ATC120418: Report on Budget Vote 28 and the Strategic Plan

Economic Development

Report of the Portfolio Committee on Economic Development on Budget Vote 28 and the Strategic Plan of the Department of Economic Development and its entities for the 2012/2013-2016/2017 financial years, dated 18 April 2012

Report of the Portfolio Committee on Economic Development on Budget Vote 28 and the Strategic Plan of the Department of Economic Development and its entities for the 2012/2013-2016/2017 financial years, dated 18 April 2012


The Portfolio Committee on Economic Development having considered Budget Vote 28 and the Strategic Plan of the Department of Economic Development and its entities [2012/2013-2016/2017], reports as follows:


1. Introduction


The Department of Economic Development (the Department) was established in July 2009. Its vision is to create decent work through meaningful economic transformation and inclusive growth. The Department’s mission includes the following:


· Coordinating the contributions of government departments, state owned entities and civil society on economic development;

· Contributing to efforts that ensure alignment between the economic policies and plans of the state and its agencies and government’s political and economic objectives and mandate; and

· Promoting government’s goals of advancing economic development with decent work opportunities.

The year 2011 was declared a year of job creation. Subsequently, social partners namely business, labour and the community sector were mobilised to join forces with government in implementing the New Growth Path. For the year 2012, the President announced that “We are going to launch a huge campaign of building the infrastructure nationwide. This will boost the level of economy and create job opportunities”. In line with the President’s announcement, the Department of Economic Development’s Annual Performance Plan for the 2012/13 financial year states that in mid-2011, the Minister of Economic Development, Mr E Patel (the Minister) was requested by the President and the Presidential Infrastructure Coordinating Commission (PICC) to chair the policy secretariat of the PICC, to put together a team to develop an infrastructure Plan and to co-ordinate the operational elements of its implementation, the “required adjustments to the Department’s structure”. Furthermore, the Department will continue to provide support to the PICC.

The Portfolio Committee on Economic Development (the Committee) 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 report compiled includes the budget vote and strategic plan of the Department as well as those of state owned entities.


2. Presentation by the Department of Economic Development on its strategic plan


The Department briefed the Committee on Budget Vote 28 and its strategic plan on 22 March 2012 at the Arabella Hotel and Spa in Hermanus during its strategic planning workshop.


The Minister gave some introductory remarks and informed that Committee that in the life of this Parliament, government had been introduced into a new a system of accountability, one that required the strategic plans to be drafted for a five year period and to be updated annually. The strategic plan talked to what the Department would be doing and was not an operational plan of the New Growth Path (NGP). The Department, Competition Commission, Competition Tribunal, International Trade Administration Council and Industrial Development Council had all tabled their strategic plans. Khula and the South African Micro-Finance Apex Fund were being merged into a single entity and that their strategic plans were not tabled. The strategic plan of the new merged entity would be tabled in Parliament at the end of April 2012. A letter to the Speaker had been drafted to that effect. The Department had however decided to include the key entity information in its strategic plan even though entities also tabled their strategic plans separately.


2.1 Overview of Budget Vote 28


The Department’s mandate is rooted in ensuring that the country focuses on employment creation. In this regard, the Department formulated the country’s economic framework called the New Growth Path (NGP) and it also signed Outcome 4 of the Service Delivery Agreement. The NGP identifies key ‘jobs drivers’, with high employment creation potential and the implementation of supporting policies to take advantage of this potential. The key ‘jobs drivers’ include agriculture and agro-processing, mining and beneficiation, manufacturing, the ‘green economy’ as well as tourism. In terms of Outcome 4 of the Service Delivery Agreement, the number of jobs created/reduction of unemployment is one of the key outcome indicators for the Department’s performance. Other outcome indicators are Growth Domestic Product (GDP), employment ratio or absorption rate, distribution of earned income and household poverty.


In the 2010/11 financial year, the total amount allocated to the Department was R598.4 million. The Department spent about 89.1 per cent of its total appropriation. Under expenditure in the different programmes was attributed to a slow rate of filling vacancies and some outstanding commitments as it was the Department’s inaugural year. For the 2011/12 financial year, the Department’s total appropriation has increased to R672.7 million. The allocated budget has gone up by R74.3 million or 12.42 per cent.


According to the 2012 Estimates of National Expenditure (ENE), the 2012 Budget sets out additional funding of R7.8 million in the 2012/13, R8.4 million in the 2013/14 and R9 million in the 2014/15 financial years to be distributed as follows:


· R1.8 million (2012/13), R2 million (2013/14) and R2.3 (2014/15) million for improvement in conditions of service to be included in compensation of employees expenditure for the Department;

· R1 million (2012/13), R1.1 million (2013/14) and R1.1 million (2014/15) to finance improvement of conditions of service in the International Trade Administration Commission of South Africa; and

· R5 million (2012/13), R5.3 million (2013/14) and R5.6 million (2014/15) to be reprioritised to the Economic Planning and Coordination programme .


The table (Table 1) below shows the Budget Plan of the Department for the 2011-2013 financial years.






Table 1:


For the 2012/13 financial year, compensation for employees increased from R64 million to R91.6 million in the 2011/12 financial year. This figure constitutes 13.7 per cent of the total budget. About R6.6 million has been allocated for consultants and professional service. Approximately 78 per cent or R523.5 million of the Departmental budget has been allocated to the transfers and subsidies in the 2012/13 financial year. In the previous financial year transfers and subsidies were allocated R466.5 million.


2.2 Programme budget analysis


The Department executes its duties through its four programmes which are the following:

· Programme 1 – Administration

· Programme 2 – Economic Development Policy

· Programme 3 – Economic Planning and Co-ordination

· Programme 4 – Economic Development and Dialogue

2.2.1 Programme 1: Administration


The aims of this programme is to co-ordinate and render an effective, efficient, strategic support and administrative service to the Minister, Deputy Minister, Director-General, the Department and its agencies. This programme is made up of three sub- programmes , namely, the Ministry, Office of the Director General and General Management Services. According to the ENE, the office of the Director-General’s expenditure increased by 67.5 per cent between the 2010/11 and 2011/12 financial years due to the once off payment for legal services rendered in the Walmart/Massmart case. As a result, in the 2012/13 financial year, the amount allocated to the Office of the Director General has decreased nominally by over R800 000 or 16.21 per cent in real terms.


