ATC150511: Report of the Portfolio Committee on Economic Development on Budget Vote 25: Economic Development and the Annual Performance Plan of the Economic Development Department for the 2014/2015 financial year, dated 06 May 2015

Economic Development

Report of the Portfolio Committee on Economic Development on Budget Vote 25: Economic Development and the Annual Performance Plan of the Economic Development Department for the 2014/2015 financial year, dated 06 May 2015

The Portfolio Committee on Economic Development, having considered Budget Vote 25 and the Strategic and Annual Performance Plan of the Economic Development Department for the 2015/2016 financial year, reports as follows:

 

THE ECONOMIC DEVELOPMENT DEPARTMENT

 

1. BACKGROUND

 

In July 2014, the Economic Development Department (the Department) began its second administrative term following establishment on 7 July 2009 in terms of the Public Service Act, 1994 (Proclamation 103 of 1994).

The mandate of the Department is to support job creation, inclusive growth, industrialisation and social inclusion though policy work, planning coordination, use of social dialogue, as well as integration and coordination between departments, spheres of government and public agencies.

 

The Department is responsible for monitoring and implementation of the action plans on the various job drivers in the New Growth Path (NGP). It is a key department for Outcome 4: Decent Employment through Inclusive Growth. The Department is a core department in the economic and infrastructure cluster of departments and in Outcome 6: An efficient, competitive and responsive economic infrastructure network. It provides technical support to the Presidential Infrastructure Coordinating Commission (PICC), whose Secretariat is chaired by the Minister of Economic Development.

 

The Department’s core mandates are to:

 

• Identify priorities for job creation, inclusive growth and industrialisation;

• Support the alignment of the state around implementation;
• Oversee and provide strategic direction to development finance institutions and;
• Provide strategic direction on competition policy and trade administrative matters through oversight of regulatory bodies.

The Department also provides support to the Presidential Infrastructure Coordinating Committee (PICC), through active and constructive monitoring of the level of infrastructure construction and completion and preparing the Quarterly Construction Update, providing oversight of Strategic Integrated Projects (SIP) Intergovernmental Forums and Coordinating Agencies.

The following entities report to the EDD:

• Development Finance Institution – Industrial Development Corporation (IDC)
• Economic Regulatory Bodies – Competition Commission, Competition Tribunal; and International Trade Administration Commission of South Africa (ITAC).

 

The current 2015/16 – 2019/20 Strategic Plan is the Department’s second Strategic Plan and much has changed since the first Strategic Plan. The Department’s former micro-finance institutions Khula Enterprise Finance Limited (Khula) and the South African Micro-finance Apex Fund (Samaf) and the IDC’s small business unit merged to form the Small Enterprise Finance Agency (sefa) which was overseen by the Department. In this current Strategic Plan, the Department reports that the New Small Business Development Department will be responsible for sefa. In addition, sefa will remain a wholly-owned subsidiary of the IDC but strategic responsibility for its operations would be shifted to the Minister of Small Business Development.

 

The Department administers the following legislation:

• Industrial Development Corporation Act (Act No. 22 of 1940);
• Competition Act (Act No. 89 of 1998);
• Competition Amendment Act S16 (2008) s16 promulgated 1 April 2013;
• International Trade Administration Act (Act No 71 of  2002); and
• Infrastructure Development Act (Act No. 23 of 2014).

 

The following policy frameworks, programmes and policy pronouncements guide the Annual Performance Plan (APP) of the Department:

• State of the Nation Address (SONA) annually;
• National Development Plan;
• New Growth Path;
• National Infrastructure Plan;
• Industrial Policy Action Plan;
• Delivery Agreement on Outcome 4: Decent Employment through inclusive economic growth;
• Delivery Agreement on Outcome 5: Skilled and capable workforce to support inclusive growth;
• Delivery Agreement on Outcome 6: Efficient, competitive and responsive infrastructure;
• Delivery Agreement on Outcome 7: Vibrant, equitable, sustainable rural communities;
• Framework for South Africa’s response to the international economic crisis.
• Finance and fiscal policy framework;
• Public Finance Management Act No. 1 of 1999;
• Municipal Finance Management Act No. 56 of 2003 and related bi-laws

 

The Department facilitated the signing and monitors the implementation of the following Social Accords:

• Basic Education Accord;
• National Skills Accord;
• Local Procurement Accord;
• Green Economy Accord
• Youth Employment Accord and;
• October 2012 Social Accord.

