ATC110408: Report on Strategic Plan 2011/12 – 2015/16 and Budget Vote No. 28 of the Department of Economic Development

Economic Development

THIS REPORT REPLACES THE REPORT OF THE PORTFOLIO COMMITTEE ON ECONOMIC DEVELOPMENT PUBLISHED IN THE ANNOUNCEMENTS, TABLINGS AND COMMITTEE REPORTS NO 43 – 2011, P. 1008, ON FRIDAY, 08 APRIL 2011

 

1. Report of the Portfolio Committee on Economic Development on the Strategic Plan 2011/12 – 2015/16 and Budget Vote No. 28 of the Department of Economic Development, dated 08 April 2011

 

The Portfolio Committee on Economic Development, having considered Budget Vote 28 and the Strategic Plan for the 2011/12 – 2015/16 period of the Department of Economic Development, reports as follows:

 

1. Introduction

The Portfolio Committee on Economic Development is seized with aligning its oversight mandate with government imperatives of job creation, the reduction of income inequalities and eradication of poverty. The New Growth Path is one of the instruments to achieve the stated goals.

 

The aim of the Department of Economic Development (EDD) is to promote economic development through participatory, coherent and coordinated economic policy and planning for the benefit of all South Africans.

• Coordinate economic development contributions of government departments, state entities and civil society
• Contribute to coherence between government objectives and the public sector economic policies and plans
• Promote government’s ability to achieve its goals of advancing development with decent work opportunities.

 

The report compiled will include the strategic plan and budget vote of the Department.

 

2. Strategic Plan 2011/12 – 2015/16 of the Department of Economic Development

 

The Department of Economic Development briefed the Committee on their Strategic Plan 2011/12 – 2015/16 and their Budget Vote No.28, on 22 March 2011.

 

2.1. Overview by the Department of Economic Development

 

The Department emphasized that their current Strategic Plan and Budget Vote  build on the foundations of the 2010 Strategic Plan.. The Department further stated that there is a strong attempt to deepen activities and the work of government. The 2010 Strategic Plan had been a schematic representation, setting out intent, and with the passage of time much of the work of the Department has begun to be implemented.

 

The Strategic Plan (2011/12) sets a vision of a Department and the focus of the organogram places an emphasis on high level skills for service delivery.  

 

The Department indicated that it is working towards greater integration between the Department and the entities to achieve the national development goals. .

 

2.2. Presentation by the Department of Economic Development on their Strategic Plan 2011/12 – 2015/16

 

The Department provided an analysis of its strategic objectives, including budgetary tables (per graph) over the MTEF and projected personnel figures:

 

 

 

 

Programme 1: Administration

This purpose of the programme is to coordinate and render an effective, efficient, strategic support and administrative service to the Department, deputy the Department, director-general, the Department and its agencies.

 

Programme 2: Economic Policy Development

The purpose of the programme is to strengthen the economic development policy capacity of government; review, develop and propose the alignment of economic policies; and develops policies aimed at broadening participation in the economy and creating decent work opportunities.

 

Programme 3: Economic Planning and Coordination

The purpose of the programme is to promote economic planning and coordination through developing economic planning proposals; provide oversight and policy coordination of identified development finance institutions and economic regulatory bodies; and contribute to the development of the green economy.

 

Programme 4: Economic Development and dialogue

The purpose of this programme is to promote social dialogue, implement strategic frameworks; build capacity among social partners; and promote productivity, entrepreneurship and innovation in the workplace.

 

The Department highlighted the following regarding the public entities:

The Department indicated that the IDC is restructuring its operations to effectively support the NGP and IPAP2. It further noted that the Small Business component of the IDC is envisaged to form part of the consolidated small business development entity in short to medium term.

 

Khula and Samaf are also envisaged to form part of a consolidated small business development entity in the short to medium term. The Khula Direct (retail lending) will be piloted in 2011/12 financial year.

