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TRADE AND INDUSTRY PORTFOLIO COMMITTEE Chairperson: Dr R Davies
8 March 2000
BUDGET REPORT: ADOPTION; LOTTERIES AMENDMENT BILL: VOTING
TRADE AND INDUSTRY PORTFOLIO COMMITTEE
Chairperson: Dr R Davies
Lotteries Amendment Bill
Committee report on Vote 32 of the 2000/1 Budget: Trade and Industry (attached to end of minutes)
Lotteries Amendment Bill
This amends Section 14 of the Lotteries Act 57 of 1997 to allow for participation in the National Lottery by certain previously excluded persons such as lottery ticket retailers.
The Committee had no problem with the removal of the prohibition on participation in the National Lottery except for the board members and directors of Uthingo. The Committee did not want the amendment bill to allow Uthingo board members and directors to participate in the lottery due to the perceptions that might be created if a board member were to win the lottery and the possible consequent tarnishing of the image of the lottery.
To accommodate this concern, there were three possible options:
1 Leave the Bill as is - allowing the rules of Uthingo to be the only source preventing the board members and directors of Uthingo from participating in the lottery.
2 Let the government include a regulation preventing Uthingo board members and directors from participating or
3 Amend the Bill.
The committee agreed without objection to amending the Amendment Bill. The new exclusion will not include any other person except for the board members and directors of Uthingo from participation in the lottery: "a director of the licensee or any member of the board".
Committee Report on Budget for Department of Trade and Industry
The committee perused the report and clarified certain points.
Mr N Bruce (DP) raised a concern about the amount of money allocated to the Competition Commission. He complained that the money was too much for such a commission. He also raised a concern over the reduction of the money put aside for Trade Policy and Global Positioning as a result of the European Union agreement. He queried the amount of money put aside for Black Economic Empowerment and the Small, Medium and Micro Enterprises (SMMEs) projects, wanting to know if there was no overlap between the two.
He asked what Investment South Africa meant? Finally he wanted to know if there was going to be a rational assessment of Khula and Ntsika?
Responding to questions the Chairperson said that there was an overlap between Black Economic Empowerment and SMME projects but emphasised the fact that not all SMMEs were Black Economic Empowerment and therefore these two projects were entitled to have separate budgets. He explained that Investment South Africa was a one-stop investment agency which put potential investors in touch with South Africa. He said that a strategic review of the two institutions, Khula and Ntsika, was underway and therefore the role and scope of Khula and Ntsika might well change.
After perusing the report, the Committee, with the exception of the Democratic Party, voted to adopt the report. The Democratic Party did not give any reason for standing against the adoption of the report.
Report on Budget Vote 32, taken from the ATC of 3 April 2000
Report of the Portfolio Committee on Trade and Industry on Budget Vote 32: Trade and Industry, dated 10 March 2000:
The Portfolio Committee on Trade and Industry, having examined Budget Vote 32: Trade and Industry for the 2000-01 financial year, as well as the forward estimates for 2001-02 and 2002-03 included in the National Expenditure Survey, referred to it, reports as follows:
A. The main features of the budget are the following:
1. The Department has been allocated R2 203,6 million for the financial year 2000-01, while forward estimates anticipate it receiving R2 264,2 million and R2 332,2 million in the years 2001-02 and 2002-03, respectively, in comparision with the R2 060,9 million voted and the R2 344,6 million actually allocated in the Adjustment Appropriation for 1999-2000. The Department's budget can thus be described as a constant budget with minor fluctuations.
2. The 2000-01 budget is divided into four programmes, compared to 10 in the previous budget. These are the following:
(1) Programme 1 - Administration (4% of the total).
(2) Programme 2 - Trade, Investment and Entrepreneurial Development (88%).
(3) Programme 3 - Trade Policy and Global Positioning (1%).
(4) Programme 4 - Business Regulation and Consumer Services (7%).
Programme 2, which accounts for the bulk of the Department's expenditure, incorporates seven programmes from the previous structure: Industrial Sector Strategy, Investment Support, Small Business Promotion, Trade Facilitation, Standards and Industrial Environment, Technology Enhancement in Industry and Policy Analysis and Research.