For the 2012/13 financial year, the amount allocated to the programme has increased nominally by 6.75 per cent and in real terms, it has increased by 0.8 per cent. The largest portion, constituting about 53 per cent of the programme’s budget goes to the General Management of services sub-programme. This sub-programme is made up of the Chief Financial Officer and Human Resources Management. According to the 2010/11 Annual Report, this programme utilised 77.7 per cent of its budget.


The table (Table 2) below shows the Budget Plan of Programme 1 sub programmes for the 2011-2013 financial years:

Table 2


2.2.2 Programme 2: Economic Policy Development


The aim of this programme is to strengthen the economic development policy capacity of government; review, develop and propose the alignment of economic policies and develop policies aimed at broadening participation in the economy; and creating decent work opportunities. It is made up of Growth Path and Creation of Decent Work, Economic Policy, Broad-Based Black Economic Empowerment (B-BBEE) and Second Economy.


This programme’s portion has increased from R23.5 million in the 2011/12 financial year to R29.1 million in the 2012/13 financial year. This therefore means that the programme’s allocation has increased nominally by 23.83 per cent or 16.93 in real terms.


The table (Table 3) below shows the Budget Plan of Programme 2 sub programmes for the 2011-2013 financial years:


Table 3


During the 2011/12 and in the 2012/13 financial years, the largest portion went to the Economic Policy sub-programme. In the 2012/13 financial year, Economic Policy’s allocation has increased by 27.38 per cent nominally and by 20.28 per cent in real terms. The sub-programme makes up 36.8 per cent of the programme’s budget. The Growth Path and Creation of Decent Work programme saw the highest percentage increase at 27.42 per cent, slightly higher that Economic Policy’s increment. According to the Department’s 2010/11 Annual Report, only 38.9 per cent of the funds allocated to this programme were utilised .


2.2.3 Programme 3: Economic Planning and Coordination


The aim of this programme is to p romote economic planning and co-ordination through developing economic planning proposals; provide oversight and policy co-ordination of identified development finance institutions and economic regulatory bodies; and contribute to the development of the Green Economy. The programme consists of five sub- programmes , namely, Spatial, Sector and Economic Planning; Investment for Economic Development; Competitiveness and Trade for Decent Work; Economic Development, Financing and Procurement; and Green Economy.


This programme takes up 84 per cent of the entire budget because it is responsible for allocations to the state owned entities ( SOEs ). This programme’s budget has increased by 12.63 per cent nominally and 6.35 per cent in real terms. According to the Department’s 2010/11 Annual Report, this programme utilised 95.1 per cent of its final appropriation.


The table (Table 4) below shows the Budget Plan of Programme 3 sub programmes for the 2011-2013 financial years:





Table 4


The largest portion of the funds has been allocated to the Investment for Economic Development sub-programme. This sub-programme oversees the Development Finance Institutions, namely Industrial Development Corporation (IDC), Khula and South African Micro Apex Fund (SAMAF), which are in the process of merging. The sub-programme has been allocated R284.9 million, which is nominally a 9.53 per cent increase compared to the 2011/12 financial year. Of the R284.9 million, 97.4 per cent was used for transfers and subsidies. In the 2011/12 financial year, the Department and the IDC established an Agro-processing Competitiveness Fund to encourage new entrants in the sector. R65 million was committed to small businesses and 375 jobs could be created.


The second largest amount of R254.2 million has been allocated to the Competitiveness and Trade for Decent Work sub-programme. The two largest sub- programmes in terms of budget allocation constitute 95 per cent of the total allocation for the Economic Planning and Co-ordination programme. The Competitiveness and Trade for Decent Work sub-programme which is the second largest, is made up of the competition authorities, namely the Competition Tribunal, the Competition Commission and the International Trade Administration Commission (ITAC). The amount allocated to this sub-programme has received the largest nominal increase of R36.3 million. The competition authorities have been identified in the NGP as key to controlling inflationary pressures and inefficiencies combined with more pro-active strategies to support an inclusive economy, social equity and regional development. Specific measures to be undertaken in this regard include the following:


· Competition investigations should continue to focus on areas of strategic importance, including the food sector, construction and infrastructure, other key input costs, the green economy and the IPAP sectors;

· Law-enforcement agencies will cooperate more actively with the competition authorities to address pervasive breaches of the competition laws;

· The competition authorities will review their procedures to reduce the opportunity for vexatious litigation and speed up competition probes;

· More consideration should be given to mandating public interest conditions on proposed mergers, particularly in respect of employment and prices;

· Competition authorities should involve trade unions more, as provided for in the Competition Act;

· Government will consider draft amendments to the Competition Act to enhance the Tribunal’s power to order divestiture where inherited market power permits repeated abuse and to provide mechanisms to address pricing in markets characterised by economic concentration;

· The competition authorities and Development Finance Institutions ( DFIs ) should cooperatively identify instances where support for new market entrants is needed to secure more competitive outcomes, in order to combine competition and investment measures; and

· Government will develop guidelines for granting exemptions in terms of the Competition Act for cooperation between producers where it will demonstrably benefit job creation and expansion into export markets.


2.2.4 Programme 4: Economic Development and Dialogue


The aim of the programme is to promote social dialogue; implement strategic frameworks; build capacity among social partners; and promote productivity, entrepreneurship and innovation in the workplace. The programme is divided into the following sub- programmes : National Social Dialogue and Strategic Frameworks, Sector and Workplace Social Dialogue; Capacity Building for Economic Development and Productivity; Entrepreneurship; and Innovation .


The table (Table 5) below shows the Budget Plan of Programme 4 sub programmes for the 2011-2013 financial years:


Table 5:


This programme was the worst in terms of under expenditure. According to the Department’s 2010/11 Annual Report, only 4.3 per cent of the budgeted amount was utilised in the 2010/11 financial year. In the 2010/11 financial year, R10.7 million was allocated for this programme but only R456 000 was spent. However, in terms of the ENE, under adjusted appropriation, about R16.5 million was utilised in the 2011/12 financial year. The variance can be partly attributed to the fact that the Department is relatively new and some operations had not taken off in 2010. For the 2012/13 financial year, R18.1 million has been allocated to the programme which represents a 16.77 per cent nominal increase from the 2011/12 financial year’s amount. The R18.1 million also represents a 2.8 per cent of the Departmental budget. The largest portion of the programme’s appropriation of R12.2 million goes to the National Social Dialogue, indicating the importance of this sub-programme in the Economic Development Dialogue programme.


