Development Bank of Southern Africa 2005/06 Annual Report: briefing
NCOP Finance
24 October 2006
Meeting Summary
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Meeting report
SELECT FINANCE COMMITTEE
28 October 2006
DEVELOPMENT BANK OF SOUTHERN AFRICA 2005/06 ANNUAL REPORT: BRIEFING
Chairperson: Mr T Ralane (ANC) (Free State)
Document handed out:
Development
Bank of Southern Africa (DBSA) 2005/06 Annual Report
SUMMARY
The Development Bank of Southern Africa presented their 2005/06 Annual
Report to the Committee. There were significant changes to the bank’s vision,
the bank’s role was expanded and significant initiatives and projects were initiated.
The challenge in South Africa was that 15% of the country did not have access
to water; 17% had no sanitation services; 41% had no refuse removal; 30% no
electricity and 30% had no housing. In the rest of the South African
Development Community (SADC) region, there were massive infrastructure gaps; a
lack of bankable projects; low capacity to manage project preparation and
inadequate risk capital.
In the public sector market, municipal needs differentiated according to
socio-economic and capacity considerations and there were huge backlogs mainly
in Markets 2 and 3. Capacity constraints were still high and demands on
municipalities were increasing due to migration patterns and demands in
anticipation of the 2010 World Cup.
In terms of service delivery, 20% of the contract value was awarded to small
and emerging contractors. Also 244 households received access to services per
each R1 million approved and 1.2 million households benefited in total. With
the view to the 2010 World Cup, they were working closely with the Local
Organising Committee.
Some of the challenges to their Siyenza Manje project were cash flow problems in municipalities due
to a lack of management. There was lack of operational capacity and there were
limited processes and procedures implementation such as in supply chain
management and tender processes.
The bank had an overall positive financial performance. In terms of their
developmental loans, their net book value grew from R15 607 million in 2005 to
R17 299 million in 2006 and their gross loan book grew by 7.9%.
MINUTES
Mr Admassu Tadesse,
DBSA Corporate Strategy Manager, said that in the year under review there were
significant changes to the bank’s vision, the bank’s role was expanded,
significant initiatives and projects were initiated and expanded partnerships
with the Government and the private sector were implemented. The bank’s vision
was aimed at developing a prosperous and integrated region progressively free
of poverty and dependency. Their mission was to drive development impact in the
region through expanding access to development finance and effectively
integrating and implementing sustainable development solutions. From 2006
onwards, the bank would become a financier; a partner; an advisor; implementer
and an integrator.
There were two major themes. The first was to generate investment in physical,
human, social and institutional assets that served the poor, directly and
indirectly, and that supported broad-based wealth creation (infrastructural and
productive capital). The second was to mobilise, develop, apply and manage
knowledge in support of greater development effectiveness, innovation and an
enabling developmental environment.
The corporate strategy was to co-deliver social and economic infrastructure;
build human and institutional capacity; promote broad based economic growth,
job creation, co-operation, integration and prosperity; serve as a centre of
excellence for development financing, knowledge and effectiveness and engender
external and internal sustainability.
The challenge in South Africa was that 15% of the country did not have access
to water; 17% had no sanitation services; 41% had no refuse removal; 30% no
electricity and 30% had no housing. In the rest of the SADC region, there were
massive infrastructure gaps; a lack of bankable projects; low capacity to
manage project preparation; inadequate risk capital; power shortages; shallow
capital and financial markets and weak capacity among project sponsors.
Mr L Mashaba, the Executive Manager of South African
Operations, said that in response to these challenges, a target of R2.75
billion in development investments was approved for South Africa and R6.96
billion had actually been spent. In the SADC region, a target of R750 million
was approved and R1.1 billion had actually been spent. In total, for South
Africa and SADC, R3 billion had been approved and R8 billion had been spent. In
South Africa, a target of R2.2 billion was set for disbursements on loans and
equity investments but R2.5 billion was actually disbursed. In terms of
technical assistance, a target of R12 million was set but R20 million had been
spent.
