes which usually have audiences of around 50-60 people, and that is where the Department informs people of the support helpline. The Department does that through its various outreach programmes, and also in its partnership with the consumer protector as well as on social media. The Department also gets referrals from the Presidency for resolving some of the issues.
Mr Van der Westhuizen said construction has been one of the biggest job creation sectors in the Western Cape, but to get to the construction phase there is a long process that must be followed including approvals and infrastructure support, etc. Many municipalities in the province experience some backlogs in getting approvals for building plans or bigger developments, so to what extent does DEDAT keep track of the challenges that property developers at the local government experience in terms of getting approvals? To what extent does DEDAT support the municipalities in that regard? To what extent is DEDAT incentivising municipalities to invest in construction on existing land that is not utilised?
Green Hydrogen has created a lot of interest, but it requires a lot of energy, especially considering that South Africa is currently in an energy crisis. How does DEDAT foresee green hydrogen working as a solution to the current energy crisis? On skills development, how does DEDAT experience the contribution of the Further Education and Training (FET) colleges into the economy? It seems that Minister of Higher Education and Training, Mr Blade Nzimande must be included in some of the Committee meetings because most of the cell phone repair shops in the townships are foreign nationals because the FET colleges do not offer the 4-6-month courses on cell phone repairs. Whose task is it to speak to the Minister and can the Committee play a role to ensure that young South Africans are equipped with the skills that will allow them to earn a living?
Mr Sileku said what government Departments often miss in their reports is linking their successes to people, communities, and the diverse citizens within the Western Cape. On page 57 for sub-programme 2.1, the Department had a target of 40, and it exceeded it by 30, so who or what are the businesses that the Department is engaged in and who are they assisting? What kind of businesses is the Department referring to on page 59 that it assisted with interventions? He asked the Department to provide more details on its achievements so that the Committee could deal with the narratives and perceptions about the work done by the Department.
A lot has been said regarding municipalities, and the Department must create an environment that enables the private sector to create jobs, but the concern is about the state of the municipalities at the local level. What kind of challenges is the Department confronted with when it must deal with the informal sector within the municipalities? What can the Members of Parliament do to help strengthen the Department’s hand so that it is not blamed for things that are out of its control?
Mr Mvimbi said after 1994, one of the challenges that was faced by the new government was the leases that were signed for 99 years, and it has always been a battle to deal with those leases, and some of them were done just to frustrate the transformation process. During this process, it was learnt that there are also notarial deeds, which allow one to lease government for a period of no longer than 10 years. How legal is it for a lease to be signed for 99 years or any period that is more than 10 years? Is this not a way to empower one person or entity for a long time while there might be others who would like such an opportunity?
How effective has the G4J strategy been and has it really started bearing fruits? In the development of the township economy, there is a concerning trend that is happening, especially in relation to Spaza shops, as there is a dominance of foreigners in that sector. Have there been any efforts in the Western Cape to try and deal with this challenge and to find out from South Africans why there is no longer interest in owning Spaza Shops?
He said on Page 40 of the Wesgro report, it is mentioned that there were 19 black-owned wine labels at the Vine Expo in New York and asked for an update on how the expo went because that industry has been exclusively white for a long time. It is encouraging that the Department is encouraging black people to be involved in the industry.
Ms Nkondlo said the context of disaggregating data has become very important because in the world, people talk about things they assume to be facts, but because there is no disaggregation of data, the lived experiences of people become statistics and numbers. She was pleased with the narrative that is always spoken of that the Western Cape produces clean audits, which is backed by evidence, but the clean audits must also propel the province to operate differently. It cannot be enough to always compare the Western Cape to provinces that are not working because that would be comparing apples and oranges. She appreciated the responses provided by the Department regarding the data on SMMEs.
Given that the SMME Booster Fund started in 2019, are there going to be impact evaluations for the programme? Regarding poor or debilitating (POD) infrastructure within Transnet, she wanted to know whether the Department was engaging with Transnet to try and deal with the POD. Is the Department interfacing with Provincial Treasury’s Procurement Office regarding how public procurement is utilised as a lever for economic participation?
The Chairperson referred to page 144 and said she was interested in the job evaluations that were introduced and wanted to know when the other skills levels will be assessed and why only a part of the skills levels was assessed, particularly the highly skilled supervision. What were the outcomes of the evaluations to date and were there any positives and negatives and lessons learnt?
MEC Wenger said construction approvals are often a stumbling block in the development of construction which is a job creator in the province. The Department is trying to shift from red-tape reduction to ease of doing business. While red-tape reduction is an important tool, the complaints also provide insight into the systemic challenges in ease of doing business, so the Department is not only looking at dealing with a specific complaint, but it is also looking at dealing with the system-wide blockages and trying to provide a system-wide resolution so that the ease of doing approach can be achieved. For example, the Department receives several complaints about blockages in construction permits, so it is creating a development permitting ease of doing business projects to help broadly across municipalities. The Department also recognises that there are growth opportunities in the province and it is looking at ensuring that the growth opportunities are not hindered by the red-tape issues.
Mr Peters said since the Department started the PDI process, it involved the private sector and the Western Cape Property Developers Forum (WCPDF) in giving it insights on challenges that they face, and this was instrumental in the Department helping or working with the city to improve their processes. The Department spend a lot of money on municipalities in terms of development permitting from the time the land is identified to it being rezoned and approved. DEDAT also works closely with the regulators, Heritage Western Cape, and how they improve their processes, and this year the Department took the entire unit and put them through a lean management course so they can look at how they can improve their processes.
Ms Michelle Ellis, Director: Red Tape Reduction, WCPP DEDAT, said development is more than just about building plans, there is the heritage component, the environmental impact assessments, land use component, and it can trigger approvals across all three spheres of government. Unfortunately, the municipalities get a bad rep because they get the final approval for building plans, which is usually the end process. On the collection of statistics, the Department considers municipalities it has worked with in the past with digitisation to look at how turnaround times have been approved.
The Department of Environmental Affairs and Development Planning (DEADP) also undertake an annual survey to understand the challenges, and the municipalities are also required to report to Treasury and the Department of Cooperative Governance and Traditional Affairs (COGTA) in terms of secular 88, specifically on the number of plans and turnaround times. Municipalities report on several forums about their turnaround times and performances in terms of building plans. In the current financial year, DEDAT is rolling out a project around municipalities on development planning, and Stellenbosch is one of the big ones because last year, the Department undertook a business assessment exercise where it spoke to businesses in the area to understand their challenges.