2.3 Summary of discussions


Following questions raised by the Committee, t he following is an account of the issues deliberated by the Committee and the Department:


· Economic overview: In evaluating where it was , the Department indicated that there were some positives and some negatives. In terms of the big picture, what was positive was that South Africa had one of the most integrated economies with the rest of the world, but the risk was that global crises could hit the country disproportionately. Focusing on southern export markets, South African economy was one of the most globally integrated economies. On the negative side, there was a big risk in 2008 in that more jobs were lost on per capita basis due to the global economic crisis. Year 2011 however saw a more robust recovery of jobs, creating 1000 jobs a day. Job recovery now needed to be shifted to manufacturing. On the economic front, given the sluggish recovery of the economy in the European Union and United States in Japan , the big risk was that South Africa would have had flat economy, but the country had overcome the problem. One of the success stories was that South Africa was the largest exporter to the rest to the rest of the African continent.

· Exclusion of provinces and local government in the Department’s mission statement: The Department acknowledged the Committee’s submission on this issue and assured the Committee that the mission statement needed to be reformulated to include provincial and local government.

· Planning of the Department to skills development as in accordance with the skills accord: An amount of R2 million had been set aside to develop skills across government departments. An amount of R750 000 has been allocated per year to develop the skills base in the Department. The Department will be taking a number of interns each year. It was looking at seeing some progress in this regard. With each infrastructure project, the Department wanted to have a skills plan. It would also be looking at setting targets for the contractors.

· Cross-cutting of the Department’s work with other departments: There was no blue print when it came to the issue of co-ordination. For example, when the Department of Trade and Industry did policy work on co-operatives, the Department of Economic Development contributed.

· Department and co-operatives: The Department of Trade and Industry would be making an announcement on the support of co-operatives very soon.

· Identification of co-ordination and vetting of staff as risk issues: The Department saw these as secondary risks.

· Assistance in the approval of solar water heaters: The Department had managed to sort out the issue of solar water heaters. The issue came up in early December 2011 during COP17 and certification of the company to do the job was done in mid January 2012. The Department was now working on a programme to localize the set up boxes on solar water heaters.

· Economic Development Institute and Research: The first phase of the Institute was to build an internal capacity in the Department to bring people in without creating a form of public institute. The Department was doing a preparatory work in this regard.

· Accommodation issue: Members were concerned that since the Department’s inception, the accommodation problem has been appearing in all its strategic plan presentations: The Department had finalised the accommodation issue and would during the course of 2012 invite the Committee to the opening of its own premises.

· Filling of vacant posts: The Department indicated that this was not a primary focus. The Department was not trying to push up staff numbers. T he existing staff was currently delivering on the mandate of government. The Committee however felt that the Department needed to do annual review of its organogram together with its annual review of its strategic plan so as to get a better focus.


2.4 Recommendations


Based on the deliberations with the Department of Economic Development, the Portfolio Committee on Economic Development recommends the following:


· The Economic Development Department should, on a quarterly and annual basis, provide figures on the growth in jobs as it relates to the five job drivers in the New Growth Path. This should also be reflected in their Strategic Plan.

· The Economic Development Department should be more explicit on the performance indicators used in its budget vote to strongly reflect how the budget is meeting Government policy priorities.

· The Economic Development Department should ensure that future Budget Votes clearly reflect how the principle of equity is being progressively realised through the budget, and the same should apply as to whether the Budget Vote is engendered.

· The Economic Development Department should use clearer indicators on how the budget responds to issues of poverty eradication.

· The Economic Development Department should update the Committee on the status quo of the amended legislation (Competition Amendment Act (no.1 of 2009)). This should be done by end of June 2012.

· The Economic Development Department should speed up the facilitation of the submission, to Parliament, of amendments to the International Trade Administration Act.

· The Economic Development Department should consider a review of the Industrial Development Corporation’s mandate so as to balance its financial independence with government’s development priorities.

· The Economic Development Department should ensure that the additional Presidential responsibility on infrastructure is reflected in the National Treasury’s 2012 medium term report.

· The Economic Development Department should provide the Committee with a report on resources and capacity set aside for its co-ordination role in the Presidential Infrastructure project. This should be done by end June 2012.

· The Economic Development Department should provide the Committee with progress reports on support given to companies in distress. This should be done on a quarterly basis.

· The Economic Development Department should provide the Committee with progress reports on support given to small, emerging farmers. This should also be done on a quarterly basis.

· The Economic Development Department should strengthen its mission statement to include provincial and local government.


3. Overview of the Strategic Plans of the State Owned Entities


3.1 Competition Commission

The Competition Commission (the Commission) is a statutory body constituted in terms of the Competition Act, No 89 of 1998. In terms of the Act, the Commission has powers to investigate, control and evaluate restrictive business practices, abuse of dominance and powers to regulate mergers and acquisitions in order to ensure a healthy competitive environment in the South African economy.

The Commission briefed the Committee on its strategic plan on 20 March 2012. They gave an overview of the entity's planning process for its Strategic Plan for the 2012/13 financial year. They informed the Committee that the plan had been developed for the 2010-2013 financial years. There was an annual review of the achievements by Exco where risks and changes to the environment were being taken into account. A situational analysis informed the role of competition law and policy in bringing about economic transformation and gave a deeper understanding and approach to priority sectors. It also showed the impact of adverse court decisions on initiation and the investigation of complaints and further focused on stakeholder engagements.


In alignment with the Department’s outcome 4, the Commission’s outputs included the following:


· Reporting on the obstacles to growth by illustrating obstacles through its cases;

· Labour absorbing growth by prioritising cases that raise input costs to develop a labour absorbing manufacturing sector;

· Reducing youth employment by placing conditions on mergers to limit job losses and offering employment opportunities to youth through its graduate training programme;

· Raising competitiveness by using enforcement and advocacy to change business culture and promote local rivalry to make firms competitive;

· Reducing costs in the economy by prioritising cases that raised costs to the end consumers;

· Giving support for small businesses and co-operatives by breaking up cartels and addressing anti-competitive behavior to open up markets for new businesses to enter and grow; and

· Expansion of the public works programme by prioritising cases in input to construction and bid-rigging for government contracts.


