Export Credit and Foreign Investments Re-Insurance Amendment Bill: voting

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
16 May 2001
EXPORT CREDIT AND FOREIGN INVESTMENTS RE-INSURANCE AMENDMENT BILL: VOTING

Chairperson: Dr R Davies

Documents handed out
Export Credit and Foreign Investments Re-Insurance Amendment Bill
Letter containing proposed amendments to the Amendment Bill (see Appendix)

SUMMARY
The Democratic Party requested a debate on the Bill in the House. The DP noted that they do not support passing the Bill and they abstained from voting on the motion of desirability. The Committee recommended that the National Asembly pass the Bill with amendments. The Bill must still come before the NCOP.

MINUTES
Mr Matthee, Mr Strydom, and Dr Kohle from the Department of Trade and Industry were present.

Motivation on the Motion of Desirability
Mr Bruce (DP) asked what the real purpose of the change is. Why create a parastatal when there are adequate structures in place? What is the point of creating a parastatal? There is a danger that a parastatal could be used as a motivation for aid being channeled into other countries (financing the African Renaissance). If this is what government wants to do then that is fine but it must be done openly and overtly. This should not be dealt with in the public service.

Mr Bruce also commented that there is a capacity problem in the DTI (Department of Trade and Industry). Mr Bruce requested a debate on this in the National Assembly. The DP wants to consult caucus before supporting the Bill.

Ms Hajjaj (ANC) said that the CGIC (Credit Guarantee Insurance Corporation) does the preliminary risk assessment but the bulk of the assessment is done by DTI. DTI has therefore done the deals in the past. In light of this, how can Mr Bruce contend that DTI does not have the capacity now? It is illogical to say this. DTI has the capacity, this middle structure is no longer necessary.

Mr Frolick (UDM) said that the UDM supports the Bill because it makes business sense. CGIC makes huge profits. There will be a cost saving. Regarding the competence of DTI, the UDM believes that the staff at DTI is highly qualified.

Ms Mohamed (ANC) said that from a business viewpoint, DTI has considered everything. It is a good move and she is confident that DTI is competent in terms of capacity.

Mr Durr (ACDP) agreed with Mr Bruce. He asked if there had been a cost analysis for reform to CGIC (including the ongoing costs of running CGIC) rather than opting for creating a parastatal. Starting the organisation will require huge skills and the transactions that it will deal with are so few that it does not warrant the establishment of the organisation. It is not the cheapest option.

Dr Davies (ANC) said that the shift to the ECA is not just to save money. It is about strengthening capacity in respect of long-term political risk insurance. They want to create a structure which will enable decisions to be taken in government. The
cut-through to government is fundamental. It could become an issue in the WTO (World Trade Organisation) but it seems to be compatible with the WTO and the Berne Convention. Dr Davies indicated that they will ask for a debate in the House. However they should not hold up the motion of desirability for caucus meetings.

Mr Bekker (IFP) said that the IFP accepts the proposal but they would like to see a detailed analysis (real cost analysis) of what it will cost. If it is not as economical as they thought, then the committee should be prepared to turn away from accepting the idea.

Response from the Department
On the issue of capacity Mr Matthee said that the CGIC proposals from two years ago were formulated in collaboration with DTI. DTI has the capacity.

The British government has a full-scale government department doing this type of work. They are moving toward the South African direction (creating a parastatal with non-executive directors). They are filling the gap in the market.

There has been no subsidisation and there should not be any now. The FSB (Financial Services Board) supervises it. This means that there will be no problem because it will be subject to their scrutiny.

In the Democratic Republic of Congo (DRC) for example it is difficult to do projects because of the war. The ECA will not jump into this type of situation. Currently Parliament has no control over the projects that DTI has financed. Now the ECA will create some control.

Regarding the WTO, Mr Matthee said that as long as the OECD consensus rules are followed then there is no subsidisation even if there is a loss.

Chairperson Davies read the motion of desirability. The DP abstained. The motion was accepted by the Committee.

Proposed Amendments
Clause 2 of the Principal Act
The constitutional concern with clause 2(a) of the Bill is that if it compels one to enter into these agreements, then it is unconstitutional. Mr Strydom said that there is no obligation or compulsion as an exporter is entitled not to enter into a contract. Therefore the clause does not need to be amended to take account of the point made the day before.

