ATC100323: Report on Budget Vote 27

Economic Development

Report of the Portfolio Committee on Economic Development on Budget Vote 27, dated 23 March 2010:

 

The Portfolio Committee on Economic Development, having considered Budget Vote 27 and the 2010/11 – 2012/13 Strategic Plan of the Economic Development Department, reports as follows:

 

1. Background

 

The five priorities identified in government’s electoral mandate were: the transformation of the economy, rural development, education, health, and fighting crime and corruption. The transformation of the economy requires a pro-employment growth path that addresses the structural constraints to absorbing large numbers of people into the economy and the creation of decent work. Government has identified decent work through inclusive economic growth as a desired outcome in the medium term strategic framework.

 

The Economic Development Department (EDD) is a newly created department, formed after the 2009 general elections to strengthen government capacity to implement its mandate. The department’s focus will be on coordinating the development and review of economic policies and plans that address present economic challenges and structural deficiencies. The department will: coordinate the contributions of government departments, state entities and civil society on economic development; contribute to efforts to align government’s economic policies and plans and its political and economic objectives and mandate; and promote government’s goals of advancing economic development through decent work opportunities.

 

2. Introduction

 

The Committee agreed that the briefing on the Strategic Plan and Budget Vote No. 27 should be two separate meetings. The Committee was briefed on the Strategic Plan 2010/11 – 2012/13, by Minister E Patel, on Friday, 05 March 2010. The briefing on Budget Vote No. 27 was scheduled on Tuesday, 16 March 2010, where the committee was briefed by the Director-General of the Economic Development Department, Prof R Levin.

 

3. Medium Term Strategic Plan 2010/11 – 2012/13

Minister Patel indicated that the tabled Strategic Plan is the first for the Economic Development Department (EDD), since its inception 9 months ago. He highlighted that the strategic plan of the EDD is not the growth plan of the economy, but that it is a plan for the department which relates to its structure, work areas, outputs, activities and partnerships.

 

The Minister acknowledged that government recognizes the challenges that face South Africa as a country, which include poverty, income and wealth inequality, unemployment and rural development. Minister Patel indicated that the deep global economic crisis affected South Africa, but one of the responses to this was the social pact by South Africa to respond to the crisis, which was developed by government, business, labour and communities. The Minister further elaborated that South Africa cannot isolate itself from the global economy and its location on the African continent.

 

The aim of the EDD, according to the Minister, is to promote economic development through participatory, coherent and coordinated economic policy and planning.

 

The EDD will be responsible for:

•          Administration (Programme 1)

•          Developing economic policy with a broad, cross-cutting focus so that macro and micro-economic policy reinforce each other and are both aligned to the electoral mandate (Programme 2);

•          Economic development planning and will work collegially with other departments to ensure coordination around a programme that places decent work at the centre of government’s economic policies in order to secure better employment outcomes (Programme 3); and

•          Facilitating social dialogue as a means to address the economic development challenges facing society, build a common national vision and enhance partnerships in the workplace and in the broader society (Programme 4).

The Minister stated that the resources of key state Development Finance Institutions (DFI’s) need to be deliberately harnessed as part of an overall development strategy, rather than operating in an uncoordinated way. DFI’s over which the EDD will conduct oversight over from 1 April 2010 are: the Industrial Development Corporation (IDC), the Khula Enterprize Finance Ltd (“Khula”) and the South African Micro-Finance Apex Fund (SAMAF).

 

According to the Minister, the state is also able to make strategic use of economic regulatory bodies to influence the trajectory of economic development. From 1 April 2010 the EDD will conduct oversight over the following regulatory bodies: Competition Commission, the Competition Tribunal and the International Trade Administration Commission of South Africa (ITAC).

 

4. Discussions:

·         Because of the EDD’s cross-cutting mandate, its work will be enhanced by strong partnerships and co-operation between other departments and public service institutions.

·         A growth path is in the process of being developed, which will be tabled to cabinet in June 2010.

·         Minister Patel said that NEDLAC would be an important system which will be utilized in Programme 4, which deals with social dialogue. He noted that the Department had a sub-programme that deals specifically with social partnering and national social dialogue.

·         With regard to public procurement, the Minister noted that an entire workstream has been created that deals with procurement and development, which inter alia deals with identification of opportunities to improve local procurement.

·         Minister Patel emphasized that the Strategic Plan sets out the medium term framework for the EDD, which requires a phased, step-by-step implementation plan.

·         According to the Minister, the staff structure had been approved in 2009, where key priority posts had been advertised and short listing was taking place. According to the Minister, the key issue is the phased approach of implementation.

 

5. Budget Vote No. 27

 

The Economic Development Department envisages building cost effectiveness into its mode of operation. According to the EDD, there will be an emphasis on hiring professional and specialized skills and minimizing support to increase the impact of staffing costs.

 

5.1. Programme 1: Administration

Over the medium term, expenditure is expected to increase from R44.8 million to R61.3 million.

 

Over the MTEF period, expenditure in the Administration programme will focus on establishing corporate management capacity to support the work of line managers, and on strengthening capacity in the Ministry and the Office of the Director-General sub-programmes.

 

Key activities from the Operational Plan:

·         Implementation of the recruitment plan

·         Accommodation, furniture and equipment

·         Planning and reporting

 

5.2. Programme 2: Economic Policy Development

Over the medium term, spending will focus on filling senior and support posts, commissioning research and developing systems.