The Commission further noted an increase in their workload and indicated that there was an increased demand on their knowledge management, which led to strained human capacity. The entity was in the process of expanding human resources to implement strategic priorities and they recognised the urgent need to strengthen information and knowledge management.


The Competition’s strategic priorities include:

· Achieving demonstrable outcomes by continuously prioritising sectors, developing and implementing guidelines for the prioritisation of cases, undertaking market enquiries and developing methodologies and capacity to undertake assessments of the Competition’s interventions;

· Increasing the competitive environment for economic activity by engaging with key stakeholders to influence policy formulation and decision-making; and

· Realising high performance organisation by developing and strengthening the Competition’s management and leadership capability and implementing knowledge management systems.


The Commission presented the Committee with its annual performance plan for the 2012/2013 financial year. They mentioned that in terms of mergers and acquisitions, the total number of mergers to be considered is 287 and the amount of merger fee income to be earned is expected to be R52.75 million. Cases are classed into three phases. Phase one cases are readily identifiable by the absence of competition issues while phase two cases are more complex and involve transactions between potential competitors or between customers and suppliers. Phase three cases are very complex cases that are likely to create or result in a substantial prevention or lessening of competition.


In relation to advocacy and stakeholder relations, the Commission has aimed the following:


· To engage with government and business stakeholders to promote a competitive culture;

· To promote policy and legislation that is consistent with the Competition Act;

· To participate in international policy development; and

· To promote collaboration and capacity building with African competition agencies.


The Competition presented its budget for the 2012/2013- 2013/2014 financial years. They indicated that most of their income came from fees which were from people that filed their merger cases. The other income included refunds and interests and funds form the Department of Trade and Industry (DTI). Most of the entity's money is spent on human resources and salaries. They concluded by identifying risks and these included space constraints, adverse and constraining decisions by the courts, the case load, difficulty in predicting litigation costs, measuring the Competition’s impact and knowledge management.


3.1.1 Summary of discussions


Following questions raised by the Committee, t he following is an account of the issues deliberated by the Committee and the Commission:


· Assistance of co-operatives to acquire local procurement: The Commission was not a policy instrument to ensure that there were more co-operatives in the economy. There was nothing specific that a competition authority did around creating more co-operatives or boosting the cooperatives movement. The Commission only created a ‘playing field’ that would allow the co-operative to be as competitive as any other type of firm. They also ensured that existing co-operatives were able to compete on a level playing field, which spoke to the Competition’s general mandate.

· Serious sanctions imposed on cartels found to be price-fixing: In any case where there was contravention of the Competition's Act, the Commission would fine a firm up to ten per cent of its annual turnover. The Commission has however found that six to seven per cent was quite a generous amount. In addition to this, if a problem was found to be structural, the Commission could make an order that the firm divests by breaking up and selling off some of its operations. This was seen as one of the ways to fix a competition problem, but was something that the Commission would not do easily as it was the most drastic measure to take. The Commission also had the power to nullify anti-competitive contracts and with the Amendment Act coming into play, there was going to be an additional dimension of criminalisation of cartel conduct. This would therefore serve as an additional deterrent measure.

· Implications on Competition’s credibility when they lost court cases: Every new piece of legislation all over the world would always be challenged in the first instance. People wanted to create jurisprudence and a particular way of interpreting that law. The same happened in the case of having a new competition law in the country. The Commission understood that this was a normal, natural thing that happened with new laws. The Commission had however stood its ground and fought for its particular interpretation. All cases gone to the Constitutional Court had been won by the Commission when they were before the Competition Tribunal but were lost when they were presented to the Supreme Court of Appeal. The Commission did not sit back and accept the decision but they appealed them and defended them right up to the Constitutional Court . The decisions on those cases would however be made in the next few months.

· Reasons for the Commission’s increase in their case load: There could be a number of reasons that amounted to an increase in the Commission’s case load. In countries where they dealt with corruption more effectively, it was felt by many that their society was more corrupt whereas this was not the case. It could be that these countries were dealing with corruption more effectively. There were corruption problems in South Africa which seemed to be historically determined. The country has come from a period where there was greater government involvement in the economy than currently. The liberation of the country in1994 occurred in the middle of a time when the rest of the world was liberalising its economies and this was something the country has inherited in policy. However, a lot of the old policies and relationships remained. The country also had a lot of cases of corruption. One of the factors was the corporate leniency policies that allowed the first person who comes forward the opportunity to be excused from punishment. This has proven to be an effective way of catching people out.

· Mergers versus the economy: Mergers were not always a bad thing. 98 per cent of all the mergers were approved without a problem. In many cases mergers created efficiencies and economies of scale that were good for consumers as it assisted with the creation of new cheaper products and so on. A lot of the well-known cases that were on the news focused on how much weight was given to public interest in deciding if the merger would go through or not. Many of the mergers that the Competition was currently involved in had nothing to do with public interest as they were all “bad” in terms of competition law.

· Commission’s initiative to limit job losses and their position if companies retaliated by retrenching staff when fined: The Commission often heard that companies threatened to fire their staff after being fined. They did not think this was a sustainable argument and actually happened because at the end of the day, fines are not borne by the consumers.

· Budget for employing people with disabilities and graduates from previously disadvantaged schools: The Commission included in their budget for human resources employment of people with disabilities and graduates from previously disadvantaged universities.






3.1.2 Recommendations


Based on the deliberations with the Competition Commission, the Portfolio Committee on Economic Development recommends the following:


· The Competition Commission should ensure that small and medium-sized enterprises ( SMEs ) and the historically disadvantaged are included in the processes of promoting competition in the country. The Competition Commission should take into consideration the long term impact of its decisions on mergers and acquisitions.

· The Competition Commission should ensure that it has adequate capacity to handle larger work volumes.

· The Commission should develop a mechanism of monitoring the impact of its decisions on public interests issues such as employment, prices and economy in general.


3.2 Competition Tribunal


The Competition Tribunal (the Tribunal) is an independent, specialised institution established by the statute (Competition Act 89 of 1998). The Competition Tribunal’s constitutional mandate is contained in Section 34 of The Constitution of the Republic of South Africa , 1996 which states that “Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal and forum.” The Tribunal is responsible to adjudicate matters pertaining to restrictive practices (for e.g. cartels, abuse of dominance and resale price maintenance), abuse of dominant position and mergers.