A committee member asked if it was possible for someone else to interpret the clause wrongly (as though there were a compulsion).

Mr Strydom replied that when interpreting, one must follow the guide of the legislature. He added that he had spoken with Mr Enver Daniels (State law advisor) and he had agreed that the clause presented no constitutional problem.

Dr Davies asked why they had used the words ''all the'' (after ''be prescribed in such agreement'') instead of using the word ''any''.
The panel indicated that it did not make a difference either way and the committee agreed to use the word ''any''.

In clause 2(a) the word ''may'' before ''enter into an agreement'' is replaced with ''shall''. A committee member noted that in the constitution the word ''must'' is used instead of ''shall''. For the purpose of consistency the member suggested that the same principle be used for the Bill. The committee agreed and the word ''shall'' is amended to ''must''.

A new subclause (b) is inserted. The effect of this subclause is that the Agency will be subject to company law as a juristic person.

Subclause (c) goes through as written with an additional subclause there. The amendment provides for empowering the Minister to appoint a CEO of the Agency.

The existing subclause (b) becomes (c) and the existing subclause (c) becomes (d).

Mr Durr (ACDP) suggested that there should be consultation with the Minister of Finance.

Dr Davies disagreed saying that this would give the Minister administrative duties.
Dr Kohle agreed with Dr Davies.

Clauses 3 - 10
Clause 3 and 4 amendments are consequential. Clauses 6 - 10 there are no changes.

Clause 11
Clause 11(2) - Dr Davies noted the point CGIC made the day before. The way the clause is currently drafted gives it the effect that the ECA will not only take over the rights and obligations of government but it will also take over their rights.

To address this problem Dr Davies suggested that they add the words ''of government'' after the words ''rights and liabilities''.

The committee agreed to this.

Conclusion
The Committee recommended that the National Assembly pass the Bill with these amendments.

Appendix:
POSSIBLE FORMAL AMENDMENTS TO THE EXPORT CREDIT AND
FOREIGN INVESTMENTS RE-INSURANCE AMENDMENT BILL

1. I only received your written comments on 9 May 2001 and could therefore not respond prior to the Study Group Meeting on 7 May 2001. Allow me to take the liberty to suggest the following amendments for your consideration:

1.1. Section 2 of the principal Act is hereby amended-

(a) by the substitution for the words preceding paragraph (a) of the following words:
''The Minister [may] shall enter into an agreement with the Export Credit Agency [any person who is a registered insurer as defined in section 1 of the Insurance Act, 1943 (Act No. 27 of 1943), with the object of [reinsuring against the payment of a premium and] insuring, on behalf of the Government [and] on such [other] terms and conditions as may, in consultation with the Minister of Finance, be prescribed in such agreement, [any] all the contracts [of insurance] entered into by [such person with, or for the benefit of,] persons carrying on business in the Republic, being contracts [of insurance against] subject to risk of monetary loss or monetary detriment attributable to circumstances beyond the control of the person suffering the loss or detriment and arising out of or in connection with-''; and

(b) by the insertion of the following subsections:

''(2) The Export Credit Agencv shall be a registered insurer as contemplated in section 7(1) (a) of the Short- term Insurance Act, I998 (Act No. 53 of 1998) and shall in its capacitv as a registered insurer and juristic person be subject to the relevant insurance laws and companv law respectively.".

(3) ''Without detracting in any way from the Minister's general power to determine through the agreement provided for in section 2, the terms and conditions in terms of which the Export Credit Agency shall conduct its business, the Minister will specifically be empowered to appoint the Chief Executive Officer and members of the Board of the Export Credit Agency."

1. Dr Pat Kohle and Mr Emile Matthee have already indicated their support for these changes and this document was also made available to the State Law Advisers.

2. Needless to say that these proposals are no more than a point of departure and that they may be further refined. The idea is simply to reflect the principles expressed by you.

3. I will gladly discuss further should you so require.

J. STRYDOM
EXECUTIVE MANAGEMENT UNIT: LEGAL
DATE: 14 May 2001