Department Budget: Input by National Empowerment Fund, Industrial Development Corporation, Khula & National Gambling Board

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
4 March 2005
DEPARTMENT BUDGET: INPUT BY NATIONAL EMPOWERMENT FUND, INDUSTRIAL DEVELOPMENT CORPORATION, KHULA AND NATIONAL GAMBLING BOARD


Chairperson (Acting):

Mr S Rasmeni (ANC)

Documents handed out:

National Empowerment Fund (NEF) presentation
Industrial Development Corporation (IDC) presentation
Khula presentation (email [email protected])
National Gambling Board (NGB) presentation

SUMMARY

 

The National Empowerment Fund (NEF), the Industrial Development Corporation (IDC), Khula and The National Gambling Board (NGB) each gave budget presentations . Delegates included Andrew Wright (CFO of the NEF), Nchakha Moloi (acting CEO of the NEF), Nonqubela Maswai (NEF support), Geoffrey Qhena (CEO of the IDC), Raisibe Morathi (COO of the IDC), Lumkile Mondi , (Vice-President , Professional Services, IDC), Dante Mashile, (Head of Corporate Affairs, IDC), Lizo Nqloko, (Regional Marketing Manager. IDC), Xola Sithole, CEO of Khula, Sandile Luthuli, (GM of Operations, Khula), Vuyokazi Memani (CFO NGB), Thibedi Majake, (CEO, NGB).

The Council of Trade & Industry (COTTI) institutions each presented their mandates, achievements, failures, targets and challenges, some providing specific examples. There was some lack of clarity as to how the IDC, NEF and Khula differed. This was specified in the discussion: they differed chiefly in terms of target markets, models of lending and BEE requirements. The NEF was exclusively for BEE. The presentations were compared with those of the DTI Director General, Dr Ruiters, and contradictory figures contested. Recurrent issues included BEE and gender equity, job creation and sustainability and the marginalization of the rural areas. There was also much discussion about the agencies’ relationship with the private and public sectors. The NGB mentioned that they had made a study of youth gambling whose results would be available in April, and that there was to be a forthcoming regulator’s conference in Tanzania. Their current focus was on responsible gambling.

The acting Chairperson, Mr Rasmeni, apologised for the absence of Mr Martins, the usual Chairperson, who was at a meeting outside of Cape Town.

Discussion
Prof. B Turok (ANC) asked the IDC and the other delegates to please differentiate between loans and grants in their presentations. The IDC said they made loans and took equity stakes but did not give grants except for the establishment of agencies which would in turn be able to assist the IDC

The Chairperson said that the DG in his presentation had provided background information and specifics re achievements, failures and challenges. The IDC, however, had not been specific enough, particularly in relation to the provinces. Professor Turok (ANC) and Ms D Ramodibe (ANC) and Mr S Maja (ANC) also criticised the IDC on this count. Prof Turok also criticised the presentation for not making clear how the IDC differed from Khula and the NEF. Ms Ramodibe noted that it was essential for the committee to have details in order to exercise oversight and communicate with their constituencies. Could the IDC please clarify and say what programmes were in place for approvals and what support there was for community groups?

Mr Qhena said that a slide did show funding per province, but perhaps he had gone too fast in his presentation. Regarding the procedure for approvals; the IDC either committed themselves to approving a loan, or taking a stake. The projects had to be sustainable, as the IDC gave loans, not grants.

Prof. Turok (ANC) expressed pity that the Minister was not present as he wanted to touch on policy issues : would he appear at a later stage? Also, did the NEF, IDC and Khula not overlap excessively? Mr Qhena said that there were discussions between the IDC, NEF and Khula in order to minimise overlap.

Prof Turok (ANC) said that the DTI Director General, Dr Ruiters, had said in his presentation that he thought Departments should liase directly with the customers, and not through agencies. What was the IDC policy, were they a type of middleman? The DG had also said that BEE deals had reproduced inherited ownership patterns. The ratio between the IDC’s deals and capital suggested that these deals were large. Surely BEE should be broad-based in order to ensure change? The DG had said that the private sector got 31% of the DTI budget and that 41% went to the agencies, who in turn gave a lot of funding to the private sector. Thus, most DTI money went to private enterprise; yet the government was supposed to be concerned with a developmental state.

Mr Qhena said BEE was important and they were ensuring that it happened, They tried to be broadbased.Regarding agencies, the IDC established development agencies in order to reach difficult areas. Agencies could then identify projects and look for funding (including from the IDC).

Mr K Bapela (ANC) asked if the government was indeed moving towards the sharing of wealth and the 2014 objective of halving poverty and creating sustainable jobs . Did the IDC co-ordinate with the Sector Education and Training Authorities (SETAs)? The recurrent government capacity problem suggested that skills development was vital. The IDC said job creation was part of their mandate. They set targets, including for developmental issues, before the start of the financial year and had an independent auditor review their performance at the close. Regarding BEE funding, when new shareholders came in, they insisted on sellers transferring skills by means of on-the-job training. They had started a program for technical assistance. They agreed that building skills via SETAs was important.