 

Expenditure is expected to increase from R18.2 million in 2010/11 to RR29 million in 2012/13, at an average annual rate of 26.2 per cent. The increase is due to organizational development and expanding the programme outputs which necessitated an increase in the number of staff members.

 

Key activities from the Operational Plan:

·         Development of a paper on the Growth Path and consultation thereon

·         Policy/analytical papers on economic policy challenges

·         Policy platforms on economic policy challenges

·         Development of an economic model

·         Establishment of an economic development index

·         Establishment of database on the real economy

·         Proposal for the establishment of the Economic Development Institute

 

5.3. Programme 3: Economic Planning and Coordination

Over the medium term, spending will focus on filling senior and support posts, commissioning research, and developing systems.

 

Over the MTEF period, expenditure is expected to increase from R344.4 million to R411.9 million. This is mainly due to transfers and subsidies, which are expected to increase from R287.2 million in 2009/10 to R370.3 million in 2012/13, at an average annual rate of 8.8 per cent. Spending in compensation of employees is also expected to increase over the MTEF period as the programme builds up capacity to support the department’s mandate.

 

Key activities from the Operational Plan:

·         Strategic engagements with DFIs and ERBs

·         Strategy to enhance investment for economic development

·         Oversight of special financing for small businesses, targeted growth sectors and companies in distress

·         Interventions to leverage state expenditure and procurement

·         Engagements with international agencies and multilateral institutions

·         Submission of economic planning proposals

·         Engagements with provincial and local government

·         Production and review of sector plans

·         Production and review of spatial plans

 

5.4. Programme 4: Economic Development and Dialogue

Expenditure is expected to increase from R11.2 million in 2010/11 to R18 million in 2012/13, at an average annual rate of 26.8 per cent.

 

Over the medium term, spending will focus on: filling senior and support posts; hosting social dialogue forums and learning events; establishing monitoring and reporting systems; establishing key institutions; and national and international travel.

 

Key activities from the Operational Plan:

•          Implementation of and reporting on the Framework for SA’s Response to International Economic Crisis

•          Social dialogue engagements

•          Capacity building engagements

•          Sectoral/workplace/national agreements facilitated with partners

•          Establishment of Advisory Panel on Economic Development

•          Annual Conference on Economic Development

 

The EDD highlighted that the Budget as presented contains expenditure estimates for the medium term including transfer payments for the DFI’s and ERB’s. Excluding these transfers the budget is R100m – R130m – R150m over the MTEF.

 

According to the EDD, the Operational Plan identifies the key tasks to be carried out in the first year of the MTEF. The EDD emphasized that the principal challenge for the EDD will be the building of capacity to implement the department’s programmes and sub-programmes.

 

6. Discussions

·         With regard to DFi’s the EDD indicated that they have been capitalized to a certain extent, but the issue is to what extent. The EDD elaborated by saying that they envisage these DFI’s to be credible and not only rely on the subsidies of government. They must be effective and efficient institutions, where the EDD will monitor their performance with regard to economic development.

·         The committee raised concern regarding the allocation of R2.1m in 2010/11 to the Second Economy sub-programme. The Committee is of the opinion that it will not be sufficient. The EDD assured the committee that they will re-look the above allocation, but noted that the sub-programme focuses on policy development.

·         Establishing the department is the primary focus of the EDD.

·         On Khula and SAMAF, the department indicated that they might consider their re-alignment after interacting and engaging with them.

·         The department assured the committee that there will be minimal usage of consultants, but the focus will be on the transfer of skills and knowledge.

·         Since Rural Economic Development will fall under the Department of Rural Development and Land Affairs (DRLA), the committee enquired if this programme (rural economic development) will be receiving sufficient attention in the DRLA. The EDD informed the committee that a Task Team has already been established between the Department of Rural Development and Land Affairs and National Treasury.

·         The EDD indicated that they are ready to launch their website, where they initially considered launching it on Tuesday, 23 October 2010 (on the day of the Budget Vote in the National Assembly), but due to various considerations, they however assured the committee that the launch will be soon.

·         The IDC will be administering the R6 billion fund allocated to it over the MTEF, to assist companies in distress and the Leadership Task Team will be holding the IDC accountable for those funds.

·         The committee highlighted that more work needs to be done on the “Framework for SA’s response to the global economic crisis”.

 

7. Recommendations:

Based on the deliberations with the Economic Development Department, the Committee recommends that:

 

·         The EDD must brief the committee on the development of the economic model within 3 months after the tabling of the committee report.

·         The EDD must submit progress reports related to the economic development index on a quarterly basis to the committee.

·         The EDD must brief the committee on the economic trends in the first year of the MTEF.

·         The committee supports the EDD’s intention of working with National Treasury on further work focusing on increasing public investment initiatives.

·         The committee agrees that the long term viability (value-adding) of companies in distress is very important.

·         With regard to companies in distress, the committee agree that it is important that the labour movement and employers, in these companies, co-operate and collaborate in implementing the “Framework for SA’s response to the global economic crisis”.

·         The EDD must consider all the recommendations made on the committee’s oversight visit report on companies in distress and customs fraud during November 2009. 

·         The Portfolio Committee on Economic Development supports the allocations to the following programmes: Administration, Economic Policy Development, Economic Planning and Coordination and Economic Development and Dialogue and recommends that Budget Vote 27 be passed. The Democratic Alliance (DA) abstained.

 

Report to be considered.