 

The Competition Commission will continue to prioritize key sectors to create an improved competitive environment for economic activity. The Department further highlighted that the Commission has secured more resources, but noted that accommodation is a challenge.

 

2.3.       Discussions

 

2.3.1.    Key issues raised:

·         The committee noted the lack of alignment of plans among the three spheres of government.

·         The lack of collaboration and coordination between the DFIs at provincial and national level is disconcerting.        

·         Members noted that the New Growth Path highlights the central role that government must play in the economy and acknowledges the importance of the private sector in achieving government’s objectives.

·         Members sought clarity on how government intends to change the apartheid spatial development patterns to suit the current objectives

·         Members enquired about the Department’s strategy for mitigating against the external economic shocks such as the increase in oil prices which would in turn have a negative effect on the job creation targets, economic growth and the income distribution gap.

·         The strategic plan is not clear what is needed to contribute to its success, for example infrastructure as enablers for economic development.

·         Members wanted confirmation whether or not the NGP is the new economic policy of the country.

·         How is government going to step up the Expanded Public Works Programme, which are linked to infrastructure and meeting the social needs of people?

·         Members expressed concern that the 2011/12 Strategic Plan is not speaking to regional integration as expressed in the NGP

·         Members noted that the Department is experiencing accommodation challenges.

·         Communication to cooperatives and small businesses is a challenge, because they are not aware of the services and incentives provided by government, especially mentorship programmes to SMMEs

 

2.3.2. Responses:

Infrastructure as an enabler for economic development

The NGP identifies several job drivers, of which infrastructure is one, where major investments have been ploughed into road, rail and electricity projects (IRP 2).  The Department noted that government is expected to invest about R900 billion over the next fifteen years on infrastructure development. In building this infrastructure government also intends creating jobs.

 

Incentives to businesses and consumers in the green economy

The new capacity which the IRP 2 will bring, (36%) is focusing on renewables. There are various incentives to the consumer and business e.g. on the energy side where lots of work is going on in the solar water (geysers) side. Installing solar geysers serves as an incentive to consumers, where consumers will be receiving a rebate and their cost on electricity over time will be less (on hot water consumption) than if the consumer continued with the conventional geyser. A challenge is where there is no high uptake, where there is a shortage of plumbers to do this job. Plumbers do not have the necessary qualifications; i.e. there is a skills shortage.

Key signals are being given where new sectors can be created in the Green Economy. The Green Economy Fund by the Industrial Development Corporation focuses on incentivisation, The Department highlighted that the IDC fund will not be providing subsidies to consumers, but it is intended to support green industries.

 

Economic plan of the country

The current government economic plan is the New Growth Path (NGP). New elements are introduced but government intends building on the previous economic policies.

 

Incentives to private sector to create employment

The Deputy Minister stated that there are various initiatives currently being implemented which were highlighted in the SONA and the Budget Speech, which begins to provide resources to the principles applied in the NGP. These initiatives include: the R9b jobs fund over the next three years, R10b administered by the IDC etc. These are just some of the initiatives which are going to be used to incentivize the private sector to create jobs.

 

Addressing the spatial dimension of the economy

According to the Deputy Minister, the New Growth Path emphasis the spatial dimension of the economy, where it is not identified as a problem but as an opportunity for job creation, and as government changes these patterns of development, those areas will grow simultaneously. The EDD is busy putting together a set of criteria in distressed areas to ensure that a balance is found in development.

 

Successful implementation of the Strategic Plan

The Department indicated that coordination will be critical for the department if they are to implement their strategic plan successfully.

 

 

Initiatives aimed at the Expanded Public Works Programme

There are various areas within which the EDD are intervening and supporting the Expanded Public Works Programme. These include: youth employment, as well as the Working for Water Programme. The aim is to build a sustainable programme of economic development flowing out of the Working for Water programme.