The Department also looked at the system used by Stellenbosch, and it is currently implementing several amendments to improve their systems, also considering that there are several staff challenges in municipalities. The project is around system improvement, integration, as well as Geographic Information Systems (GIS) because these are the systems that ensure fast decision-making by officials. On construction approvals, programme 2 also partners with the Department of Infrastructure with an emerging contractor development programme with organisations such as the Construction Industry Development Board (CIDB) to take them through compliance-related matters as well as business support information.
Ms Johnston said green hydrogen will help the province address the energy crisis for several reasons; first through green hydrogen investments that make other direct energy projects more viable because it adds scales to them. For example, any upgrades to the transmission lines will be buffered and strengthened because of the additional requirement for hydrogen. Secondly, what green hydrogen provides in terms of green energy is that it would provide access, so because of the requirements of the processes, they will be generating more electricity than they will use, which contributes toward the province’s energy needs. It will also help the province meet its climate change goal standards and aims, and effectively help the growth of jobs and industries in the province, especially in the export markets which are starting to introduce carbon border adjustment strategies.
Ms Ilse van Schalkwyk, Chief Director: Economic Sector Support, WCPP DEDAT, said that the municipal space usually has an incentive policy which they provide, and in the Western Cape, there are only two municipalities that provide that, the City of Cape Town and George Municipality. In terms of the assets that the Department has available that could unlock opportunities, that is the work that the Department is undertaking in the current financial year and there will be a bigger focus next year regarding investment readiness at a municipal level.
The Department had a meeting with an investor yesterday where they were referring to the City of Cape Town in terms of certain prescripts that could help with regards to a particular industrial area in which they could get access to incentives whether from energy space or rates rebate, etc. It is not widely popular in South Africa, so only certain municipalities afford it because it has a cost implication, and it is also about assistance in terms of investment facilitation.
Mr Joseph said the bar for Technical Vocational Education and Training (TVET) colleges in the country may be low, but the Western Cape boasts some of the best TVET Colleges in the country. The Department also recognises that there is a misalignment between academic instrument products as produced in the TVET colleges and what the industry requires, and the industry finds the modality in which they deliver challenging. The province is moving to a dual-vocational model which is developed along the same lines as the German vocational, and that will be delivered through the new Quality Council for Trades and Occupations (QCTO) where all occupations at TVET colleges will have experiential learning components.
Notwithstanding, there are still severe challenges within the TVET space, specifically within the academic instrument perspective, and it is one of the reasons the Department produces between four and five new academic instruments per year. It is not easy, but the Department is working with universities and colleges to develop those instruments that are better aligned with the industry demands, specifically the PV installer which was developed last year. The Department saw a gap in the market in that the province has the highest rate of PV installations and the qualifications were not there.
The Department also recognised that it needed to have a system that could autocorrect itself, and in that regard, it chaired the first TVET forum and the first SETA-TVET forums. The role of the SETAs should be noted because the qualifications are owned by the SETAs and not the TVETs. The SETA-TVET forum provides the bridge between what the industry requires and what is produced by the TVET colleges. The Department speaks to Minister Nzimande through the Human Resource Development Council (HRDC), and it represents the Premier on that Council every quarter. That is where the Department raises many of its challenges, and the forum is chaired by the Deputy President, with the two key members being the Minister of Basic Education and the Minister of Higher Education and Training.
Last year, the Department launched the first BPO academy as the Business Process Outsourcing (BPO) sector experienced significant growth in the province. The Department always looks at innovative ways for the system to respond to the demands and not spend money in developing skills for them, so it convinced the Department of Higher Education that the province needs an academy specifically for BPO, and over time, it will win the Department’s support in the sector once the academy is running. Every offshore BPO job in the Western Cape contributes R350 000 of foreign revenue into the province, this includes real estate, cleaners, Information Technology (IT), logistics, and everything that goes with it. The 70 000 jobs imply that it contributes around R24 billion into the Western Cape economy, which makes it as large as the tourism sector in terms of economic impact.
The roles that the Department supports in the BPO sector are IT support to the Telkom equivalent in Australia, legal processing to the rest of the world, finance jobs, logistics jobs, lubrication for the tourism sector, etc. The salary packages are around R10 000, but there are roughly about 800 000 unemployed individuals in the province, and half of them have not even completed Matric. The BPO industry allows those individuals to transition into employment, and the cost of R15 000 a job, makes the sector one of the cheapest in absorbing youth into employment.
MEC Wenger said it is difficult to show tangible and detailed information about specific individuals in a regulated report and invited the Committee to go and meet some of the beneficiaries of the SMME Booster Fund. The Department also supports Tourist Guides, which are entrepreneurs who once they get their accreditations will be starting their own businesses in the tourism industry. Last year, the MEC and HOD visited an event where they had small businesses in the food and beverage industry in rural areas that had benefitted from the Booster Fund. MEC Wenger made an example of a lady who makes bread using fynbos and now has her own food truck to be able to do that.
Mr Peters said the Booster Fund may not work with individual businesses but it impacts them directly and noted that the numbers and statistics provided in the report have names and businesses behind them. He also invited the Committee to a session on the 15th of November in Mitchell’s Plain, where the Booster Fund beneficiaries will be gathered together.
Mr Sileku said the invite was noted.
The Chairperson said it could be noted as a resolution of the Committee.
MEC Wenger said the Department was mindful of jobless growth when it drafted the G4J strategy and it comes out clearly that the kind of growth is as important as the growth itself. The Department is aware that South Africa’s growth so far has been insufficient to create the kind of employment that is needed to tackle the unemployment levels. Therefore, the vision for G4J is to create a jobs-rich, thriving, inclusive, and resilient economy and all the programmes are designed to ensure that growth is delivered.
Ms Johnson said the notarial deed law does not apply to Atlantis SEZ because the land is owned by them and leasing on land is their business as an entity. With the level of investments that the SEZ is attracting, the private sector requires security of tenure, and to have a payback of that level of infrastructure investment, they would require at least a minimum of 15 years depending on their level of infrastructure investment. Therefore, the entity entered into different types of lease terms with the private sector to ensure that they have the security and confidence to invest.
Ms Kaashifah Beukes, CEO, Freeport Saldanha, said there is an important part of the process of landing an investor into a Special Economic Zone that brings investment and jobs directly, but an important part of what the SEZ and Freeport Saldanha do is to look for all the knock-on opportunities surrounding that investor landing. It may be an international company landing in an SEZ or the Freeport and building up its factory, but around that there are input suppliers that are required, logistics, and a range of other opportunities which can be actively nurtured and created, and businesses built to take advantage of that. the impact of the investment can be grown into the surrounding community and into the broader economic value chain, which is an important part of the strategy that is followed.