 

1. INTRODUCTION

 

The Portfolio Committee on Economic Development (the Committee) analysed the Strategic Plan, Annual Performance Plan (APP) and the budget of the Department. Government has the responsibility to ensure responsible spending, given the limited nature of public funds.

 

It is important for budget plans to be linked to strategic plans so as to ensure that key objectives and priorities are budgeted for and achieved. Thus, the purpose of the meeting was to assess and analyse the Strategic Plan, APP and budget of the Department with a view of ensuring that there is alignment of reporting between the Strategic Plan, APP and budget. 

 

This report details the findings and recommendations of the Committee after its engagement with the Department on the above.

 

1. Issues to Note

 

Sefa is currently transitioning from being an entity of the Department to being overseen by the new Small Business Development Department. It follows therefore that sefa will report in Parliament, mainly to the Committee on Small Business and as a wholly owned subsidiary of the IDC sefa will report to the Committee through its parent company.  

 

The Management of the Competition Tribunal was not able to appear before the Committee due to international engagements. The Committee resolved that the Tribunal would be called again to present its Strategic Plan, APP and Budget at a later date.

 

ITAC presented its Strategic Plan without the Budget and APP. The Committee resolved that ITAC would be called again to present on the outstanding matters.    

 

1. DELIBERATIONS

 

On 14 April 2015 the Committee received a briefing from the Minister of Economic Development (the Minister), Deputy Minister, Acting Director-General, and the senior management of the Department on the Strategic Plan, APP and the budget allocations and projections.

 

The APP of the Department sets out its goals and objectives for the financial year and during the Medium Term Expenditure Framework (MTEF) to implement its Strategic Plan.

 

The presentation on the APP also outlined the Key Performance Indicators (KPIs) and targets for budget programmes, and sub-programmes whilst also indicating how the Department aims to realise its goals and objectives as set out in the Strategic Plan. 

 

The APP of the Department is therefore linked to the Strategic Plan, the budget and the MTEF and is informed by updates to government’s long-term plans, the Medium Term Strategic Framework (MTSF) and the broader Government implementation plan of action.

 

1. EDD’s 2015/15- 2019/20 Strategic Plan

 

The Strategic Plan sets out the objectives of the Department for the duration of the current Administration.

The Department has identified six strategic objectives which have been integrated into three Programmes, namely Administration; Growth Path and Social Dialogue; and Infrastructure Development, Investment, Competition and Trade. The Department’s Strategic Objectives currently, are the following;

Programme 1 Administration

Strategic Objective 1: Provide strategic Guidance to the Department; and technical and administrative support to the Ministry to achieve the rest of the Department’s strategic objectives.

Programme 2 Growth Path and Social Dialogue

Strategic Objective 2: Co-ordinate jobs drivers and the implementation of the National Growth Path (NGP) economic strategy in support of the National Development Plan (NDP).

Strategic Objective 3: Facilitate Social Dialogue and implementation of Social Accords. 

Programme 3 Investment, Competition and Trade

Strategic Objective 4:  Coordinate infrastructure Development and strengthen its positive impact on the economy and citizens

Strategic Objective 5: Promote Investment, industrial financing and entrepreneurship for jobs and inclusive growth.

Strategic Objective 6: Promote competition trade and economic regulation in support of job creation, industrialisation and social inclusion. 

 

1. Annual Performance Plan and the Budget of the Department

 

The Key Performance Indicators (KPIs) for the current financial year are as follows;

Programmes	KPIs
Programme 1 : Administration	2KPIs on Business Support Services
Programme 2: Growth Path and Social Dialogue	6KPIs on Implementation of the NGP and Social Accords
Programme 3: Investment Competition and Trade	13 KPIs Infrastructure Development,  Industrial Financing, Promotion of Investment, competition and economic regulation

 

The 2015 National budget amounts to R1.2 trillion, which is an increase of R86.0 billion or 7.6 % when compared to the previous financial year[1]. The amount allocated to the Department for the current financial year is R885.8 million or 0.1 per cent of the National Budget.

