Productivity South Africa & Umsobomvu Youth Fund 2007/08 Annual Reports: briefing

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Labour

27 January 2009
Chairperson: Ms O Kasienyane (ANC)
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Meeting Summary

Productivity South Africa confirmed that it was technically insolvent - its liabilities exceeded its assets. Its Board and management viewed this adverse finding as a serious matter and had worked diligently to reduce the deficit to more manageable levels. It was hoped that its proposed new structure, which was embedded in the Skills Development Amendment Act, would enable the organization to restructure and reengineer its activities.

The Committee asked about the lack of “productivity” in Productivity South Africa that had led to the deficit. The late salary payments to its staff due to its parlous financial state were questioned. Questions were asked about a cash injection from National Treasury for its turnaround strategy. The impact of the new Skills Development Amendment Act as well as its role in improving the productivity of municipalities was also debated.

The Umsobomvu Youth Fund presented its 2007/08 Annual Report. The report showed that the organization had achieved a 268% growth in beneficiaries to the National Youth Service (55 680). Afurther statistic showed that a total of 19 516 loans, worth R114 million, were granted to youth and women entrepreneurs.  More than 95% of beneficiaries in the micro businesses were women. The repayment rates on loans were high, 81% for micro enterprises and 73% for small enterprises. Total assets were over R702 million and unencumbered cash stood at negative R13 million.

Members discussed the status of a board member, placement rates and training offered by the organization.

Meeting report

Productivity South Africa (PSA) briefing
Opening Remarks
Dr Kobus Laubscher: PSA Board Chairman, announced that the organisation’s Chief Executive Officer (CEO) had resigned at the end of the previous year. He explained that this decision was a career move and was not prompted by any discontent. He indicated that the Board had appointed Mr Bongani Coka to the position in the interim period. In addition, he confirmed that there would be structural changes to the organization to bring it into line with the new Skills Development Amendment Act.
 
Dr Laubscher confirmed that the entity was technically insolvent - its liabilities exceeded its assets. He explained that the factual finding was not due to any wrongdoing on the part of the Board or management but stemmed from the flow of funds and funding of projects.  He informed Members that the board and the management viewed this adverse finding as a serious matter and had worked diligently to reduce the deficit to more manageable levels.  He expressed optimism that the proposed new structure, which was embedded in the Skills Development Amendment Act, would enable the organization to restructure and reengineer its activities.

In general, Dr Laubscher believed that the organization had performed competently, notwithstanding the restrictive framework under which it had operated. Lastly, he stressed that the organization worked closely with the Department of Labour (DoL) and always appreciated its leadership and guidance. 

Presentation: Annual Report 2007/08
Mr Iggy Sathekge, PSA Executive Manager, gave Members a summary of the organisation’s 2007/08 Annual Report. His presentation highlighted the objectives and achievements of the different key focus areas. In the field of knowledge and management, several research reports had been produced, covering diverse topics such as the impact of skills development study on productivity and competitiveness, productivity and service delivery in the public sector, the impact of government interventions on Small Medium and Micro Enterprise (SMME) competitiveness, productivity statistics and a social plan on distressed sectors.

He indicated that the work of the PSA was divided into various campaigns. The Productivity Campaign aimed to inspire South Africans to play a role in improving the country’s productivity, and to empower policymakers and decision makers with productivity information and knowledge that supported them in planning and evaluating productivity improvement strategies. Furthermore it would provide tools, training and support infrastructure. The National Awareness Campaign formed a key part of this, and there would be dissemination of information through media and publications. The corporation had been rebranded with a new corporate identity. It was now called Productivity South Africa.

PSA recognized the strategic importance of SMMEs to job creation in the economy and therefore continued to expand its intervention in this sector. More than 1700 small enterprises were coached and mentored to measure and improve productivity in their own organizations. As a direct result of the organisation’s intervention in this sector, it had shown a combined projected financial benefit in excess of R 115 million per annum. The Second Economy productivity interventions included building SMMEs to transform from second to first economy, turnaround solutions for companies to prevent job losses and ensure survival of businesses, and facilitate government and industry partnerships.

In the area of Corporate Services, PSA aimed to create an enabling environment that continually ensured the alignment of human resources to organisational strategy. In line with this thinking, the human resources component had been elevated to an executive level. Projects to build the capacity of staff were run in partnership with Japanese centres. Capacity building of youth was being assisted by collaboration with the National Youth Commission in mentoring opportunities and knowledge.

The presenter noted that over the past five financial years, the organisation’s funding had increased by 5% per annum and had peaked to R26 million in 2007/08. The current level of funding did not give the organization the muscle to reach critical mass. Accordingly, it had to find alternative sources of funding to supplement its resources. An analysis showed that the government grant constituted the bulk of the organisation’s funding (40%).

Concerns were raised about the entity’s limited regional presence and the pressure on its cash flow. Notwithstanding these challenges, PSA prided itself on having a solid risk management culture and strong internal audit focus.