Ms Stander said there is a hub in Stellenbosch called Wine Ark, and within Stellenbosch there are 13 black-owned brands. The black-owned brands that went to the Vin Expo in New York include Aslina wines, Carmen Stevens Wines, Kaya wines, Sesfikile Wines, Thokozani Wines, The Bridge of Hope Wines, etc. In the Western Cape, there is also the Wine Tourism Ambassador Awards, of which two of the black-owned wine brands won two awards, so there is a growing interest in the sector, especially in the US where they like to buy from black businesses. There is also a Made in the Cape Expo at the Waterfront and there are a few black-owned wine labels there as well.
Mr Peters said some of the challenges that get reported regarding the informal sector in the non-rural areas range from crime and extortion to permitting, and in most cases, access to support services. In government services, there are certain clearances needed, including tax clearances. The Department over the years worked with the DSBD to get an increase in the uptake of the incentives for the informal sector. DEDAT also has a good relationship with the South African Informal Traders Association (SAITA) and they report red-tape issues regarding permit issues to the Department regularly.
The challenges facing these businesses have to do with safety issues, infrastructure, and access to support services, especially finance. In the non-metro areas, the Department rolled out about 13 trading hubs through the Booster Fund. The Spaza Shops are 99% dominated by foreigners, which is an intricate system of how they do business which is unparalleled by the locals, as these people are prepared to stay up till late hours and are prepared to sit in their shops all day compared to locals. This is a typical immigrant approach as that is the only life that they know and they dominate in it, and they have an extensive network in terms of buying their products. Foreigners have taken over the entire supply chain from the warehouses to the retail.
The Department is considering partnering with the TVETs in the townships and three of them have been identified in Khayelitsha, Garden Route in Atlantis, as well as the West Coast, where the hubs are going to be used for entrepreneurship development. This will not only be for the students completing plumbing or panel beating but also for community members who want to upskill. The Department will not remove the Spaza Shops, but the locals will be given skills that will empower them to start decent businesses.
The Department will embark on an independent evaluation by Treasury to do an expenditure review in the next financial year. Treasury will look at the money spent by the Department in the next five years and the impact it has made so that the Department receives an independent evaluation. Procurement can be an enabler for smaller businesses, and two years ago, the Department started working with the provincial Treasury, the Department of Human Settlements (DHS) and the Department of Public Works (DPW) on their contract development programmes. This is because there are many small jobs, especially in the non-metro areas that go to the small businesses as there is a requirement for that. Provincial Treasury will be part of the SMME Forum which will be looking at supporting the SMMEs looking at how they can develop their own supplies as well as how the government can improve its processes to make it easier for SMMEs to access tenders.
DEDAT was approached by a bank that wants to provide a soft type of financing to black-owned SMMEs who will access tenders from the government, but the Department is still investing in the merits of that and how it will work, and it may consider getting more banks involved in that process.
A representative from Freeport Saldanha said during the year under review, the Freeport reached out to the Transnet National Ports Authority (TNPA) to discuss and raise a new way of working together in a more cooperative and binding way, with respect to the mandates of the SEZ Act and the Ports Act. Both entities were looking for an elegant, suitable, and mutually beneficial way for them to do what they needed to do in terms of their mandates and functions, but that did not undermine their planning and strategic goals and plans as individual entities.
The work is still underway in the current financial year, and there has been some traction in finding a way forward and more open-mindedness to figure this out within the governance and legal frameworks that they have. It is not concluded, which is frustrating because it has a direct impact on the turnover of the SEZ’s investment pipeline into operating businesses that employ people. The outlook for next year is critical for the SEZ to secure the compacts and the commercial arrangements that will give confidence to the private sector to come into the port and into the freeport.
Ms Cheryl Julies, Director: Strategic and Operational Support, WCPP DEDAT, said posts can be evaluated in three instances, every 60 months in terms of the Public Service Regulation, where posts are being advertised, and when there is an organisational review or redesign. The reviews that were done in this instance were in relation to the 60-month review process that is required, and the outcomes can be cited on page 145, and they indicate that none of the posts were either upgraded or downgraded. The other reviews will happen during the organisational review process.
Mr Dube said the SMME Booster Fund will be evaluated next year.
The Chairperson allowed members to take a short break and thereafter, members dealt with the Wesgro 2022/23 Annual Report.
Wesgro 2022/23 Annual Report
MEC Wenger said they were ready to take the members’ questions regarding the entity’s annual report, as they had already spoken about the achievement of a clean audit by the entity.
Ms Stander said it was a long year, and thanked the Department and all relevant stakeholders for the support they provided the entity during the difficult period.
Mr Van der Westhuizen wanted to know what happened to Wesgro’s initiative to support the export of the yachts and boats, as well as the boat-building exercises in the entity. A few years ago, there was talk of a vaccine manufacturing facility being established in the Western Cape, what is the update in that regard and did it even go beyond the planning phase? On page 60, the entity quoted the number of full-time jobs in the film industry, which is often a project-driven industry. What is Wesgro’s definition of a full-time job in the film industry?
Ms Nkondlo said on page 23 regarding the progress on the achievement of institutional impacts and outcomes, the achievements of jobs and the kind of trade investments that were made. From the agency’s point of view, what is the methodology that Wesgro uses to measure and attribute its successes and how can that be sustained in the current global economic climate, notwithstanding a World Bank report that placed South Africa to turning a tide in the continent? On export promotion, she said with having companies attend international trade expos, one of her concerns was whether Wesgro was able to track information about orders, as she understood that people attend such events with the intent to improve their balance sheets.
On the international delegations coming into the province, she wanted to know how it is ensured that local businesses are also roped into opportunities such as business expos, business trade conferences, etc., that come into the province. How are the international delegations being matched by local businesses because, in some instances, the international businesses hold their events on their own, using their own events companies at our South African shores?
Mr Mvimbi said on page 60, the media and film production companies that were recognised were mostly foreign companies, and only two or three were South African. What are the reasons behind these companies being predominantly foreign companies? Why are the names of the companies being withheld? On page 82, he wanted to know the reasons for the staff leaving the entity, as there were 11 resignations noted in the report.
The Chairperson wanted to know the efforts that were taken to bolster supply chain management (SCM), finance, and human resources (HR) in the entity’s move towards an unqualified audit. On page 79, it was noted that there are seven interns in the entity, what efforts are being made to possibly onboard them in a more formal capacity? What kind of training did the interns receive, as approximately R147 000 went into their training? Pages 81 and 82 talk about termination, misconduct, and disciplinary actions, what were the reasons behind that and the processes followed?
Mr Sileku wanted to know if a relationship between Wesgro and the rural municipalities exists because tourism talks often focus on the City of Cape Town, while there are several municipalities outside of Cape Town.