The Tribunal briefed the Committee on its strategic plan on 13 March 2012. They reminded the Committee that t he Tribunal consists of 10 members appointed by the President of the Republic of South Africa . It also holds a secretariat of 15 that provides administrative assistance to the panel members. The entity’s policy mandate is to focus on employment in the National Growth Path (NGP), which is consistent with the objectives of the Competition Act and public interest considerations that the Tribunal is obliged to consider. The Tribunal is an adjudicate body and is limited in its ability to set objectives. This therefore means that it has little influence in terms of the outcomes and policy drivers identified by the Department that assist government.


The Tribunal’s legislative mandate consists of the following:

· Ensuring that small and medium-sized enterprises have an equitable opportunity to participate in the economy;

· Promoting a greater spread of ownership, particularly of historically disadvantaged people;

· Promoting employment and advancing the social and economic welfare of all South Africans;

· Expanding opportunity for South African participation in the world economy;

· Recognising the role of foreign competition; and

· Providing consumers with competitive prices and product choices.


The Tribunal’s strategic outcomes include the following:

· Promoting and maintaining competition within South Africa through the implementation of the Competition Act;

· Educating and creating awareness of competition matters to the Tribunal's stakeholders; and

· Strengthening the Tribunal's organisational capability and performance to deliver on its legislative mandate.


The entity’s challenges include c apacity as a major challenge. There are currently three vacancies stemming from the resignation of three part-time tribunal members. The Tribunal has approached the Minister of Economic Development, Hon E Patel (the Minister) to appeal for an additional full-time tribunal member. The Tribunal has however implemented a new Case Document Management (CDM) system that will manage cases electronically. It has taken the Tribunal 18 months to develop and load each case on the system but the CDM would allow for the verification of data, keep track of the Tribunal’s rollout and act as a reporting tool.


The Tribunal’s budget was based on an estimated number of cases, a system that has been fairly accurate over the past few years. Operational costs have also been consistent over the past few years. The entity spent 94 per cent of its budget in 2008, 87 per cent of its budget in 2009, 70 per cent of its budget in 2010 and 80 per cent of its budget in 2011. The five-year budget was guided by National Treasury guidelines. The budget set aside for 2012/13 was based on the number of estimated cases and staff requirements and also took into account the funds needed for an extra full-time Tribunal member. The Tribunal’s income was made up of grants from the Department and fees received. Expenses were incurred on personnel, training, professional services, recruitment costs and administration expenses. A separate budget was therefore needed for appeal processes because of the admin services the Tribunal provides them with.


3.2.1 Summary of discussions


Following questions raised by the Committee, t he following is an account of the issues deliberated by the Committee and the Tribunal:


· Competitiveness versus public interests and their influence in the Tribunal's decisions: Competitiveness and public interest were very difficult issues. The Wal-Mart opinion from the Competition Appeals Court grappled with this issue. First, the merger has to be examined on the “peer-competition” ground and come to a conclusion. Thereafter, the public interest aspect has to be assessed and the Tribunal has to ask if the merger will negatively affect public interest. It could be that the merger negatively affects competition but has a positive effect on public interest. In this case, the merger could be approved. This situation has never arisen in twelve years. Typically, cases always show that mergers have not created a competition problem, but they have had a negative impact on public interest. Other industries could also be affected and this also needs to be considered. There are cases, such as the Wal-Mart case, where the effect on public interest is so negative that one has to say no to the merger. In other cases, the negative effect on public interest can be dealt with adequately by applying certain measures and conditions such as putting a moratorium on retrenchments. This would allow the merger to go through, at the same time protecting public interest. This becomes more difficult when the effect on public interest is not measurable.

· Vacancies for Tribunal members: The vacancies came about when one tribunal member left. The other two resigned because they could not give more of their time to the Tribunal.

· Budget for learnerships and skills development: The Tribunal did not have learnerships but has case managers that are graduate law students or economists that serve under a kind-of apprenticeship for approximately three years. They are learning on the job and are able to move on to very good jobs. The Tribunal also recruits university students that are studying full-time. These are employed as interns and work for the Tribunal during vacations. The interns do a variety of work and are paid stipends. The Tribunal is trying to get the interns back as much as possible for skills training. The current budget catered for three or four interns at approximately R75 000. The interns received R240 a day plus travelling costs. The Tribunal tries to recruit from universities but cannot do too much, based on its capacity.

· Mergers: The Committee wanted to know whether the Tribunal had noticed any trends over time in terms of mergers, if the new CDM system would assist with this function and the amount of mergers adjudicated for 2011: At the moment, the information that the Tribunal had was not being used as well as it was supposed to be. The Competition Commission was in a better position to do analysis of trends for the Tribunal because it had the research capacity and not all merger cases were passed to the Tribunal. The Tribunal could still contribute more to analysing trends and the case management system could help with the issue. Because the Tribunal’s focus is so limited, its data set could be seen as less reliable than the Commission’s.

· Whether the Tribunal felt any political pressure during their decision-making processes: The Tribunal had not felt any pressure from any parties. The Ministers have all been very respectful of the entity. This however did not mean that certain cases did not create any pressure on the Tribunal. The media created pressure because people tended to voice their opinions through them but this did not push the decision either way. Members were assured that the Executive has been very respectful of the Tribunal’s processes.