A member asked whether the estimated money invested per job created (about R263 000) was not disproportionately high. Surely the IDC should have as their focus something which the private sector could not do? Should they not be investing in long-term projects with lower returns than the private sector might be interested in, but with greater downstream benefits? Was the IDC losing its focus? It was important for a developmental state that there be investment in the public sector. The IDC had been involved in profitable long-term projects in the past.

Mr Qhena said that the costs-per-job figure reflected the types of approvals: there had been many empowerment deals and ownership changes. Regarding doing things the private sector could not, new technology to the tune of R138 million had been invested in Prisca over a long-term (ten years) creating opportunity for exports. There was also the aluminium smelter in Mozambique. Long-term projects would continue and the IDC would actively look for them.

Mr Qhena noted that the IDC were not supposed to fund government departments and that they needed to allow private sector players. On the issue of State Owned Enterprises (SOEs), they wanted to encourage business linkages and particularly to allow small entrepreneurs to tap into the transport sector, thus encouraging "catalytic participation". They had funded some Transnet and Eskom projects and had done a lot of co-funding with the DBSA They were working with DTI in looking at the agricultural sector. They did want to create business infrastructure in the country. SOEs were participating in most of the greenfield projects.

Mr J Maake (ANC) asked what assets the IDC had and how they were owned. Did they own tea plantations in Limpopo? These had closed down, resulting in a lot of retrenchments. Surely the IDC were not supposed to be creating unemployment? Ms Nqloko said that the IDC had been involved in the tea plantation since 1963, but that since 1994 tea had been very expensive to produce in South Africa, and significantly more costly than in Malawi. Also, there had been a lot of land claims where the plantation was. They were working with land affairs and with the new MEC for Limpopo. They had looked at diversifying production , had successfully converted some of the land for macadamia production and would perhaps use remaining land for more macadamias and for avocados, but were waiting for the claims to be resolved

The Chairperson asked for more information on the economics of tea production in SA. Ms Nqloko said that blenders were able to import much cheaper tea. Tea was labour-intensive and labour rates were much higher in South Africa than in Asia and East Africa. The economics of scale was also a factor: tea sold for R14 in the shop had cost the blenders significantly less to produce. Eastern Cape tea production, in which the Department of Agriculture had invested, had also failed.

Ms N Khunou (ANC) asked what plans the IDC had for job creation and sustainability. The numbers the DG had given the committee did not tally with those of the IDC – why was this and who were they to believe? Mr Qhena said that since the IDC gave loans, not grants, these projects had to be sustainable. This sustainability should in turn lead to job sustainability. He also said that since he did not know the DG’s figures he could not properly comment. Ms Nqloko stressed that it was important to differentiate between disbursal and approval figures, and confusion may have arisen because of lack of differentiation. Prof Turok (ANC) stressed that parliament could not exercise oversight without having clear, specific figures and facts.

Regarding job sustainability, Ms Nqloko said that this was tricky to measure, and they were trying to improve their measuring methods. Projects must be sustainable, and there was a difference between long-term and seasonal jobs. They would be producing a sustainability survey every two years; the first one had been done last year. A 2003 survey had given some insight into their successes and failures. They had introduced portfolio management to look at the sectors and the jobs in them. In some sectors, notably agriculture, there had been lots of mechanisation. This was a big challenge which they were working on.

Mr L Zita (ANC) noted that, apart from wood plantations, most of the IDC’s investment areas were based in coastal areas and that this was an imabalance. He would also address some other issues issues in writing because of time limits.

The Chairperson said that the committee needed a lot more time with the IDC, and suggested the IDC invite the committee to meet with them.

The NEF then took questions.

Mr Zita (ANC) asked if the NEF provided financial or non-financial support? He mentioned that he had been involved with a application that has been turned down, and asked what improvements had been made in the NEF. Was their approach generalist? Did they not target specific industries?

Mr Moloi admitted that the NEF did not have a good past and had to be responsible to the public. They were cutting down on turn-around time and aligning themselves with government policy. They provided financial and non-financial help. Because of the nature of the applications, they had established capacity to deal with non-financial skills. They helped in the drawing up of business plans. They were generalist and their sectoral targets were based on enquiries.

Mr P Nefolovhodwe (AZAPO) asked about the rigidity of the three given categories – generator, accelerator and transformer. How easy was it to move between categories? He noted that the disbursing of funds last year took place mainly in a corridor of Gauteng, the Western Cape and KZN, and asked about the rural areas and gender equity. The NEF said they were flexible in addressing category specifications. They were developing programs for the rural areas and were working with Post Offices, though they took the point that not all rural towns had post offices. Gender equity required a lot of attention

Ms Ramodibe (ANC) pointed out that no mention had been made of disabilities. The NEF said that presently there were no projects targeting those with disabilities.