The departmental budget has increased by 27.1 per cent from R696.9 million in the previous financial year to R885.8 million in the current financial year. The reasons for the increase can be attributed to the increase in the budget allocated for the Compensation of Employees and Transfers and Subsidies. In this current financial year, the Department received the largest portion for the MTEF. Beyond the current financial year, the budget allocated for the Department is expected to decrease in 2016/17 to R685.6 million and increase again to R727.8 million in 2017/18 but not to the 2015/16 level. The increases are expected to among others, cater for the recruitment of additional staff members who will support the PICC. National Treasury’s Estimates of National Expenditure reports that the department’s staff compliment is expected to grow from 117 as at 30 September 2014 to 149 by 2017/18.

 

Allocations per programme:

• Programme 1: Administration - R 83.2 million
• Programme 2: Growth path and social dialogue - R 28.0 million
• Programme 3: Investment competition and trade - R 41.4 million excluding transfer

 

The operational budget of the Department is R150.3 million for the current financial year, and out of this amount, R96.1 million was allocated to the Compensation of Employees. See Table below. The difference of R54.2 million was allocated to Goods and Services. The largest portion of the total budget for the Department went to Transfers and Subsidies which is made up of allocations to Departmental Agencies and Public Corporations and Private Enterprises. In the current financial year, Transfers and Subsidies was allocated R733.2 million or approximately 82.8 of the departmental budget. This is an increase from the previous financial year’s R560.5 million. The total budget for Transfers is expected to decrease to R528.8 in 2016/17 due to the conclusion, of sefa’s R204 million Economic Competitiveness Package which will take place at the end of the current financial year.

 

 

 

Table: Departmental Budget by Economic Classification

Economic   Classification  R’ million	2014/15	2015/16	2016/2017	2017/2018
Current Payments	131.1	150.3	153.0	162.8
Compensation of employees	76.9	96.1	97.8	103.5
Goods and Services	54.2	54.2	55.2	59.3
Advertising	15.6	0.8	5.0	4.2
Consultants: Legal costs	4.0	3.6	3.8	5.0
Operating leases	9.9	18.2	17.2	18.9
Travel and subsistence	10.4	14.0	13.4	12.2
Operating payments	1.2	4.2	4.2	2.0
Venues and facilities	0.7	5.0	2.4	1.9
Transfers and subsidies	560.5	733.2	528.8	562.9
Departmental Agencies	291.6	326.8	315.7	339.2
Public corporations and private enterprises	268.8	406.4	213.1	223.8
Payments for capital assets	5.3	2.2	3.9	2.2
Machinery and equipment	4.0	1.8	3.8	1.8
Software and other intangibles	1.3	0.5	0.1	0.3
Total	696.9	885.8	685.7	727.9

 

The Department is reviewing its organisational structure and it reports that, in line with the new changes in the programmes, the target has come down from 166 funded posts in the 2014/15 financial year to 149 in 2015/16. Compensation to Employees has meanwhile increased from R76.9 million in the previous financial to R96.1 million in the current financial year.

The revised estimates for funded posts in 2014/15 was 149 and the budget expenditure was R76.9 million. For the current financial year the number of funded posts is still 149, but the Compensation of Employees has increased to R96.1 million. Thus, there is a R19.2 million increase in Compensation of Employees even though the number of posts has remained the same.

In its current Strategic Plan, the Department explains that it has unfunded a number of unnecessary managerial functions to enhance funding for technical posts. For the next financial year, the budget is expected to increase slightly by R1.7 million to R97.8 million for 149 staff posts.  In 2017/18 the allocation will increase to R103.5 million.

 

The rest of the operational budget is allocated to Goods and Services. For the current financial year, Goods and Services received R54.2 million which represents approximately 36.1 per cent of the operational budget. This amount is expected to increase slightly by R1 million in the next financial year. By the end of the MTEF the Goods and Services budget will reach R59.3 million. The largest portion of the Goods and Services budget goes to operating leases and Travel and Subsistence. For the current financial, advertising was allocated the least amount of the operational budget at R800 000 but this amount will increase by more than six times to R5 million in the next financial year and will decrease by R800 000 in 2017/18 to R4.2 million.