Ms Stander said Wesgro is the official tourism, trade, and investment promotion agency for Cape Town and the Western Cape, and the City of Cape Town funds Wesgro about R20 million, which tops the funding that Wesgro receives from DEDAT. Wesgro does need to look at how the numbers that they have are disaggregated to the different districts and must go deeper. Even though the investment numbers are mostly in the City of Cape Town, the export numbers are well spread across all the different districts.
Pages 36 to 39 in the annual report show that there is a good spread of exports from Cape Winelands, the West Coast, Overberg, Garden Route, etc. Similarly, Wesgro has done a lot of work with the ship calls and with the Cruise Cape Town initiative, Wesgro has done a lot of to expand that to include other coastal cities across the Western Cape. There is a deliberate effort from Wesgro to attract investment to ensure that it is spread across the districts in the Western Cape.
In terms of investments, R3.8 billion went to Cape Town, R52.6 million went to the West Coast, R289 million went to the Cape Winelands, meaning the juncture is still in Cape Town, which is a work in progress. On trade, R1.7 billion went to the Cape Winelands, R8.7 million to the Garden Route, R10.7 million to the Cape Overberg, and R389 million to the West Coast. This information will also be included in next year’s annual report.
Regarding staffing and the termination, Wesgro had staff movements and the recruitment processes also kept pace with the resignations, and two people were dismissed because of the qualified audit report of the previous financial year, where the entity had to do consequence management. The resignations may have happened because of the new management coming in, but the entity has a full executive team, senior management team, and management team in place, and there have only been five resignations until currently, but the team that is there is ready to put up the best performance.
Because the Wesgro staff is quite exposed to the private sector, some of the members do get poached by the private sector, and the salaries offered by Wesgro are comparable to salaries of small and medium-sized NGOs, which makes it difficult to ensure that staff stay. The environment was difficult last year because the entity had to open every bonnet, lift up every stone and open every purse to find funding to keep members from being poached by the private sector, but there is confidence now that the resignations will slow down.
The interns are all young women graduates, and predominantly African, and they are integrating seamlessly into the Wesgro organisation. To date, four of the interns have been recruited and absorbed into the agency, and this is a great initiative to support the Wesgro team and it is something that the entity intends to continue doing as it is working very well.
There are two film specialists and one person supporting a broader team in the services space. There were 21 declarations in the film era, and a lot of the declarations are in the district, Cape Town, Cape Winelands, Garden Route, Cape Overberg, West Coast, and Central Karoo. The companies are from India, the UK, Germany, France, and Sweden, and these are companies coming into the Western Cape, using Western Cape locations and people, which is the reason for the predominance of foreign companies that are filming in the province. Wesgro also took eight South African companies to Cannes, France because there is an opportunity to invest and grow South African companies.
Some of the companies that came to do production in the Western Cape include Netflix, Sea Monster, Triggerfish, The Garden Route Film Company, Rise and Shine Films, Freeze Flame, Mother Pictures, Moonlighting, etc. There are interesting titles that are shot in the province, for example, Wie is de Mol? is a Dutch soap opera that is filmed here in the Western Cape, as well as a title called One Piece, which is an Afrikaans film shot in the Western Cape, as well as other films including The Kissing Booth, Homeland, Dr Who, The Pirates Are Coming, Tomb Raider, Love Island, etc. These items are either fully or partially filmed in the Western Cape.
There was also an African launch of Bridgerton in Cape Town, and Wesgro staff dressed up in the theme of Bridgerton and went to the function. The main character of Queen Charlotte also visited Stellenbosch this year, so Wesgro works closely with the film studios and the producers and supports them with location promotion, red-tape issues, land use rights, as well as Visas. These are good employment opportunities for young people in the film industry including actors, film-makers and producers. Wesgro can provide a fuller report on the work it does in the film industry to the Committee.
Ms Stander said she would report back to the Committee regarding the declarations of orders on the wine companies that Wesgro took to the New York Vin Expo, but she was confident that there were orders that were made.
Jacyntha Twynam, Chief Assurance Office, Wesgro, said the methodology used by Wesgro to measure its success is primarily to indicate where it provided support, which then becomes the output and the outcome. For example, on trade agreements, the companies that Wesgro takes on missions are supported through the Cape Trade Portal and various initiatives and sometimes it is lifetime support through the exporter development programmes.
Over time, that support becomes trade agreements, which are sometimes rapid as the companies are taken to the markets, and sometimes it takes them a bit longer. The successes start to bear fruit when there are trade declarations or trade agreements are signed, and the companies agree to give Wesgro this information because they were assisted by the entity, and Wesgro uses the information to quantify its numbers.
Wesgro scrutinises the information and asks the difficult questions to the companies and they ensure that the information is correct, as a result, Wesgro tracks the number of trade agreements signed, and in some cases, some companies have trade agreements in different countries. Wesgro also tries to determine the Rand value of those agreements undertaken with specific importers and the estimates regarding the number of jobs that are created because of that deal. This is because Wesgro wants to establish the work that it does, how that results in deals and how the deals translate into Rand value and jobs. Some businesses are honest to say the support is keeping their business going and do not have any additional jobs to declare.
Wesgro tries to have a success model that drives the different initiatives into the outcomes that are focused on the companies and the jobs that they are trying to create, and ultimately the entity will focus on a methodology to help it determine the impact. Currently, in terms of investments, what can be seen is direct jobs created as a result of investments. Those are jobs on payroll, which is good, but those breadwinners also support a community, so Wesgro wants to be able to do further calculations so it can establish how these jobs reach much deeper across the economy because that information is important to the public.
Ms Stander said Wesgro did a complete refresh of the finance team, with the appointment of a new CFO, and expanded the finance team by appointing a Chartered Accountant in the Supply Chain team, as well as across the agency where there were Chartered Accountants needed. They were the people who helped with the last bits of the audit last year, resulting in the unqualified audits. The SCM team was also completely refreshed and Wesgro is on a path to professionalise the enabling functions of the entity.
There is a lot of work that is happening in the Western Cape, as it is the production hub of the South African Boat Building industry and accounts for around 70% of Marine Manufacturing Capability. 70% of the yachts and boats that are built in the province are exported to the US, as there are about 70 companies operating in the Marine manufacturing sector, and a majority of these are micro and small owner-managers. Almost 80% of leisure boats and 40% of commercial boats are produced for export, and South Africa is a major global producer of catamarans, ranking 2nd to France.