· Budget: The Committee noted that the Tribunal seemed to under-spend on their budget every financial year. Members also understood that the Tribunal found it difficult to budget for the filing fee, but something had to be done because there were millions of rands that were not being spent. They further wanted to know how the use of consultants affected the budget: The Tribunal received a portion of the filing fees that the Commission received for mergers and acquisitions. Any firm lodging a merger or acquisition has to pay a filing fee based on a number of factors depending on their size and turnover. The Tribunal receives a portion of this and in addition to this, they receive a grant from the Department via the National Treasury to cover its expenses. Historically the surplus occurred, not because of under spending, but because of the filing fees that were generated. In discussion with the Department and the National Treasury, it was agreed that the Department would not increase the Tribunal’s grant substantially over the next two years, and the accumulated surplus would be drawn down over the period of the Medium Term Expenditure Framework (MTEF) to fund the shortfall on the budget. Between 2012/13 and 2013/14 financial years, the grant from the Department will only increase by R800 000, whereas the budget will be slightly higher. Once the surplus is drawn down, the Tribunal will have to negotiate with the National Treasury and the Department for a larger grant. The budget for professional services in the strategic plan is spent on fees paid to the Commission, fees paid to the DTI, bank charges, legal fees, recording services, internal and external audit fees and fees associated with audit committees, technical services fees, and a small amount is for consultants. Approximately 10 per cent of the Tribunal’s salary bill is allocated to management consulting such as job grading. Consultation fees made approximately R700 000 of the professional fees. Currently, the Tribunal only has one consultant for broad policy development from records management to documenting cases management. There is another consultant that assists with computer software. The Tribunal has consultants but does not use them to a large extent. They were used where the entity does not have the capacity, nor is likely to develop capacity. The Tribunal only has 18 employees so it is not likely to have a person with experience in everything.

· People with disabilities in the IDC’s staff complement: The Tribunal did not have any staff with disabilities. They had been trying over the last year to start an initiative with Deaf South Africa to employ someone from their organisation as an intern. The Tribunal was in the process of considering an application at the moment.

· Working relations with ITAC and other institutions to ensure that they fulfilled their legislative mandate, which required the entity to ensure that Small and Medium and Micro Enterprises ( SMMEs ) have an equitable opportunity to participate in the economy, and to spread the ownership stakes of the historically disadvantaged: the Tribunal worked with ITAC and the National Treasury, but not really on issues regarding SMMEs . Where public interest issues arose that affect other departments, the Tribunal asked them to come forward and make representations in hearings.


3.2.2 Recommendations


Based on the deliberations with the Competition Tribunal, the Portfolio Committee on Economic Development recommends the following:

· The Competition Tribunal should ensure that public interest matters are taken into account in decisions made on mergers and acquisitions.

· The Competition Tribunal should provide detailed reports on strides made in collaborating with relevant entities to improve its capacity to fulfill its mandate. This should be done on a quarterly basis

· The Competition Tribunal should make sure that, in its reports, it explains its expenditure and usage of filing fees in a manner that is clear and easy to understand.

· The Competition Tribunal should provide the Committee with progress made by the authority in meeting the two per cent target set by government of employing people living with disabilities. This should be done on a quarterly basis.

· The Competition Tribunal should provide the Committee with quarterly reports on efforts made to create opportunities for Small Medium and Micro Enterprises to participate in the economy; and spread ownership stakes of the historically disadvantaged.

· The Competition Tribunal should, in its next quarterly report, furnish the Committee with information on progress made towards setting aside funds for skills development and learnerships , out of its budget.

3.3 International Trade Administration Commission of South Africa


The International Trade Administration Commission of South Africa (ITAC) is a relatively new institution established by an Act of Parliament, ITA Act of 2002, which came into effect in June 2003. The predecessors of ITAC are the Board of Tariffs and Trade (BTT) and the Board of Trade and Industry (BTI) which dates back to 1923. ITAC was established to streamline, rationalise and mordernise an institution with a long history dating back to 1923. The administration of the ITAC was transferred to the Minister except for the decision-making powers on individual tariff and trade remedy investigations that were retained by the Minister of Trade and Industry. ITAC is made up of two full- time Commissioners (Chief Commissioner and Deputy Chief Commissioner) and six part-time Commissioners.


ITAC briefed the Committee on its strategic plan on 13 March 2012. They informed the Committee that the core functions include the following:


· Tariff investigations for the agriculture, chemicals, textiles, clothing and footwear, metals and machinery and motor sectors;

· Trade remedies for anti-dumping, countervailing, and safeguards; and

· Import and export control for import permits, export permits and enforcement.


The strategic objectives and drivers include the following :


· Ensuring appropriate contribution to employment creating growth and development through provision of its international trade instruments agenda. What will be pivotal in improving the provision of customs tariffs, trade remedies, and import and export control will be the quality and turnaround times;

· Ensuring strategic alignment and continued relevance within the Department and national agenda. ITAC will become more proactive in the provision of technical inputs and contributions to trade and industrial policy implementation, as well as trade negotiations at bilateral, regional and multilateral levels; and

· Ensuring organisational efficiency and effectiveness through business support services. The performance of the institution will be driven through appropriate business solutions, efficient and effective utilisation of material, human and information technology resources.


The global financial crisis and its adverse impact on the domestic economy presented new challenges for ITAC. Time frames were shortened from 12 to nine months on remedies and 12 to six months for ordinary customs tariff investigations. The vast majority of applications for tariff support and remedies were in respect of relatively low priced imports from the emerging economies. Tariffs, in particular, for high value added and labour intensive industries remain a critical intervention to retain and create jobs. According to the World Trade Organisation’s ( WTO’s ) latest reports, governments have largely continued to resist protectionist pressures. Sectors that are of particular relevance to ITAC that have been prioritised for job creation (job drivers) include infrastructure, the green economy, the agriculture value chain, the mining value chain and manufacturing sectors.


3.3.1 Summary of discussions


Following questions raised by the Committee, t he following is an account of the issues deliberated by the Committee and ITAC:


· Reporting lines of ITAC now that the International Trade Administration Act has been transferred to the Minister: The current reporting lines were working well. There was a clear separation of functions that fell under the Minister of Economic Development and those that fell under the Minister of Trade and Industry. The Minister of Economic Development was responsible for overseeing the whole administration of ITAC, giving them policy and strategic direction, and reporting. The only functions that the Minister of Trade and Industry was responsible for was to consider recommendations made by the Competition Commission on specific investigations such as tariff and trade remedies. Once the Minister of Trade and Industry has approved a recommendation from the Commission, he makes a request to the Minister of Finance. The Minister of Finance then delegates this function to the Deputy Minister of Finance. The request is made to the Finance Ministry because tariff amendments are made under the Customs and Excise Act of which the Minister of Finance is the custodian.