In order to minimize the negative impact of the entity’s involvement in SMMEs, PSA had renegotiated the terms of partnership agreements to reduce its exposure and ensure higher recovery. Some of the highlights for the financial year included the successful rebranding of the entity and the incorporation of Productivity into the National Curriculum Statement. Other highlights included the right to host the 15th World Productivity Congress and an improvement in the SMME.

Discussion
Ms A Dreyer (DA) addressed several matters. Firstly, she condemned the organization for its poor management and for failing to set a good example in relation to productivity. In addition, she criticised the CFO for failing to recognize the parlous financial situation of the organization. 

Ms Dreyer noted that the organization had experienced problems with its staff due to late payments of salaries, medical aid and pension fund contributions.  She described this as undesirable as it resulted in low morale and ultimately affected productivity.

Mr Coka replied that the stated problems were as a result of under-recovery from SMMEs.  PSA continued to sensitise its partners about the challenges that it was experiencing and held monthly meetings with the unions to discuss this matter. 

Ms Dreyer did not believe that her question was answered satisfactorily. The fact that the PSA was meeting with the union monthly suggested that this was an ongoing problem. Pointedly, she asked PSA to confirm whether the salaries, medical aid and pension contributions of the all the staff were up to date.
 
Mr Coka replied that the organization had made sure that all employee benefits were up to date when it had closed for the December holiday period. Due to the nature of its work, the Department had suggested that it developed reserves so that such a situation could be averted. He was confident that the new organization would continue to meet its commitments irrespective of any delays in the payment of funds.

Ms Dreyer observed that the sick leave doubled in the previous financial year and interpreted this as a sign of a sick organization.

Mr Coka explained that this figure had jumped due to the fact that two staff members had cancer and had to take considerable time away from the office.

Ms Dreyer noted that PSA had ascribed the country’s decline in productivity and competitiveness due to a lack of skills. Accordingly, she interrogated whether the organization had any plans to accommodate skilled South Africans that were returning to the country.

Mr Coka affirmed that the organization was committed to addressing the skills shortage in the country and that all available skills would be utilised.

Dr U Roopnarain (IFP) addressed two matters. Firstly, she expressed concern about the financial state of the organization particularly given that it intended to expand its reach to all nine provinces. Secondly, she asked whether PSA partnered with academic institutions and the Department of Trade and Industry (DTI).

Mr Coka stated that the organization had an ongoing partnership with the University of Johannesburg and ran a programme for DTI.

Mr M Nene (ANC) probed two issues. Firstly, he enquired whether there were any plans to get funding for the turnaround strategy from National Treasury.

Mr M Mzondeki (ANC) sought to establish in which schools productivity programmes were held and what criteria was used to select such a school. Also, he commented that many municipalities were not productive, and wondered whether they cooperated with PSA.

Mr Sello Mosai, Executive Manager: Knowledge Management and Research, PSA, answered that officials from the Department of Education assisted in selecting the competing schools. He added that a cross section of schools participated in the debates.

Mr Mzondeki queried whether PSA had been invited to assist mines that were in the process of being shut down. In addition, he asked if PSA experienced any challenges in implementing the Social Plan.

Mr Sathekge indicated that the entity had engaged in a proactive manner with companies through roadshows and workshops. He added that the biggest challenge with the Social Plan had to do with the fact that many companies approached the organization when it was too late.

Mr L Labuschagne (DA) found it ironic that PSA’s programme focused on children and left out teachers, who were largely unproductive.  

Mr Coka insisted that teachers were also targeted in the organisation’s programmes.

Mr Labuschagne asked if PSA had investigated whether the Sector Education and Training Authorities (SETAs) were productive.

Mr Mosai admitted that the organisation’s research had not focused on the SETAs.

Mr Labuschagne sought clarity on what sort of training the organization provided to workers. He also asked if municipalities approached the organization for its services or if PSA was proactive. 

Mr Sathekge explained that the organization had a partnership with the South African Local Government Association (SALGA) and the Department of Provincial and Local Government whereby PSA conducted an assessment of productivity amongst all the municipalities in the country. Following the information gathered through that exercise, PSA then acted proactively and approached municipalities to offer its services. PSA could only advise municipalities and had no authority to insist that they must take up their services.

Mr Labuschagne asked what impact the new Skills Development Amendment Act would have on PSA.

Mr Sam Morotoba, Deputy Director-General:
Employment and Skills Development, Department of Labour, explained that it would assist in closing a longstanding question mark around the history of the institution, which was established in 1975. The legislation would address any gaps and ensure alignment with other public entities. The functions of the PSA were better clarified in the Amendment Act unlike before.

Mr Labuschagne remarkeded that the private sector was driven by a profit motive and therefore productivity was less of a problem when compared to the public sector where there were no incentives.