Recently, Wesgro took a delegation to La Rochelle in France, but taking a tour does not always guarantee a declaration, sometimes you must go for two or three years in a row to get one, but Wesgro is still very active in the boat-building space. Regarding vaccine manufacturing, Nant SA came with a US investor, but that did not materialise, and then there was Biovac, which is doing very well, attracting the European Investment Bank and is doing good work to expand their coal storage system. The entity has also done some work with Pfizer and Biotech. Work is carrying on in the vaccination area, but within Wesgro, some of the areas are one-person shows and in the health space, one of the workers was on maternity leave, so the work slowed down in that space.
Wesgro views tourism as a continuum and plays in the consideration space by trying to get international tourists and South Africans to consider coming to visit the Western Cape. There are big campaigns currently underway in the US and UK, and a local campaign kicking off at the end of October which is to get South Africans to visit the Western Cape. Wesgro is in the consideration space when tourists arrive in the Western Cape, then Cape Town Tourism and the other Regional Tourism Organisations (RTOs) and Local Tourism Organisations (LTOs) take over from there.
Wesgro also works in the space of attracting the Airlines to fly directly to the Western Cape and in the last year, they added seven new airlines and seven new cities. There is also Cruise Cape Town, where all the cruise ships come to the Western Cape, and the cruise season should be opening on the 2nd of November when the Vasco Da Gama will be arriving at the cruise terminal to kick off the cruise season. There has been a lot of work across the districts to support them with their market value propositions, and that has gone very well.
Apart from leisure tourism, there is also business tourism, which is aimed at attracting international conferences to the Western Cape, and the province has won the bid for bringing the Family Doctor Conference Awards against Taiwan, Hong Kong, and Dubai. Wesgro also does a lot to bring business development to the Western Cape and it has performed well in that regard.
Ms Twynam said for purposes of media promotion, Wesgro utilises a standard for the measurement of full-time equivalent jobs, and that standard has also been pulled into the way the Department of Trade, Industry and Competition (DTIC) does it as well as the National Film and Video Foundation (NFVF). That calculation works on a rate of an average of seven-and-a-half hours a day, five days a week, 52 days a year for a crew member. Wesgro receives a number of crew hours from the company that is making the declaration, and it calculates it against 1 950 to be able to determine the full-time job equivalent. ‘Crew’ is a wide utilisation of the term, but it incorporates make-up artists, hair artists, actors/actresses, etc.
Ms Stander said Wesgro submitted 51 bids and is incredibly active, as they managed to secure 29 bids, which is a good performance considering that they are up against other international entities. To rope in local businesses Wesgro launched the Cape Trade Portal together with partners, and the portal hosts local exporters. Any company in the Western Cape that wants to export is listed on the portal and if there are businesses anyone would want to suggest, Wesgro would consider them.
There are over 5 000 products and services listed on the portal and over 250 exporters, and the intention is to keep growing that. There is a lot of effort that goes into maintaining the Cape Trade Portal, but in addition, Wesgro markets for the exporters in the portal under the banner of ‘Made in the Cape’. Wesgro is hoping to associate the brand ‘Made in the Cape’ with every product in the portal and they put a lot of marketing behind that so that exporters can benefit from it. Additionally, Wesgro also focuses on getting buyers onto the Cape Trade Portal, and currently there are 250 global buyers registered at the portal, and there is a big effort to also expand buyers as much as there are exporters.
The Chairperson said they had gone slightly overtime and asked that if members had any outstanding follow-up questions for Wesgro, they could submit them in writing to the Department. She thanked the Wesgro delegation for their participation in the meeting and excused them as the Committee moved on to the next Annual Report.
Freeport Saldanha IDZ 2022/23 Annual Report
MEC Wenger said the Department was happy to present Freeport Saldanha’s 2022/23 annual report, noting the change in the name from Saldanha Bay IDZ to Freeport Saldanha because of the freeport status of the entity, as well as the entity’s good audit outcomes.
Mr Heinrich Mettler, Acting Chairperson: Freeport Saldanha thanked the Western Cape Provincial Parliament (WCPP) for assisting Saldanha Bay with the Freeport, noting that it was a difficult year for the Freeport. The freeport aligned itself and its corporate plan to be streamlined with green hydrogen, realising that Saldanha could play an important role in the green hydrogen plan. In the financial year under review, the Board’s focus was on the conversion of the investor pipeline which was seriously hampered by the lease agreement that they had with TNPA. The Board focused on trying to solve that and finding a way to get by and work together, there was also a high focus on relationship building with TNPA.
Another focus highlighted by the Board was the shortened sustainability target that they had to adhere to. At this stage, the opportunities are focused on the North Precinct and there is hope that the IDZ will grow into a large investment opportunity place for the Western Cape.
Mr Van der Westhuizen said it is mentioned in the report that the Saldanha Bay Harbour needs further investment and expansion, and opportunities are available, and one of the options mentioned was getting the private sector involved. Has the freeport engaged with the private sector on the possibility of attracting investment or the upgrade of the Harbour? Was this tested with Portnet and its parent company Transnet? To what extent does the freeport see its role in facilitating that investment?
Mr Mvimbi asked if the deficit highlighted in the CEO’s overview was going to be a cause for concern in the future. He said the asset transfer of R8.4 million to the Saldanha was concerning because the freeport is supposed to be keeping the land instead of transferring it and wanted to know what the transfer was about.
Ms Nkondlo said on page 9 of the report it is mentioned that the commitment of the Board to the shareholder to be self-sustainable by 2019 as projected was a challenge and was unattainable because of the reason stated. What were the renegotiation terms between the freeport and the shareholder about still achieving self-sustainability? Considering that the self-sustainability of state-owned entities (SOEs) is a national outcry and that it borders on the Fiscus that is highly constrained, it may seem that this milestone might be pushed back further. What other innovations and conversations with the shareholder have come up about the self-sustainability of the freeport, and what are the possible timelines?
The ArcelorMittal and Sasol opportunity is great news, considering that in the 5th Administration, there were arguments about the temporary closure of the services of ArcelorMittal which shed jobs because it was the biggest employer in Saldanha Bay. How is the green hydrogen project coming along currently, when is it expected to operate fully and what are the challenges in that regard? The hydrogen hub training is a great idea and more details about it would benefit the Committee.
The Chairperson wanted to understand the type of green hydrogen proposed by the freeport and whether there was any research done about the advantages and disadvantages of the different types of green hydrogen. She also wanted to know where the demand for green hydrogen is coming from. When can the green hydrogen be expected to kick off?
Ms Beukes said the freeport will be where manufacturers and services companies are located, and their customers will be the shipping agents or vessel owners or vessels that come into the port, and they can offer their goods and services to people that come into the port. In that way, the freeport is the aggregator of the demand for port infrastructure. In the previous year, the freeport did a pre-feasibility study, taking stock of the commitments made in Operation Phakisa and the responsibilities of TNPA during that time because they were influential on what happens on the landside and the turnover of investment pipeline to operating businesses. Provincial Treasury also issued a facility for project preparation, specifically for catalytic infrastructure projects.