 

1. OBSERVATIONS AND RECOMMENDATIONS

 

4.1 Observations

 

The observations made by the Committee are clustered per programme here below;

 

Programme 1: Administration

The following were concerns raised by the Committee:

1. The Department’s ability to source the requisite skills for fulfilling its mandate;
2. Delays in the finalisation of the organogram in which PICC needs will be reflected;
3. Challenges relating to the filling of vacancies and staff retention are legacy issues that are still prevailing in the Department;
4. Recurrent issues relating to space constraints in the Competition Commission, Competition Tribunal and ITAC;

Programme 2: Growth path and social dialogue

The following were concerns raised by the Committee, the need:

1. The need to put greater emphasis on skills development that would empower youth, women and people living with disabilities.
2. The need to improve the frequency with which the Department reports on the implementation and the impact of the social accords.
3. The variations in the alignment and integration of economic programmes and priorities at provincial and municipal level are more legacy issues that needs to be resolved.  
4. Little coordination and collaboration of South African Bureau of Standards’ (SABS’s) efforts with those of other Departments and entities on encouraging innovation by young people for the manufacturing sector.
5. Difficulties in measuring the impact of government projects and programmes on job creation.

Programme 3: Investment competition and trade

The following were concerns raised by the Committee:

1. The lack of a consolidated approach in monitoring and reporting on the implementation of infrastructure development projects, including those identified in the current year’s State of the Nation Address (SONA).
2. Reporting on energy infrastructure projects, including the Grand Inga hydropower project is on an ad hoc basis.
3. The need for regular updates on the Umzimvubu Dam Project in the Eastern Cape
4. The restrictive nature of the competition legislation on investigations relating to abuse of dominance.
5. Difficulties in accessing funds is one of the major challenges in the development of the township economy, black industrialist, Small, medium and micro enterprises (SMMEs) and cooperatives.

 

4.2 Recommendations

In light of the concerns raised above, the Portfolio Committee on Economic Development recommends that the Department should:

1. Report to the Committee, before the end of the second quarter, on the finalisation of the organogram in which PICC needs will be reflected;
2. Address the Challenges relating to the filling of vacancies and staff retention, and provide quarterly progress reports in this regard;
3. Put greater focus on skills development for the empowerment of the youth, women and people living with disabilities;
4. Address issues relating to space constraints in the Competition Commission, Competition Tribunal and ITAC and provide quarterly progress reports in this regard;
5. Accelerate the implementation of the accords and provide quarterly progress reports in this regard;
6. Ensure the enhancement of oversight and coordination on the implementation of the NGP objectives across all spheres of government and provide quarterly progress reports in this regard;
7. Work in collaboration with the SABS and other relevant entities and Departments to encourage innovation in young people for the promotion of the development of the manufacturing sector and provide quarterly progress reports in this regard;
8. Provide the Committee with quarterly reports on the impact of State programmes and projects on job creation;
9. Report, within the next six months, on the impact of the efforts to ensure alignment and integration of economic priorities at all spheres of government, particularly the municipal level;
10. Speed up efforts to monitor and coordinate the implementation of key infrastructure projects, especially those identified by the President in the State of the Nation Address (SONA);
11. Ensure the effective tracking of progress on the implementation of infrastructure projects and report as often as required by the laws governing infrastructure implementation.
12. Provide the Committee with progress reports on energy projects such as Grand Inga Hydro-power Project, which promote regional and continental integration;
13. Provide the Committee with progress reports on national energy projects including but not limited to progress on the energy war room and the Umzimvubu Dam’s hydropower generation project;
14. Introduce legislation to strengthen the investigative powers of the Competition Commission when investigating companies concerning abuse of market dominance.
15. Intensify work on the expansion of industrial funding to support the development of entrepreneurship, township and rural economy, SMMEs and Cooperatives.

 

 

 

1. CONCLUSION

In conclusion, the Committee would like to thank Minister Patel and Deputy Minister Masuku, the entire collective of the Department, the entity’s CEO Mr Qhena, and the Heads of the Commissions, Misters Bonakele and Manoim, for their efforts in accelerating economic transformation for total liberation of our people and the country.  

The Committee thus recommends that the National Assembly approves the implementation of the Strategic Plan and APP of the Economic Development Department, within the allocated budget with amendments as reflected in the above findings and observations.

 

Report to be considered.

 

 

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