3. The budget for Programme 1 is increased from R68,6 million in 1999-2000 to R86,4 million in 2000-01. This is mainly to provide for additional personnel in the executive management office.
4. The budget for activities falling under Programme 2 is increased from R1 896,3 million in 1999-2000 to R1 943 million in 2000-01. About 33,7% of the funds allocated are for investment support, and there is an initial provision of R10 million for the taxi recapitalisation programme.
5. The budget for Programme 3 is reduced from R30,6 million to R24,3 million, upon conclusion of the European Union agreement.
6. Programme 4's budget is increased from R65,5 million to R144,6 million, mainly to provide for the costs of establishing and running the Competition Commission and Tribunal.
7. The formal classification of expenditure into the four programmes does not permit a ready identification of resources allocated to the main activities of the Department, particularly those in Programme 2. The Director-General, however, indicated to the Committee that the Department intends that its resources be deployed in three overlapping priority activities: 52% to investment, 43% to Black Economic Empowerment and 35% to the promotion of Small, Medium and Micro Enterprises.
8. Transfer payments account for 83% of the total budget. A significant part of these transfer payments are made to associated "family institutions", including the Industrial Development Corporation, the Ntsika Enterprise Promotion agency, Khula Finance, the South African Bureau of Standards, the Competition Commission, Investment South Africa and the Board of Tariffs and Trade.
9. Approximately R600 million, more than a quarter of the total amount allocated to the Department in the 1999-2000 budget, remained unspent at the end of the 1999-2000 financial year. The Department has requested that a sizeable portion of these funds be "rolled over" to provide, inter alia, additional finance for the taxi recapitalisation programme and for recapitalisation of Khula.
The Committee had an opportunity to engage on budgetary issues with four of the Department's associated institutions: The IDC, the CSIR, Ntsika and Khula. Highlights of these discussions are set out below.
B. Industrial Development Corporation
1. The IDC provides loan and equity finance to businesses involved in industry, tourism and agro-industrial activities. It is largely self-financing and pays dividends to its sole shareholder, the State.
2. The IDC was responsible for 7% of the fixed investment in the South African economy last year, and is also extensively involved in the SADC region. The Corporation envisages assisting 350 enterprises in the financial year 2000-01 (a 55% increase on the previous year) and expects to approve loans and investments of R3,3 billion (an increase of 11%).
3. The IDC manages, on behalf of the Department, a number of key industrial policy programmes as well as the National Empowerment Fund.
C. Council for Scientific and Industrial Research
1. The CSIR provides scientific and technological support for industrial development. 60% of the CSIR's funds emanate from clients and contracts. An amount of a little over R 299 million is transferred to the CSIR from the budget of the Department of Arts, Culture, Science and Technology via the Department of Trade and Industry.
2. The amount and proportion of the CSIR's budget emanating from State funds has been declining. It is envisaged that by 2003 the CSIR will receive only 30% of its funding from the government. There is a debate, both within the CSIR and the government, about what the optimum mix should be, and international experience in comparable institutions is varied.
1. Ntsika is moving towards a greater focus on core activities. Its future role depends on decisions that need to be taken in view of the ongoing review of the small business support strategy. There is also debate within Ntsika as to whether it should focus on SMME start-up or business expansion. It has decided to tilt its focus towards start-up activities and rural enterprises.
2. There is some uncertainty about Ntsika's present and future funding. Its allocation from the Department for 1999-2000 was reduced. The Department will provide Ntsika with R80 million in the 2000-01 financial year. A further R34,5 million will be provided by confirmed donor funding, and R1,9 million will be earned as interest. Ntsika estimates that it requires R 312,8 million to fund activities identified in a needs analysis undertaken with provinces and other stakeholders as necessary. The agency needs to raise a further R13,8 million to finance the more limited programme it has planned for 2000-01.
1. Khula plans to expand its business loans portfolio from R142 million to R263 million in the course of this financial year. Its support programme to Retail Finance Institutions (RFIs) has been more successful than the bank guarantee scheme. The latter has resulted in only 773 active clients currently being served, with 6 184 jobs created.