Freeport Saldanha applied to that fund to take the pre-feasibility study to the feasibility study stage, and through that process, the freeport worked with TNPA, as they needed to be sure of the role, they undertook to ensure that they do not interfere with the Ports Act. They were successful in the project preparation facility outcome and were looking forward to the allocation thereof, working with the TNPA on the feasibility study for new port infrastructure.
This is a partnership model because the freeport is providing through the earmarked allocation is a contribution that TNPA can also match, and they are committed to the port infrastructure. Outside of the year under review, they updated their Port Development Framework Plan (PDFP), which went through extensive public consultation processes, and through the PDFP, marine infrastructure is tabled in that plan. TNPA and Transnet have longer complicated roots of raising capital than Freeport Saldanha, as they are a nationally owned SOE, so their process involves registering the business case with the Port Regulator and with Transnet Group.
Recently, TNPA in Saldanha confirmed that they had registered the project with the Ports Regulator as a capital project, which enables them to allocate capital to the project so that they could also put their investment into the feasibility studies. The aim of the feasibility studies is to create a bankable project that can go out to the private sector. it is a long process, and it is overdue, but both the freeport and TNPA remain committed to ensuring that there is real investment in the port after a long time. The indicative value of that investment is R3.2 billion, so together with TNPA, the freeport must refresh the data and the market demand that changed over the last year so that this could be a bankable financeable project.
It has been a challenging year, and the deficit is a knock-on effect of the two years before that, but the freeport is committed to going back to the positive side, but they depend on the private sector to start paying rentals and bringing their projects, serving customers, employing people. The deficit was a knock-on effect of the lower confidence in the Western Cape economy that was spoken about earlier. The Freeport is engaging with the Shareholder and the renegotiations are underway, with the shareholder having asked them for a full comprehensive business plan, a cost containment strategy of what they have done and what they intend to do going forward.
In terms of the innovative solutions of sharing the risk and the responsibility of the SOE, they are courting Saldanha Bay to take shareholding as the City of Cape Town did to Atlantis and as Tshwane did in Tshwane Automotive SEZ. There are Development Finance Institutions (DFI) that see value and have a shared mandate for socio-economic infrastructure and catalytic investment, so those might be the alternatives, but it might take time because this is a difficult environment. Cost-containment measures were done, and the entity is looking for more avenues of supplementing its costs and the strategic initiatives that it still needs to do because as much as it is trying to balance the now, it must also make choices for the future.
The asset transfer to the municipality came from an agreement that was made years ago, as when the SEZ was established, there was a need for bulk infrastructure improvements on the municipal network to accommodate the utility needs of the zone. The R8.4 million was the value assigned to that, and funding was raised from the DTIC from the SEZ fund. The asset transfer was the last bit of assets and improvements that needed to be made because the entity did not want to be the operator of the pump station and some municipal property, so the assets had to be transferred when they were done with the construction.
On ArcelorMittal and Sasol, it is great news and the freeport is clear on the practicalities of the opportunity because they see green hydrogen as a molecule that needs to go into industrial processes because it is zero carbon and will help remove the carbon emissions from the products. Any of our exports that go out currently are taxed according to the carbon border adjustments but using green hydrogen in the industrial processes of using green cement, green fertiliser, green steel, and green fuels that go into ships, cars, trucks, trains, busses, etc., there will be a lower carbon footprint. This will contribute to making the Western Cape economy and the products that it produces more resilient and more competitive on the global scale because when they reach the export markets, the tax will be very low.
The project is that Sasol will produce the green hydrogen and provide it to ArcelorMittal so that the steel mill can restart and produce a product called directly reduced iron, which is a pallet and is not steel. It would bring the steel mill back to life, and there is an investment that is required to retrofit the steel mould to be able to take in the hydrogen in the air processors, as well as Sasol’s investment which is a large investment.
A few weeks ago, at the Green Hydrogen Summit, Freeport Saldanha facilitated a meeting with Sasol and ArcelorMittal, as well as another partner that they are pulling into the project, Mainstream Renewable Power (MRP), because the question is always about where the green electrons will come from. MRP is an Independent Power Producer (IPP) developer and operator and they have some solar farms in South Africa and across the world. The partnership is an amazing opportunity that has been in the making for a long time because it combines a mainstream company that produces the green electron, Sasol which is a chemicals company that is already producing grey hydrogen, as well as ArcelorMittal, who is the off-taker.
The meeting was facilitated with DEDAT, the Department of the Premier, and Wesgro to have the three private sector role players brief the Western Cape administration on their project and what it means. The project is currently in the pre-feasibility study stage and are hoping to finalise it shortly, and next year, their plan is to undergo the feasibility study, and the Industrial Development Corporation (IDC) provided funding to ArcelorMittal for some of the feasibility study. ArcelorMittal stated that they want to start in 2027 because they are also in competition when looking at the market that they are looking to service. The important thing is that this investment will not be in the current footprint of the SEZ because it is large in scale because the freeport does not have land.
On skills, the key partner going from strength to strength is the Chemical SETA, and it is with their support that the freeport opened the Smart Skills Centre in October last year, and it is focused on augmenting the artisan trade with a predominant focus on digital skills and open access technology for the people of Saldanha, as it is in the main street of Saldanha. Unemployed youth can access the centre and go for training in it and the Chemical SETA provides the funding.
A few of the past programmes that were running were in partnership with the Amazon Web Service, Forge Academy, and Chemical SETA, which has been tasked by Minister Nzimande to study the hydrogen skills needs, and they have produced a report that says the hydrogen economy needs specific skill sets. They are using that report as a basis for the strategic programmes that must be done by SETA, and as a partner to them, the freeport is looking to use the Smart Skills Centre as a conduit to give Saldanha an opportunity to participate meaningfully and obtain skills development.
The high schools are the next level down of the skills challenge, and over the last year, the freeport worked with the Department of Education to do programmes in the high schools across Saldanha Bay. They are still in discussion with the Department of Education regarding re-examining the programme going forward because they are also doing other initiatives in the province, so the freeport wants to be complimentary to what is happening in the Department of Education’s programmes while also being mindful of the needs for the targeted area of Saldanha.
Green hydrogen is called green because it comes from solar, wind, and offshore wind, so it is renewable energy. The freeport is not really concerned about its advantages or disadvantages, but it cares more about the source of the energy that is used, and what is more prevalent to the country’s energy source. Different countries use different types of hydrogen based on their contexts, so in Saldanha, there is good wind and solar energy, and what makes hydrogen is that there are already off-takers, meaning there is a market to be penetrated and there is also a port.