The potential impact of the bank’s activities on South Africa’s GDP was R18
billion in 2005/06 compared to R7 billion in 2004/05. The impact on employment
was the creation of 2900 jobs in 2004/05 and 14 150 in 2005/06. In total 1.1
million households would benefit. In the SADC region, a target of R800 million
was set for disbursements on loans and equity investments but R600 million was
actually disbursed. The potential impact of the bank’s activities on SADC’s GDP was R2.4 billion in 2005/06 compared to R400
million in 2004/05.
Mr Tadesse then gave an overview of their public
sector support for 2005/06. In the public sector market, municipal needs
differentiated according to socio-economic and capacity considerations and
there were huge backlogs mainly in Markets 2 and 3..
Capacity constraints were still high and demands on municipalities were
increasing due to migration patterns and demands in anticipation of the 2010
World Cup. There was increased participation in the more developed portions of
the market by the private sector and they were beginning to dominate the bidding
process. Failures in the market had led to utilities and other institutions
delivering services. There was an inability to integrate development flows and
utilise the available funding. Some re-capacitating occurred in many areas
after the elections and there was increased competition in prices in better
developed markets.
Six municipalities were in Market 1, 119 in Market 2 and 158 in Market 3. The
bank’s total investment approvals were R5.1 billion (9 billion including
co-funding). R3.6 billion (71%) had been converted to date into agreements,
bids of R4.3 billion had been made and bids of R1.8 billion had not been
converted. The average size of the approvals was R49 million with R489 million
in Market 1, R28 million in Market 2 and R9 million in Market 3. Municipalities
made up R2.9 billion (57%) of the approvals, parastatals
and utilities made up R2.1 billion (40%) and Further Education and Training
(FET) institutions R130 million (3%).
The Market 1 Municipalities made up 6% of the number of projects but 55% of the
value of the investments. The Market 2 ones made 82% of the number of projects
and, 41% of the value of the investments while the Market 3 ones made up 12% of
the number of projects but only 4% of the value of the investments.
In terms of delivery, R2 billion in disbursements was
achieved following a Provincial approval trend. In the Targeted Infrastructure
Programme, R449 million was spent on 39 interventions which was 14% of the
total value of their public sector support. To date 35% had been disbursed and
of this, R160 million was transferred to Market 3 communities in metros.
In terms of service delivery, 20% of the contract value was awarded to small
and emerging contractors. Also 244 households received access to services per
each R1 million approved and 1.2 million households benefited in total. They
estimated that 6% of the current backlogs in South Africa had been potentially
eradicated by their operations. For every R1 approved, R1.88 was mobilised from
other sources.
In helping to build capacity, R20 million was approved on 90 interventions. R53
million had been approved by the Development Fund, R15 million disbursed by the
bank. 90% on the approvals were in Municipalities and 70% in Markets 2 and 3.
With the view to the 2010 World Cup, they were working closely with the Local
Organising Committee. They provided analysis of business cases for stadiums and
reported to the Ministries of Sport and Finance. They also provided a
management system for conditional grants and gave general assistance to
Government Departments on various financial aspects.
Ms J Nhlapho, the Executive Manager of Capacity
Development and Deployment, said that through their Development Fund, in
2005/06, 2556 municipal officials had been trained, exceeding the target of
250. 50 new systems had been implemented, exceeding the target of 30 and 80
projects were approved, which was ten more than was targeted.
A total of 30 agency programmes were managed during 2005/06, with a combined
flow of R300 million. These projects were diverse in nature and included joint
ventures, independent contractor assignments and management contracts.
Strategic relationships were extended with the World Bank and National Treasury
to provide municipal management training and capacity support to Provinces for
service delivery in education and health.
Some of the challenges to their Siyenza Manje project were cash flow problems in municipalities due
to a lack of management. There was lack of operational capacity and there were
limited processes and procedures implementation such as in supply chain
management and tender processes. There were many staff vacancies with many
under-qualified employees. In some cases political agendas were more important
than infrastructure implementation. This impeded the decision-making process.
The Siyenza Manje status at
present was that there were 48 people deployed with 13 more to join in November
2006. There were 31 Project Managers/Technical experts, three planners and 13
financial experts. In total, 36 Municipalities were involved and the process of
formalising Service Level Agreements for mainly water and sanitation projects
was underway.