 

Working relations with the provincial and local sphere of government

The EDD has undertaken initiatives to consolidate coordination, with the different spheres of government. One of the key initiatives is to coordinate activities with the provincial sphere of government. More detail will be announced concerning this issue in the budget vote speech of the Minister.

The Deputy Minister further noted that there is a consolidation of co-ordination within government, horizontally across government departments and now vertically across the three spheres of government. He said an example of that is the impact of the Medupi power station on the local economy which is quite impressive.

 

The NGP vis a viz regional integration

A key feature of the NGP is regional integration and the Department was committed to it. The department acknowledged that there are challenges in reaching this objective. The level of development between SA and other African countries are “miles apart”, where for example there are major infrastructure differences. However, SA is looking at this as an opportunity to invest in the region. Government intends to create the environment for businesses to enter these markets.

 

Accommodation as a challenge at the DTI campus

The DG highlighted that the accommodation issue was a political decision by the two Ministers to have the 2 departments on the campus. This arrangement was however dependent on other agencies that should have moved (e.g. CIPRO). The EDD is optimistic that the accommodation issue will be resolved once CIPRO and possibly other entities under the DTI will be moving.

The MoU between the EDD and DTI relate to all corporate matters. The major revue of the MoU is currently underway. The MoU will be modified where the EDD envisage undertaking some of the functions, previously performed by the DTI.

 

Successful implementation of the strategic plan

The Department said that what is needed to make the plan successful are broader factors in the local and global economy, state incentives, and building a Department with the necessary skills capacity to carry out its tasks.

 

Impact of an increase in the price of oil on GDP

The EDD acknowledged that job creation cannot come in the absence of economic growth. However, the EDD noted that if too much emphasis is placed on growth, history will repeat itself, where there was economic growth (during the 2000’s) which was not “converted” into the creation of employment opportunities.

 

Initiatives relating to local procurement

With regard to procurement issues, it is fundamental that local procurement need to be ramped up, where SMMEs can benefit. An important factor here is the 30 day payment provision because small and micro businesses could not sustain themselves even if they can compete.

 

2.3.3. Recommendations

 

·         Strengthen the alignment and integration of the plans and programmes of the national, provincial and local government spheres.

 

·         Ensure better coordination and collaboration among the DFIs at national and provincial level and within provinces.

 

·         Report within six months, on progress made with regard to changing the country’s spatial dimension.

 

·         Speed up the process of finding accommodation and report progress within the next three months.

 

·         Improve communication with cooperatives and small businesses through community outreach campaigns.

 

 

3. Presentation on Budget Vote No. 28

The following is Department of Economic Development’s Budget Vote No. 28 to the Committee.

 

Table 1 (below) shows the Budget of the Department of Economic Development

 

Table 1: Budget of the Department of Economic Development

Programme	Audited outcome	Audited outcome	Audited outcome	Adjusted appropriation	Revised estimate	Medium term	Expenditure	Estimate
R million	2007/8	2008/9	2009/10	2010/11	2010/11	2011/12	2012/13	2013/14
Administration	-	-	16,7	45,1	39,8	55,0	60,5	63,7
Economic Policy Development	-	-	-	18,6	9,1	23,3	29.3	30,9
Economic Planning and Coordination	245,1	220,4	298,0	374,6	333,3	499,9	556,6	599.5
Economic Development and Dialogue	-	-	-	11,5	2,3	16,3	18,3	19,3
Total	245,1	220,4	314,6	449,8	384,5	594,5	674,7	713,3
Change to 2010 Budget estimate				31,2	(34,1)	100,1	154,4	164,5

Source: Strategic Plan presentation (22 March 2011) of the Department of Economic Development

 

 

Expenditure is expected to increase from R449.1 million to R713.3 million (Table 2 above) over the MTEF and the increases is mainly towards transfers and subsidies

 

The Department concluded by stating that in less than 2 years, it has established itself and built its initial capacity. The Department further highlighted that it has been instrumental in the development the New Growth Path and the Delivery Agreement Outcome 4: Decent Employment through Inclusive growth. Currently, the Department is not constrained by budget shortfalls, but there is inadequate provision in the medium term (personnel, capital expenditure).