2. Experience with RFIs has led Khula to the conclusion that it needs to be more prudent with regard to provision for bad debts. The organisation has requested R200 million for recapitalisation, and says that it cannot operate beyond July unless further capital funds are allocated to it. If it receives half the amount, it says it will not be able to expand its activities. Khula also says it needs R90 million to provide service support to RFIs. Without this amount, CEO Sizwe Tati says, Khula will have to impose a moratorium on its capacity development and operational support to RFIs.
3. It is not certain that Khula-supported activities are sufficiently benefitting target groups in disadvantaged communities.
The Department is in the midst of a major reassessment and restructuring exercise, and the Committee has had a number of opportunities to engage with the Director-General on this. The Committee was informed that the format and presentation of the budget will be changed in future to give a clearer indication of priorities, as well as progress in attaining measurable objectives. The Committee has been invited to meet at regular intervals with the Department to assess the extent to which activities are in line with declared priorities and are achieving results.
The Committee agrees that the format of both past and current budgets has not been sufficiently focussed. Expected outputs have not been clearly indicated and quantified, with the result that no real base to measure impact has been provided. Previous assessments of performance have largely relied on vague measures of outcome - the number of jobs said to have been created or sustained by various programmes. The basis of these calculations has, however, not been wholly clear and quantified, measurable outputs expected from various activities against which progress can be assessed, have not been developed. Thus, while some expected outputs are listed in the explanatory memorandum attached to the present budget, no quantitative indicators are attached, nor are details provided as to how it is intended to match these expected outputs with expenditure allocations.
The Department indicated to the Committee that it is striving to achieve greater focus, both in its activities and in the reflection of this in its budget. The Department defines its fundamental task and strategy as being to grow the economy, through the following:
1. Facilitating access to sustainable economic activity and employment.
2. Raising the level of investment.
3. Increasing market access.
4. Promoting a fair, efficient and competitive market place for businesses and consumers.
The Committee was told that, as a result of its consultations and discussions with various stakeholders, including the Committee, it had chosen to focus its various activities in 2000-01 on three key objectives, namely Promoting Small, Medium and Micro-Enterprises, Empowerment and Investment.
The Committee broadly endorses and supports this focus, provided of course that sufficient attention is paid to other important activities, including critical multi-lateral and regional trade relations. The Committee accepts the challenge to engage with the Department at regular intervals over the course of the financial year to assess progress in achieving these objectives. Clear measurable output indicators, that assess impact and relevance as well as measure activity, need to be developed as a matter of urgency.
While appreciating and supporting the new course being charted by the Department, the Committee is obliged to record its disquiet at the large sum left unspent from last year's budget. Although we understand that many of the Department's programmes involve transfers that cannot be predicted with absolute certainty in advance, the large amount that is unspent is, in our view, a cause for concern. We do, however, agree that it should also be seen as an opportunity. The Department has requested the Department of State Expenditure to permit "roll-overs" to support the taxi recapitalisation programme, the recapitalisation of Khula, incentives and other support for SMMEs. The Committee earnestly hopes that these funds are rolled over for such purposes. At the same time, we trust that, in the future, provision for such key strategic activities as the taxi and Khula recapitalisation will be made in the main budget.
G. The Committee also draws attention to the following:
1. Both Ntsika and Khula have indicated that without additional funding they will be obliged to reduce their activities. We appreciate that the SMME strategy is currently under review and that it is the intention that SMME support becomes a priority activity and focus for the whole Department and not just for specific institutions. The role and scope of activities of both Khula and Ntsika may well change, and indeed, in our view, needs to change in important respects. At the same time, there is evidently a pressing need to expand the scope of SMME support. There is thus clearly a need to move speedily and decisively on the restructuring of the SMME programme and not allow the current uncertainty or budget constraints to result in a curtailment of services.
2. There is need for a wider debate on desirable targets for government support for institutions involved in science and technology like the CSIR. The CSIR is clearly a valuable national asset, and the appropriate level of governmental funding for such an institution needs to be established, at least in part, on the basis of strategic considerations and not merely in the process of competing for scarce fiscal resources.
3. Some evaluation and reassessment of the assignment of the management of a
number of key industrial policy programmes to the IDC need to be made as part of the process of restructuring. While the IDC has a pool of professional skills and capacities that the Department may not presently have, managing such programmes is not the core business of the IDC, and the Department has to pay a management fee. There may well be a case for continuing to assign such programmes to the IDC, but this needs to be reviewed.