· Operationalisation of the SACU Tariff Board: The SACU agreement that South Africa was party to provide for a number of institutions that had to be established, including the SACU tariff board that would be responsible for the joint setting of tariffs and joint determination of trade policy. Once the tariff board was operational, it would change ITAC’s business process significantly. Currently, once investigations were conducted, recommendations were made to the Minister who would request finance to implement them. Once the tariff board was put into practice, ITAC’s recommendation would go to the SACU tariff board that would evaluate ITAC’s report and make a recommendation to the SACU Council of Ministers, which would then make a decision on tariff and trade remedies. The SACU Council of Ministers met four times a year and this resulted to taking long time to get decisions on tariff and trade remedies. SACU has been working on the establishment of these institutions for years, but nothing tangible has happened so far. ITAC would wait and see what happens but if the tariff board becomes operational certain risks would have to be managed.

· ITAC's impact on employment: It was difficult to put a number on the impact ITAC made on employment because the organisation made an indirect impact through its instruments. For example, if ITAC provided a tariff increase for clothing to enable local clothing manufacturers to compete with low-cost imports from China , there would be other incentives provided by the government for the same clothing industry. So, after things stabilise , it is difficult to say what ITAC’s impact was on employment and what the impact was of government’s incentives. The two are very difficult to separate.

· Public promotions: ITAC had outreach programmes and provincial workshops covering all provinces to inform the public about the organisation . However, due to the nature of the work ITAC did, it was likely that the ordinary man on the street might not be aware of the entity. Relevant stakeholders, the industry and business people were very much aware of ITAC’s presence.

· Members were interested to know how ITAC was protecting local industries from the negative effect of cheap goods flooding the market.

· Anti-dumping strategy and its effectiveness: There were anti-dumping regulations that stipulated the procedure to be followed with regards to anti-dumping investigations. It also covered substantive anti-dumping issues that had to be considered. ITAC also had a draft anti-dumping policy that articulated the entity’s approach to anti-dumping. It was a policy that was still under consideration by the Minister.

· Capacity to effectively monitor and evaluate trade flows: ITAC was in the process of building the capacity to monitor trade flows. The entity was also in the process of establishing an office of the Chief Economist for ITAC where the function to monitor trade flows would reside.

· Budget for learnerships : ITAC was in the process of preparing for the learnership programmes and would be employing eight interns for a period of twelve months. A budget for this would come out of the Human Resources budget. The positions were advertised in the national newspapers and a focus was on exposing women to these opportunities.

· Budget allocated towards compensation of employees: The question asked was whether ITAC was happy with the 75 per cent allocation given their capacity challenge: ITAC had sufficient staff for the work that it did. The challenge that the entity had was that their staff members were not recognised and rewarded given the nature of their work. ITAC had embarked on a job evaluation exercise that they hoped to complete in a few months and a submission would be made to the Department to upgrade the positions.

· ITAC’s role in contributing to the competitiveness of South African goods: ITAC would increase import duties for a domestic manufacturer because the domestic selling price of that domestic manufacturer is significantly higher than the prices of competing imports. This would lead to that domestic manufacturer having a competitive disadvantage and that disadvantage would be off-set by increasing the tariff. When ITAC provided tariff increases, they made sure that in the long run, such protected industries should improve their efficiencies and economies of scale so that they could compete with other industries without protection.


3.3.2 Recommendations


Based on the deliberations with the International Trade and Administration Commission , the Committee recommends the following:

· The International Trade and Administration Commission should update the Committee on the operationalisation of the South African Customs Union (SACU) Board. This should be done as soon as the operationalisation takes place.

· The International Trade and Administration Commission should provide the Committee with figures on jobs created, lost or saved through its interventions. This should be done on a quarterly basis.

· The International Trade and Administration Commission should, in its 2012/13 financial year quarterly reports, include progress made on the draft Anti-dumping Strategy.

· The International Trade and Administration Commission should provide the Committee with a progress report on the planned Office of the Chief Economist and the building of capacity to monitor trade flows. This should be done by the end of June 2012.

· The International Trade and Administration Commission must furnish the Committee with progress reports on its learnership and skills development budget and programme. This should be done on a quarterly basis.


3.4 Industrial Development Corporation


The Industrial Development Corporation (IDC) is a self-financing national development finance institution whose primary objectives are to contribute to the generation of balanced, sustainable economic growth in Africa and to the economic empowerment of the South African population, thereby promoting the economic prosperity of all citizens. The IDC achieves this by promoting entrepreneurship through the building of competitive industries and enterprises based on sound business principles. The IDC has a strong balance sheet and the company is run prudently.


The IDC briefed the Committee on its strategic plan on 20 March 2012. They informed their presentation covered an overview of IDC’s sector development strategies for the 2012/2013 financial year. They further indicated that during the 2011/2012 financial year, IDC had been working closely with the Department, Khula and South African Micro-Finance Apex Fund ( Samaf ) on the project to establish a new small business funding entity. The business plan of the new entity would be presented to the Committee separately.

The IDC informed the Committee that their objective is to support industrial capacity development by facilitating sustainable direct and indirect employment, focusing on regional equity, growing the entrepreneur and Small and Medium Enterprises (SME) sectors, focusing on expansionary and/or Broad-Based Black Economic Empowerment (BBBEE), focusing on environmentally sustainable growth, and growing sectoral diversity and increasing localisation . The IDC’s strategy includes:


· Concentrating on industrial development in line with the National Growth Path (NGP) and the Industrial Policy Action Plan 2 (IPAP2);

· Contributing to an enabling environment by taking a proactive role in shaping and influencing policy;

· Leveraging the IDC's portfolio for maximum impact and designing customised funding schemes as an enabler for development 2010; and

· Focusing on customer service and the environmental impact by looking at improved customer service, improved efficiencies and reducing industries and the IDC's impact on the environment.


The IDC's focus areas and budgeted investments for the 2012/13 financial year include:

· Agro industries (seven per cent): for rural-poor linkages and import replacement;

· Strategic High Impact Projects (17 per cent): for industrial infrastructure and localisation of bus, truck and taxi manufacturing;

· Green industries (21 per cent): for non fossil fuel based renewable energy, energy efficiency, and emission and pollution mitigation;

· Venture capital ( one per cent): for commercialisation of South African intellectual property

· Chemical and allied industries (seven per cent): for basic chemicals, glass and ceramics, cement and concrete building materials, plastic and rubber products and import replacement;

· Textiles (per cent): for the competitive local/regional value chain;

· Metals and machinery (eight per cent): for fabricated metal, capital and transport equipment, automotive and components for green industries;

· Forestry and wood products (nine per cent): for pulp and paper, community forestry and furniture;

· Mining and minerals beneficiation (17 per cent): for the junior mining sector, and competitive steel pricing;

· Media and motion pictures (three per cent): for film production, audience development, production facilities and broadcasting;

· Tourism (three per cent): for under-developed nodes in South Africa ;

· Healthcare (three per cent): for pharmaceutical manufacturing and medical devices; and

· Information Communication Technology (four per cent): for telecommunication, shared services, and Set-Top Boxes ( STBs ).