With the production sites for green hydrogen, it is important to ensure that the electrolyser operates 24/7 because it is a massive plant that cannot be switched on and off abruptly. All the project developers have studied it extensively and are aware that the renewables must be oversized and have a storage solution, so the project developers will be assisting in allaying load shedding and water insecurity because they need solar and wind two or three times more than is needed in the plant, so when it does not go to the plant, it can go to the electricity grid, and this is similar for water as well. It could be complimentary and become a key to the private sector addressing load shedding.
The Chairperson thanked Freeport Saldanha for the work that it is doing and noted that members would submit outstanding questions in writing to the Department. She excused them from the meeting as the Committee dealt with the final annual report from the Atlantis SEZ.
Atlantis Special Economic Zone 2022/23 Annual Report
MEC Wenger said the Department was pleased to present the 2022/23 Annual Report of the Atlantis SEZ, which is the youngest SEZ, which has now become independent. The Department was delighted that despite the SEZ being its youngest entity, it managed to get a clean audit in the financial year under review, which was commendable.
Mr Matt Cullinan, CEO, Atlantis SEZ, said they were happy with what they were able to achieve in the financial year under review as they were working in a slightly tough economic context, but they made excellent progress and were successful in making the transition into implementation and are well underway with getting their zone ready to start building factories.
Mr Van der Westhuizen said on the land that is being developed by the SEZ, he understood that they are putting in civil services, but they also wanted to continue and put up top structures. Normally, an entity would first have to get a commitment from someone in the form of a partnership, so it seems that the SEZ does not have tenants for the top structures. He wanted to know how they designed their top structure because not all top structures are generic, some require a strong foundation if one wants to install heavy manufacturing equipment. What amounts is the SEZ looking to spend on civil services and the top structures?
He was of the view that the SEZs would have a special dispensation from National Treasury which would assist them in attracting new businesses to their areas, but it seems the SEZs are struggling to attract investors because the tax incentives or financial incentives have either not been developed or they are not attractive enough. What is the latest in that regard?
The former CEO also raised the revival of the railway line between Atlantis and the City of Cape Town, but the city cannot even revive its own railway line. What makes the SEZ believe that a railway line between Atlantis and Cape Town would be a viable issue to pursue? How many goods do they require to make a railway line viable?
Mr Sileku said on page 41, the report refers to systemic challenges and wanted to know how the SEZ is dealing with those challenges. He also asked for more information about the resignations mentioned on pages 71 and 72 and whether they were because the employees were getting poached or if there were any other reasons. He also wanted to know the circumstances that led to the four written warnings handed to employees.
Ms Nkondlo said on page 35 it is mentioned that Resolux disinvested because of uncertainty in the procurement of that renewable procurement programme, and it is further mentioned that the SEZ purchased a facility with Resolux, was housed in, and was able to secure a tenant in the facility during the negotiations of the facility price. She asked the SEZ to explain what happened in that situation and whether that kind of occurrence posed some risks for the SEZ. She also wanted to know if this was the type of investor that the SEZ targeted and asked for some insight into how they navigate the partner space.
On page 8, they mentioned that whilst the SEZ is fully compliant, its tax incentives were not promulgated. What does this sentence mean in layman’s terms and how is the problem being solved? What percentage of space has the SEZ managed to lease out to tenants, and does it have any local businesses as its tenants?
The Chairperson on page 44, sub programme 1.5, ICT management, it is mentioned that the ICT services are undergoing development and that ICT support was provided by Wesgro but was terminated in February 2023, and an outsourced service provider, which was ASEZCo with ICT technical support services including XYZ. What was the reason for the change in the service provider, what was not provided before, what needed to be expanded on or scaled down, and what made this a better opportunity?
Atlantis SEZ’s response
Mr Cullinan said typically in property development, if you have a development next to a proper like the Cape Town International Airport, it would be wise to put in all the underlying civil infrastructure, including the roads, the security guard house, fencing, etc., and then market that land, and as investors land, they will design and build their facility according to their specifications. That is exactly what the SEZ is doing, they are servicing civils on its first zone which is 22 hectares and then as investors land, they will work with them according to their needs in terms of the factory, building and space and then design and build the factory according to their specifications.
Michael Pienaar, Sustainable Infrastructure Development and Zone Operations Specialist: Atlantis SEZ said for the first zone of 22 hectares, the civil construction projects amount to almost R90 million including the professional fees involved in that project. The construction work amount paid to the contractors was approximately R81 million. The SEZ is currently applying for zones 2 and 3, and that amounts to just under R400 million. for the first top structure, the approved amount including professional fees is approximately R14 million, and the SEZ applied for an additional R6 million for elements in that structure that relate to sustainable development, including rainwater harvesting tanks and ensuring that more than 40% of the roof is covered in solar panels, etc.
Mr Cullinan said the special dispensation around the tax incentives was a challenging question to answer. The SEZ had written to the Director-General of the National Treasury to ask them to promulgate the tax incentives for the SEZ, which is the standard procedure to do so, but they received no response from the DG of National Treasury, and not even an acknowledgement. They also wrote to the Minister of Finance and copied in the Minister of DTIC, and there was no response to that email either.
In 2020, Minister Mboweni, when he was still Minister of Finance said in his budget speech that Treasury would no longer be promulgating tax incentives for the SEZs. All the IDZs, the initial SEZs that were initially promulgated when it was still IDZ legislation received the dispensation for tax incentives. None of the new SEZs have the tax incentives promulgations. The SEZ looked at the legislation and received a legal opinion that says the Minister of Finance does not have the discretion about whether to award them if someone requests to be promulgated. The letters to the DG and to the Minister of Finance as well as the DTIC carried that legal opinion. The position of the SEZ is that the incentives are required because the playing field is not level, as some SEZs have had it and others do not.
The SEZ still has a compelling proposition, and it packaged an excellent set of motivations for investors, which includes competitive rates on the land, but those competitive rates on the land depend on the SEZ receiving DTIC funding to put in the civil infrastructure and the top structure. However, the DTIC is also running out of money for the SEZ programme, so it is becoming harder for them to cater for all the SEZ programmes and demands because their budget is not growing.
The SEZ has considered alternative ways of getting funding and is confident that it can get investments. There is probably a need to re-look at the SEZ programme and the way the incentive regime is structured as there are ways to improve it and ways to make it slightly tailored so that each SEZ can focus on a speciality. The Atlantis SEZ is focused on the renewables cluster and the agricultural processing cluster, so ideally would have made sense to have a package that helped it to target those investors and industries, but currently, the programme just has this one tax incentive across the board, which is not nuanced in terms of the strategy.