 

3.1. Discussions

3.1.1. Key issues raised:

 

·         Members sought clarity on the transfers to the University of Johannesburg and the Wits University.

·         Members raised concerns regarding the absence of quantifiable targets or outcomes to measure performance.

·         Members sought clarity and more information on the establishment of the Social Partner Fund.

·         Members stated that the increase in funding for Samaf and Khula over the MTEF is inadequate.

 

 

3.1.2 Responses:

 

Transfer to the University of Johannesburg - The Department indicated that the transfer to the University of Johannesburg deals with the establishment of a social economy training academy. This entails creating a facility to assist people involved in the cooperative sector and developing training programmes which will enhance their capacity.

 

Transfer to Wits University

The transfer to Wits University deals with the provincial capacity building training programmes, to train staff from provincial offices in local and regional economic development issues and the alignment of the PGDSs and the NGP.

 

Clarity on the Social Partner Fund

The Department replied that they do not intend establishing the Social Partner Fund out of voted funds, per se, however, it can for example make a contribution. The idea is to set up a collaborative capacity building programme with the unions. The EDD intend piloting and testing this programme with their existing allocation. What has currently been worked on, with all the federations, is that within the various sectorial unions that there is a need to improve and understanding economic policy. The aim is to place specific staff which will help to build the capacity of particular unions on economic development issues and trends in particular sectors.

 

Funding of Samaf and Khula over the MTEF

According to the Department the Minister will be making an announcement regarding the merger of the entities during his budget vote speech. The EDD acknowledged that there is a slow growth in the allocation of Samaf and Khula. There IDC’s small business loan book will become part of the merger, so there is potential for capitalization and/or recapitalization.

 

3.1.3. Recommendations

 

·         Increase the amounts transferred to Khula and Samaf in order for them to effectively fulfill their mandate

 

4. Presentation by the Department of Economic Development on their organizational structure

 

The Department outlined the regulatory framework governing the organisational structure of departments. It also explained the processes that were followed in finalising the Department’s organisational structure. The Strategic Plan was drafted during May-June 2009, where an organisational structure was developed which was aligned to the final Strategic Plan in September 2009.

 

The Committee was briefed on the organisational structure of the Department. It was  broken down into the different programmes, i.e. Administration, Economic Policy Development, Economic Planning and Coordination and Economic Development and Dialogue

 

The Department indicated that the Department has funding for 129 posts in the coming year. The DG noted that the approved structure (265 posts) cannot be funded during the current MTEF without an increase in the baseline. In filling posts the Department must consider the ratios of line to administrative staff and senior management to middle management. The DG assured members that the recruitment will continue apace, within budgetary constraints.

 

 

 

4.1. Discussions

4.1.1. Key issues raised:

 

·         Members also commended the Department for approaching the Department of Women, Children and People with Disabilities for a database of people with disabilities. Members however also encouraged the Department to also approach the national bodies which might include, DeafSA, the National Council of People with Physical Disabilities SA etc.

·         Members raised concern that the activities of the Department might lead to duplication in relation to the National Treasury, DTI and the Planning Commission. Members expressed concern that there is no quantitative affect of what the Department has achieved on for example the GDP, job creation etc. Members noted that the Department is dependent on what other departments have achieved.

·         Members expressed concern that departments have vacant funded posts..

·         Members enquired if the current organisational structure will assist in achieving its vision.

·         Members expressed concern that the recruitment process is taking too long. Members enquired what the turnaround time is of the department in filling posts.

·         Members enquired about the latest developments in connection with the establishment of the Economic Development Institute.

·         Members raised concerns regarding the appointment of contract workers, and enquired about the mechanisms in place for retaining these workers and converting them to permanent when appropriate.