The IDC relies on borrowings, internal profitability, capital growth and exits from mature investments to maintain and expand its funding ability. The balance between its development role and financial performance is maintained by relying on proceeds from mature equity investments (both dividends and capital growth) to cross- subsidise higher risk activities and loan portfolio. The IDC has put greater emphasis on funding start-ups and expansions, which requires a strong balance sheet to withstand the impact of potential failures. Utilisation of funding for start-ups was approved for the period April 2009 to February 2012. Fifty per cent of the allocated funds was used for start-ups, Thirty five per cent for expansion, twelve per cent for distressed businesses and two per cent for other activities.


3.4.1 Summary of discussions


Following questions raised by the Committee, t he following is an account of the issues deliberated by the Committee and the IDC:


· Data on failed initiatives invested in: Employment levels were close to approximately 17 per cent, which was fairly high, but this was a reflection of the high-risk profile that the IDC took and it had been growing during the economic crisis. This however did not equate to 17 per cent of failed projects. When the IDC ran into a problem they impaired it and worked with the company to try and turn things around.

· Investment in the textile industry to help resuscitate it: The IDC was both proactive and reactive when it came to the textile industry. If the IDC did not come into the picture, some of companies that the entity had offered distress funding to could have lost many jobs. The provinces that have benefited the most were KwaZulu-Natal and the Western Cape where most of the textiles industries were. The IDC approached these companies to ask what could be done to make them more sustainable and the solution provided had to be a sustainable one. The partnership the IDC has had with the Department of Trade and Industry helped a lot, as that Department provided grant portions in some cases where companies were not competitive or had old equipment. The IDC would provide data on how many start-ups they were involved in and was well-aware of the fact that the textile industry was a sensitive sector which offered a lot of employment opportunities.

· IDC’s core business versus their energy efficiency initiatives: IDC's energy initiative was part of the entity's funding programme. The initiative was done in partnership with companies that the entity invested in. Many of the major companies the IDC invested in used a lot of energy by nature, so the entity was to find ways of using energy efficiently.

· Amount of jobs going to be created: The IDC was looking at creating approximately 30 000 direct jobs in the 2012/2013 financial year and these did not include the indirect jobs that would be created. The IDC had R10 billion that was approved in the 2011/2012 financial year for companies that were able to create jobs at a cost of less than R500 000. The entity also engaged with the Unemployment Insurance Fund (UIF) to access money to encourage job creation. They understood that some sectors were not as labour intensive as the government wanted them to be, although they did have an indirect effect on job creation.

· Sustainability: Members wondered how the IDC had been able to sustain itself since the 1950’s: The IDC's major strength was its people, who were the ones that made decisions and ensured that projects were sustainable. It was the quality of the investments that the entity had made over the years as these helped the IDC to raise additional funds that they could invest back into the economy. The IDC also had relationships with other development finance institutions that provided long term funding to the entity for investment purposes and assistance from the board and the shareholder also assisted.

· Investments in co-operatives: The IDC did not only see co-operatives as being in the micro business but thought that there were opportunities for them as well. This however depended on how co-operatives were configured. For example, the IDC was increasing its investment into the green energy initiative and one of the requirements was that the communities had to be participants in the initiative.

· Budget for skills development: The IDC supported learners in four ways. They had a top learnership programme that supported people to register as CA's and to do their articles through the IDC. They also took on matriculants to help them pick up office administration skills and unemployed graduates to take them through a business learnership . Over and above this, bursaries were given to students with over 200 students that the IDC was already giving bursaries to. The IDC tried to focus on areas where there were scarce skills.

· Creation of solar energy: Why was South Africa lagging behind in terms of creating solar energy: The process that government was involved in to promote investment in alternative energy was trying to address the matter of solar energy. It was not only in Germany , but Spain was also a leader in the technology that they used for creating alternative energy. It was perhaps due to the high costs of technology that developing countries were lagging behind.

· Investment in the green economy versus creation of more sustainable jobs: The sustainability of green jobs was informed by technology. There was a report that the IDC did with the Development Bank of Southern Africa (DBSA) and Trade and Industrial Policy Strategies (TIPS) on green jobs. The report looked at where the jobs could be created and if it was possible to create jobs in the green economy. There were sectors that would create more green jobs than others.


3.4.2 Recommendations


Based on the deliberations with the Industrial Development Corporation, the Portfolio Committee on Economic Develiopment recommends the following:


· The Industrial Development Corporation should ensure transparency and consistency when reporting on financed companies such as those that install solar water heaters and companies in distress.

· The Industrial Development Corporation should provide the Committee with detailed information on the start-up companies which they are funding. This should be done by the end of June 2012.

· The Industrial Development Corporation should provide detailed information on the number and nature of investment initiatives that have not been successful. This should be done by end of June 2012.

· The Industrial Development Corporation should provide the Committee with progress made in developing a strategy to ensure that beneficiary companies are using energy efficiently. This should be done by end of June 2012.

· The Industrial Development Corporation should furnish the Committee with information on the status, nature and number of co-operatives that they are currently funding. This should be done by end of June 2012.

· The Industrial Development Corporation should ensure that the new entity, in carrying out its duties, take into consideration past mistakes by ensuring that vulnerable groups are taken care of.


5. Conclusion


The Committee appreciated the pre sentations received and noted the progress made. Briefings by the Department and the entities on their strategic plans and budget allocations enabled the Committee to explore the budget and strategic plans. The Committee would however be waiting for the tabling of the new merged entity’s strategic plan at the end of April 2012 as promised by the Department.


Having considered the budget vote and strategic plan of the Department of Economic Development, the Portfolio Committee recommends that the House endorse the 2012/13 Budget Vote 28 of the Department of Economic Development.



Report to be considered.




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