Regarding the railway line, he said the SEZ does not see itself as being able to take advantage of the freight railway line in the current circumstances. The SEZ did a feasibility study to understand if the current tenants and investors in Atlantis would be interested in utilising the fright rail link if it was opened, and the general sentiment was that they would not want to use Transnet as a service provider because they are unsure that they could rely on them to deliver the goods. However, if the rail link was there, it would create all sorts of opportunities for the SEZ to become a freight village and to help with some of the congestion that currently exists in the Port of Cape Town, particularly with goods coming down the West Coast being able to offload there, putting them into containers and shipping them to the Port. It would unlock opportunities, but now, it is not promising.
Ms Waheeda Saib, CFO, Atlantis SEZ, said about 40% of the resignations had to do with some of the former employees having found better opportunities elsewhere. There other movements with the resignations had to do with some of the employees being on short-term contracts which were converted to longer-term contracts. The disciplinary warnings were based on the SEZ’s zero tolerance for non-compliance, where there was about R22 000 worth of irregular expenditure, so three of the four written warnings were issued to the staff members who were responsible for it.
Mr Jarrod Lyons, Executive: Business Development, Atlantis SEZ said they only build on specification on behalf of a landed tenant, and they do not build at risk the way Mr Van der Westhuizen understood it. Resolux is a small international company of Danish origin that manufactures internals for wind turbine components. Wind turbines are destined for the large reap programme, and the order book on the reap programme was significantly constrained, in fact, it comprised zero orders for a period of four years, which meant that they had a manufacturing facility that was manufacturing a good that had no destination to be sold to. They could not weather that storm because they were a small company, so they disinvested and left the property behind.
The building was acquired by a company called iProp, which was a real estate company looking to attract further manufacturers. The SEZ noticed an opportunity in this because there is a significant demand for pre-built top structures in Atlantis at present, and it took the initiative to purchase the building from the refund that it claimed from a purchase of the city’s land through a shareholding. The building that Resolux was housed in was on sale for R14 million, the SEZ negotiated them down to R8 million and they approved, and the building was bought with a tenant already occupied in the building, but it was a small tenant which meant that the building came back to the SEZ at no costs.
The tenant has now grown into a large tenant covering the entire space, six months after taking ownership of the building, testimony to the demand for pre-built top structures in Atlantis. That lease was signed in the current financial year, which is the first revenue generated by the SEZ for the 2023/24 financial year.
A lot of the SEZ’s investment strategy promotion is centred around the old renewable energy independent power producer procurement programme, but in the last quarter, R12 billion worth of green technology components such as inverters, batteries, and solar panels were imported into South Africa, which signals that there is demand for those products even though the reap is not healthy and the procurement has slowed down. The primary motivator for many manufacturing investments in this space is currently the private sector demand.
The SEZ’s strategy revolves around focusing both on the national government procurement programme called the REAP and on the high demand in the private sector. With the cap of 100 megawatts being lifted by the President, there is a significant interest by large mining houses, and large chemical companies to procure their own power in the region of 100 and 200 megawatts, and that is the market the SEZ is hoping to leverage to attract manufacturing investment from.
Regarding tenancy, he said the SEZ has 94 hectares of land and 22 hectares of it is currently being serviced, so it is still largely greenfield, but bulk infrastructure is being installed in it. On that land, there is currently one lease that has been signed, which is about 10%. But the SEZ also owns a facility outside that specific zone which is 100% because it is occupied by a single tenant. The tenant that successfully landed in the factory that was bought from Resolux is an ex-Atlantis resident. They were born and grew up in Atlantis and even went to school in Atlantis, left Atlantis for a while looking for better opportunities, and returned to Atlantis.
Ms Saib said the SEZ was privileged that during its incubation period, Wesgro assisted them with its systems and processes and IT support. When the SEZ was listed as a public entity and had to open its own bank account, the shared services with Wesgro had ended, but the entity was not mature enough to take on ICT infrastructure because of its needs at the time. With the move into Atlantis, the needs of the operations of the SEZ grew, so it also needed infrastructure that would meet its needs, hence the change of ICT services contractor.
The Chairperson thanked the Minister, the HOD and all the entities that were present in the meeting for the engagement and allowed them to exit the meeting as the Committee continued with its internal matters.
Mr Van de Westhuizen proposed that Wesgro be congratulated for its unqualified audit as they did wonderful work. On page 44, the Department mentioned that they had a measurement called a percentage in tourist safety perception which was discontinued during the pandemic, which is understandable. The Committee should enquire why this study was never reintroduced by the Department after the pandemic.
One of the previous indicators of the Department was the enhancement of resource resilience in the economy by using water more effectively and encouraging entities to save 20% on their water consumption. On page 45, they changed this from four water-intensive sectors to one water-intensive sector. Which sector is this and what were the results thereof? Why did they reduce that target?
Ms Nkondlo said the Committee will need to find a way to deal with the Department and its entities in terms of time because it is always an issue. She was interested in getting more information regarding the skills unit of the Department. Secondly, they mentioned that the cost of their skills development programme is lesser than EPWP, so they must explain that cost comparison. The Department must also share the independent report or impact evaluation of the SMME Booster Fund that will be done through GTECH. Wesgro CEO also said they would share information regarding the black wine labels that attended the exhibition. Freeport Saldanha must provide updates to the Committee on the green hydrogen as it unfolds. She said she would send the other questions in written format.
The Chairperson agreed that there was not enough time to engage with all the entities and proposed that the future chairperson should probably ask the Chief whip or the Programming Committee to split the meeting into two sessions. She agreed with commending DEDAT and Wesgro for their unqualified audits and their women leadership. She also noted Mr Sileku’s request for an invite to the event with Wesgro. It would be interesting to see how Wesgro’s investment promotion is disaggregated across different municipalities.
On Saldanha IDZ, she agreed that when the green hydrogen notes are complete, they must be shared with the Committee. The Atlantis SEZ, it was concerning that they had written to the Minister of Finance and the DTIC regarding tax incentives and did not get responses, and perhaps they could share the correspondence with the Committee so it could flag it with the respective Ministers and ask them for their feedback on the matter.
The Committee could also enquire about the funding that will be made available to Atlantis by DTIC considering the shortfall that they have in funding for SEZs. The suggestion that Atlantis SEZ made about changing the deliverables for SEZs either needs further engagement with the entity first or asking DTIC how they intend to handle the programme given the lack of funding.
Mr Van de Westhuizen said they could try wording it in a way that would get the DTIC to respond immediately.
The Chairperson said the Committee would leave out the targeted suggestion for now and get the information it needs regarding the tax incentives and funding for SEZs.
The meeting was adjourned.
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