·         Members enquired if there any areas where the department feel that they might fall short as highlighted by the Auditor-General’s report.

 

4.1.2. Responses

 

Quantitative effect of the EDD

The Department noted that monitoring and evaluation (M&E) is part of implementation. M&E is action oriented research, where the Department wants to create (1) accountability and (2) lessons for improvement. The Department, with the Presidency (M&E) is leading a process where they want to take a particular system, developed by the International Labour Organisation (ILO), the Dynamic Social Accounting Matrix System and adapt it to measure the employment impact of government policies and programmes. This will place the Department at the centre of M&E on the impact of the various policy initiatives articulated in the Growth Path and its impact it has on employment creation, economic growth, competition policy etc. According to the Department, with this intervention, the department will find its space within the whole implementation process of micro- and macro-economics policy. The first report will be produced to Cabinet during August 2011.

 

Social dialogue programme of the Department and NEDLAC

The Department highlighted that their social dialogue does not aim to substitute NEDLAC, but aims to compliment NEDLAC. With the social dialogue programmes the Department aim to go the sectors and workplaces, unlike NEDLAC which is a national forum.

 

The filling of vacant posts

Cabinet has taken a decision regarding the filling of funded vacant posts in the public service. This is an area where the Department also features with regard to the Dynamic Social Accounting Matrix. The Performance Monitoring and Evaluation Department (Presidency), Department of Public Service and Administration and the Department has a role to play in ensuring that these posts are filled.

 

 

Sufficient staff establishment to achieve objectives

The DG indicated that 129 staff for this financial year is the total. In other words another 31 posts have to be filled. The DG noted that prior to the tabling of the 2010 Strategic Plan of the Department; a Strategic Plan had to be developed in order to develop the organogram in order for the Department to become functional. The Department noted that the Department, in practice, still needs to prove their effectiveness and then motivate to for increase in the baseline, which will allow the Department to secure the necessary funding.

 

Recruitment process in the public service

The Department indicated that the average time in filling posts in the public service is 6 months. The Department however noted that the Department will not be targeting 6 months. There are however regulatory requirements that prolong the processes. The Department stated that once its Human Resources Section is fully capacitated it will speed up recruitment processes.

The Department highlighted that the vetting is a once-off process. However, for the Senior Managers there is an annual declaration of interests.

 

Progress with the establishment of the Economic Development Institution

The Department indicated that during this financial year (2011/12), it has to confront the issue on this committed to the establishment of the institution.

 

Retention strategy of employees appointed on contract

According to the Department it is looking at the contract workers as a “talent pool”. The Department may develop a database of the contract employees to determine factors such as the length of the contract; their skills etc. and then engage the Minister and Deputy Minister on how it can retain these skills.

 

Challenges as highlighted in the Auditor-General’s Report

According to the Department the Human Resources area is where challenges have been highlighted, because the budget needs to be spent, recruitment needs to be aligned to the budget allocation and that the processes need to comply with all the requirements. The Department however acknowledged that in some areas it will be difficult to comply with the requirements.

 

4.1.3. Recommendations

 

·         The six month period of filling vacancies should be reduced to a maximum of three months.

 

·         Careful consideration should be given to race and gender when filling senior level posts.

 

·         Provide a progress report on the establishment of the Economic Development Institute by the end of June 2011.

 

·         Where appropriate contract workers should be converted to permanent for the sake of continuity and retention of skills.

 

 

 

 

 

 

5. Conclusion:

 

Having considered the budget vote and strategic plan of the Department of Economic Development, the Portfolio Committee recommends that the House endorse the 2011/12 Budget Vote 28 of the Department of Economic Development.

 

Acknowledgements

 

For their cooperation and readiness to lend a hand when there is a need, the Portfolio Committee of Economic Development wishes to thank the following:

 

Minister             :           Mr Ebrahim Patel

Deputy Minister :           Mr Enoch Godongwane and

Director-General :           Prof Richard Levin         

 

Report to be considered.