Some of the lessons learned through the Siyenza Manje project were that communication and support from
Provincial Government was essential. There had to be better focus on
infrastructure implementation and things like administration, systems, policies
and procedures and general management formed the foundation for municipal
functioning.
She then described the concept of the Local Investment Agency (LIA). It was a
joint DBSA and Old Mutual initiative with R8 million set aside for capitalising
the LIA Company.
R500 million was allocated as an investment facility. There would be commercial
investment in poverty-stricken areas with economic potential. To facilitate
project development and investment the LIA would have to overcome investment
constraints; leverage resources into viable commercial projects; create a link
between development and commercial ventures and accelerate economic growth and
job creation.
The Wild Coast LIA would operate as the first phase. The mission here was
focused on project development, preparation and packaging. It would also focus
on private and commercially sound ventures. And include all economic sectors,
subject to a triple bottom line. The life span would be ten years and 19
projects had been identified to date. There was going to be linkage to other
funding and support from the DBSA and Old Mutual and synergy and alignment with
Government policies and programmes as well as collaboration with other role
players.
Another major project was the need to mobilise knowledge. The DBSA would
operate as a learning organisation. Investment in training as
a percentage of their budgeted payroll in 2004/05 was 5% and 6.1% in 2005/06.
They also had some research publications including the “DBSA Infrastructure
Barometer 2006: Economic and municipal infrastructure in SA”; the
“Quantification of poverty in South Africa: An inter-regional profile”; “A
Guide to Best Practise in the Operation, Maintenance and Safety of Dams” and
“The employment of people with Disabilities in South Africa.”
Some of their knowledge impact development partners were the Office of the
President in the National Spatial Development Perspective and the ASGI-SA
National Skills Database/Internet Website. With National Treasury, they had the
Project Consolidate Municipal Transformation Programme; Asset Management Policy
and Infrastructure Planning; the Infrastructure Delivery Improvement Programme;
the Municipal Finance Management Training Programme and the Public Private
Partnership Training Programme. With the Department of Trade & Industry
they had the Regional Spatial Development Initiative; the Expanded Public Works
Programme with the National Department of Public Works; the Risk Management
Training Programme with the Department of Water Affairs & Forestry and the
Municipal Health Services Programme with the Department of Health.
Ms Leonie Van Lelyveld, the Chief Risk and Chief
Financial Officer, said that the DBSA had achieved a
AAA credit rating with Fitch, Baa1 with Moody’s and BBB+ with Standard & Poors. The bank had an overall positive financial
performance. In terms of their developmental loans, their net book value grew
from R15 607 million in 2005 to R17 299 million in 2006 and their gross loan
book grew by 7.9%.
Mid-way through the 2006/07 financial year, their operating surplus was 10%
ahead of their budget; the net interest income was 4% below budget; approvals
were below the same time last year (probably because last year was
exceptional); disbursements were ahead of last year and the total amount in
default was stable. Also, operating expenses were 16% below the budget, the
cost to income ratio was below budget, other ratios were all on target and the
balance sheet was stable.
Discussion
Mr Goeieman (ANC) (Northern Cape) asked what
an “overall positive financial performance” meant.
Mr Tadesse replied that this meant that they were
doing well in terms of their credit ratings being upgraded, being able to
mediate financially between the public and private sectors and that they were
doing well in a number of indicators they identified as being essential for
financial stability. Ms Van Leylveld added that to be
sustainable, the bank had to get their balance sheet right.
Mr Z Kolweni (ANC) (North West) asked if the DBSA had
any plans for the redevelopment of former mining towns where there were many
unemployed people who had relied on mining activities in the area.
Ms Nhlapho said that in cases like this, a Provincial
Programme Manager would be deployed to the area. Then various projects in
construction, water and sanitation for instance would be implemented. Also learnership projects would be started to teach the locals
how to implement some of those infrastructure programmes.
Mr E Sogoni (ANC) (Gauteng)
said that they had targeted to spend R3 billion for development investment but
had actually spent R8 billion. The gap was too wide between what was planned
and what was spent.
The meeting was adjourned.
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