Prof Turok (ANC) thanked the NEF for their clear presentation. He asked everyone to look at page 74 of Blink a magazine to which the NEF had approved a loan, and expressed his disgust for it., asking why they had chosen to support it. He asked why a new NEF was necessary, and about its top-heavy cost structure. Of the R 150 million allocated to them R 51 million was spent on base costs. He noted that the committee had been very reluctant to pass legislation for a new NEF. There had been a suspicion that government was handing over public money to a few select individuals. Surely the NEF should be part of the IDC? Also, was the term "broad-based" justified? The scale of loans suggested that the NEF was funding middle level enterprise. Prof Turok (ANC) stressed that he did think these should be funded, but that the term broad-based was not justified. The DG had said that the DTI funded SMEs at a cumulative interest rate of 70%; were the NEF giving them the true picture regarding interest rates? An ordinary bank would charge lower interest. The DG had said the middleman ought to be cut out.

The NEF said they had supported Blink as a black owned, managed and controlled enterprise. They did not vet its content. Whether the IDC and NEF should become one institute was a broad government debate. Each institute had to justify its relevance. In the last 3 months the NEF had done a very good job. Regarding costs, R150 million would not do the job, it needed to be properly capitalised. Mr Wright (NEF CFO) added that true capitalisation had only started this month. The ration should be to about R2 billion (rather than R150 million). Also the R50 million figure was based on a full complement of staff and was a projected cost rather than a current one. He presumed the 70% interest rate figure included operational costs to the NEF, but wondered if it included capital returns on their investments? The NEF invested directly. Prof Turok (ANC) said that the matter of the rate of interest was very critical and that the Chairperson or the DTI should look into this. Mr Moloi said that a slide in the presentation showed operational costs , and that making the NEF tax exempt would lower costs for applicants. The Chairperson asked the NEF to channel a written response to the secretary.

The Chairperson asked about Public Works programs and how the IDC and NEF operated at a local government level. Were they proactive in co-operating with local government? The NEF said they had had no applications and enquiries regarding the Public Works program. The NEF had developed products to ensure co-operation.

Khula and the NGB then presented and took questions.

Ms Khunou (ANC) congratulated Khula on their detailed presentation and asked about the issue of credit records. Khula said they tried to assist entrepreneurs to clear their records where necessary. There needed to be a differentiated strategy of ascertaining why people were on the credit bureau. They looked at each case individually.

Prof Turok (ANC) took the opportunity to publicly thank Xola Sithole for being a "brilliant public servant". He said that in his constituency, Mr Sithole had always been available. Previously one had had to have an existing company in order to get money, but this was no longer the case. Regarding the different institutions in COTTI, he understood each might have separate functions, but was it necessary for each to have a board? The committee should do independent research into COTTI cost structures. Khula thanked Prof Turok and the committee for their gratitude; their task vas very big and the committee’s support and engagement was vital. Regarding the institutional frameworks and the DTI, Mr Sithole could not agree more with Prof Turok: if the institutions did not work closely they would risk becoming empires within empires. They must learn from each other and be constantly evaluated.

Prof Turok (ANC) had a problem with the term "responsible gambling", gambling being inherently irresponsible.. The Western Cape had recently passed a by-law on gambling: please could the NGB comment on how the provinces complied with the NGB? The NGB agreed that gambling was dubious, but stressed that their role was regulatory. There was a rehabilitation program for gamblers financed by a voluntary levy from the industry. This program focussed on education, treatment, and research into the consequences of gambling. Regarding the provinces’s relationship to national policy; the NGB’s operations were very fragmented due to ten different acts and boards and nine MECS, as well as oversight from ten legislatures. The regulatory system was extremely complex and this was a challenge. There were good provinces, but also bad ones Prof Turok (ANC) asked if the NGB would do a report on the provinces and they agreed.

Mr Nefolovhodwe (AZAPO) congratulated Khula on their presentation and asked why the NGB’s travelling and subsistence costs were so substantial, being almost as much as administration? The NGB said this was due to the nature of their work, which entailed travel to and supervision of scattered operators and provinces. They needed to help colleagues in provinces, and also to learn internationally

Mr Maja (ANC) asked how the poor benefited from gambling. As far as he was aware they gambled away their social security grants. The NGB responded that truthfully there were no benefits to the poor: spin-offs did not result in tangible benefits to them.

The Chairperson asked that the committee see more of Khula’s work during recess and that Khula come down to their constituencies. Khula was doing a very good job, and this needed to be publicised. The Chairperson mentioned a case with which he had become involved in which the application of a 4 month old spaza shop was rejected and the applicant was told that the shop needed to be six months olds before assistance could be given. Khula said they were happy to visit the constituencies and would follow up on the spaza shop case.

The Chairperson asked the NGB if previously disadvantaged communities were becoming owners in the gambling industry, or only users? How would this be transformed? They said that since 1994 a lot had been achieved regarding BEE, but there were still problems. Prof Barney Pityana, principal of UNISA, had done research on this is and a working committee was following up on it.

Mr Maja (ANC) asked where people at local government level could get APEX application forms. Khula said that there would be a pilot programme from 1 April. The first three months would focus on capacity building within existing and new institutions. Khula was struggling to create access points with Sector Education and Training Authorities (SETAs)

.

The meeting was adjourned.