Mr Mosai admitted that this topic had been discussed with the Department of Public Service and Administration. The conclusion was that the issue of incentivising officials was central in improving productivity in the public service. He added that incentives did not necessarily have to be material.

Mr Labuschagne asked for an indication about the current financial situation of the entity and if the deficit had been diminished.

Mr Morotoba explained that the organization was in discussions with the Department and National Treasury about an injection of funds.  He was hopeful that this matter would be sorted out in the near future.

Mr Freddie Petersen, Acting: Chief Financial Officer, DoL, stated that the organisation’s deficit originated in 2007. This situation escalated further in 2008. Since then, the department had intervened and held discussions with National Treasury. The latter had agreed to fund the organization provided that it developed a quantifiable turnaround strategy. PSA was in the process of doing this and hoped to resolve the matter shortly. Lastly, he suggested that PSA develop a reserve due to the nature of its business.

Ms M Twala (ANC) sought to establish what sort of impact PSA had on preventing job losses and the impact that it had on HIV/AIDS.

Mr Mosai stated that HIV/AIDs had a negative impact on productivity in the workplace due to the high rate of absenteeism.

Mr Coka acknowledged that with current resources at its disposal, PSA would not be able to respond to all the needs. As a result, it was looking at partnering with Unemployment Insurance Fund to assist more companies than it otherwise could have.

Ms Dreyer found it incomprehensible how an entity could advise people in the private sector on how to conduct their business when “its own house was not in order”. Personally, she believed that the only way productivity and competitiveness could be improved in South Africa was to cut taxes and all the red tape involved in employing people.

Mr Mosai appreciated the comments expressed by the Member. Nevertheless, he added that Productivity Institutes were best practice and operational worldwide. He added that most international Productivity Institutes were structured in the same manner as PSA.

Ms S Rajbally (MF) questioned whether PSA had any role in creating jobs.

Mr Coka believed that PSA created jobs indirectly because by increasing productivity, more jobs were being created.

The Chair thanked the team from PSA and indicated that all matters would be considered.

Umsobomvu Youth Fund (UYF) presentation
Mr Malose Kekana, UYF Chief Executive Officer, noted that the Fund continued to make a significant contribution to society. In the 2007/08 financial year, it had achieved a 268% growth in beneficiaries to the National Youth Service (55 680). A total of 19 516 loans, worth R114 million, were granted to youth and women entrepreneurs.  More than 95% of beneficiaries in the micro businesses were women. The repayment rates on loans were high, 81% for micro enterprises and 73% for small enterprises. In terms of job creation, more than 1000 unemployed young people were placed in jobs and 3 300 young people participated in the Graduate Development Programme. The organisation’s funding continued to be a challenge as well as managing the transition of the Fund into the new entity (National Youth Development Agency).

The presenter tabled the organisation’s financial statement. Total assets were over R702 million and unencumbered cash stood at negative R13 million.

The 2008/09 strategic priorities were outlined. These included a focus on the National Youth Commission and UYF merger, staff retention and motivation and sustenance of service delivery to young people.

Finally, the presenter reported that since its inception, UYF had trained over 200 000 youths and had supported over 80 000 young entrepreneurs.

Discussion
Ms Dreyer posed three questions. Firstly, she asked whether Mr Willie Madisha still served on the board of directors. Secondly, she expressed satisfaction that the entity had trained over 200 000 young people in the seven years of its existence. As a result, she was curious about the fields and areas of expertise the training covered. Lastly, she enquired whether all the individuals that received training managed to secure employment.

In response to the first question, Mr Kekana confirmed that Mr Madisha was still a member on the Board. He added that Mr Madisha had been deployed to that position by Nedlac.

In respect of the second query, Mr Kekana responded that the organization trained young people in diverse areas such as healthcare, IT and agriculture. The biggest amount of training was done in the construction sector.

Finally, Mr Kekana indicated that the lowest placement rates occurred in the social development programmes, whereas the highest were amongst those that participated in the graduate programmes. In addition, he explained that placements rate differed between urban and rural areas with the former being more successful.

Mr Mzondeki congratulated the Fund for its excellent work and hoped that the new structure would continue in this manner.

Mr Labuschagne probed three issues. Firstly, he asked what percentage the Fund lost as a result of bad debts. Secondly, he asked about the staff complement. Thirdly, he sought an explanation for the spike in the organisation’s operational expenses.

Mr Kekana replied that only less than 2% had been written off due to bad debts. In addition, he informed the Committee that the organization employed roughly 400 people. Lastly, he explained that the spike was due to the fact that the Fund no longer outsourced the work and was doing most of it on its own. Resources were also allocated for the 20 new offices that the organization intended to build.

Ms Dreyer enquired whether the Fund used training service providers like the SETAs.

Mr Kekana admitted that the Fund used service providers for some of its programmes. The Fund offered its own training for the Graduate Development Programme.

The Chairperson complimented the team for a good and fruitful presentation. She hoped that the new Agency would deliver on its mandate.

The meeting was adjourned.

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