ATC161021: Budgetary Review and Recommendation Report of the Portfolio Committee on Trade and Industry, dated 21 October 2016

Trade, Industry and Competition

Budgetary Review and Recommendation Report of the Portfolio Committee on Trade and Industry, dated 21 October 2016
 

The Portfolio Committee on Trade and Industry, having assessed the service delivery performance of the Department of Trade and Industry, against its mandate and allocated resources, in particular the financial resources for the period 1 April 2015 to 30 June 2016, reports as follows:

 

1.     Introduction

 

The Department of Trade and Industry’s (DTI) key strategy is the implementation of the National Industrial Policy Framework through the Industrial Policy Action Plan (IPAP). This serves to drive industrialisation, regional and international trade and investment to create sustainable jobs.  The DTI’s key priorities are derived from the IPAP and the central theme is to facilitate labour-absorption through the reindustrialisation of the manufacturing sector.  This is supported by incentives for new and expanding manufacturers, initiatives to improve productivity and competitiveness, and export promotion of locally produced goods.

 

A contextual review of the financial period which also looks back at the previous years since adoption of the Budgetary Review and Recommendation process reveals that there had been an improvement every year notwithstanding the challenges that remain especially given the current budget constraints. The DTI had once again achieved an unqualified report however the highly successful incentives programmes is now over-subscribed. The outputs and highly evident outcomes underpinned the need for incentives to promote and even generate new manufacturing and agro-processing enterprises which increase sustainable employment creation. The Committee acknowledged that it would not be possible to increase funding in the first year of the Medium Term Expenditure Framework (MTEF) but would appreciate a consideration in the outer years for the Department and its entities to further fulfil their mandates.

 

The recognition of the strategic role that human resources plays continues through the successful management of the internship programme, among others, which would not only increase the pool of skilled workers professional and technical in the country but enable the DTI to strengthen its human capital value-chain. Notwithstanding challenges of allocative efficiency in resources, the budget constraints call for greater synergy between all spheres of government and between national departments.

 

1.1.         Mandate of the committee

 

Section 5 of the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) requires the National Assembly, through its committees, to annually assess the performance of each national department over an 18 month period. A committee must submit a report of this assessment known as a Budget Review and Recommendation (BRR) Report. The overarching purpose of the BRR Report is for the committee to make recommendations on the forward use of resources to address the implementation of policy priorities and services, as the relevant department may require additional, reduced or re-configured resources to achieve these priorities and services. This Act gives effect to Parliament’s constitutional powers to amend the budget in line with the fiscal framework.

 

The BRR Report process enables the committee to exercise its legislative responsibility to ensure that the Department and its entities are adequately funded to fulfil their respective mandates. However, as the Budget Office is still in the process of becoming fully functional, the committee was unable to exercise its full powers on providing detailed budgetary recommendations. The committee looks forward to a fully operational Budget Office, which will substantively contribute to the budgetary support the committee requires to undertake this process.

 

1.2.         Purpose of the BRR Report

 

The purpose of this report is to analyse the financial and non-financial performance of the DTI, and identified entities, against predetermined objectives to inform recommendations for the forward-looking budget for the DTI and its entities. This report assesses performance for the 2015/16 financial year, and the first three months of the 2016/17 financial year, namely from 1 April 2015 to 30 June 2016 within the context of the three-year MTEF.

 

1.3.         Method

 

The committee met with the Auditor-General on 6 and 13 September 2016 to discuss its mandate in relation to the work of the DTI and its entities, as well as the audit outcomes for the 20115/16 financial year. The committee was also briefed by the DTI on its 2015/16 annual report and performance for the first quarter of the 2016/17 financial year on 13 September 2016

 

For the BRR Report, the committee also considered the performance of the Companies and Intellectual Property Commission (CIPC), the National Consumer Commission (NCC), the National Credit Regulator (NCR), the National Empowerment Fund, the National Regulator for Compulsory Specifications (NRCS), and the South African Bureau of Standards on an on-going basis and for the annual report process. In this regard, the committee held meetings with these five entities to engage on their 2015/16 Annual Reports and their performance for the first quarter of the 2016/17 financial year on 7, 13, 14, and 16 September 2016. The Committee met with the NEF on 11 October 2016.

 

1.4.         Limitations of the Report

 

One of the key limitations of the report is that not all of the DTI’s entities’ annual reports and quarterly spending trends were monitored over the 15 month period. Therefore, there was a reliance on the DTI and the Auditor-General to highlight challenges experienced by the other eight entities. However, all entities, with the exception of the NRCS, received unqualified audit opinions.

 

The BRR Report is intended to cover an 18 month period including the previous financial year’s annual report and the first six months of the current financial year. Due to the timing of the BRR Report verified second quarter financial and non-financial information was not available. The key challenge was that the DTI and its entities were still in the process of verifying the non-financial information, which is due at the end of October each year in compliance with Treasury regulations. Therefore, the report has only captured performance up to the first quarter of the 2016/17 financial year.

 

1.5.         Outline of the contents of the Report

 

This BRR Report consists of eight sections. Section 1 briefly provides an overview of the DTI’s core functions, the mandate of the committee, the purpose of this report and the method followed in preparing this report, as well as the limitations of the Report.

 

Section 2 sets out the key policy focus areas for the DTI. This includes an overview of the relevant national priorities which the DTI contributes to, as well the DTI’s strategic objectives, outcome-orientated goals and key measurable objectives. 

 

Section 3 provides a summary of the key financial and performance recommendations of the committee as captured in its previous BRR Report and its 2015/16 Budget Report. Where available, the Minister of Finance’s responses to these recommendations, as prescribed by the Money Bills Amendment Procedure and Related Matters Act are captured.

 

Section 4 assesses the DTI’s financial and non-financial performance against its vote allocation from 1 April 2015 to 30 June 2016. Firstly, it provides an overview and assessment of the DTI’s service delivery. Secondly, the available human resources are discussed. Thirdly, it considers the 2015/16 budget vote allocation in terms of the economic classification and per programme. It also assesses the actual total and programme expenditure for the period ending 31 March 2016, as well as the audit findings. This is followed by a comparison of the DTI’s budgeted and actual expenditure as at 30 June 2016. Fourthly, the report discusses key issues raised by the committee during deliberations with the DTI.

 

Section 5 discusses the five entities identified by the committee for oversight during this BRR reporting process in terms of their mandates, strategic objectives and core issues previously identified by the committee. In addition, their financial and non-financial performance and their additional forward-looking budgetary and/or performance requirements are assessed.

 

Section 6 provides the committee’s concluding remarks followed by a note of appreciation in Section 7. The report then closes with the committee’s recommendations for the National Assembly’s approval in Section 8.

 

 

 

 

 

 

 

 

 

 

2.     Overview of the key relevant policy focus areas

 

2.1.         Strategic Objectives of the Department

 

The Department’s performance is in line with its strategic objectives. Strategic objectives guide the Department’s work, hence they are aligned to each of the Department’s programmes. The strategic objectives are as follows:

 

• Promoting a professional, ethical, dynamic, competitive and customer-focused working environment that ensures effective and efficient service delivery.
• Building mutually beneficial regional and global relations to advance South Africa’s trade, industrial policy and economic development objectives
• Facilitating broad-based economic participation through targeted interventions to achieve more inclusive growth.
• Facilitating transformation of the economy to promote industrial development, investment, competitiveness and employment creation.
• Creating a fair regulatory environment that enables investment, trade and enterprise development in an equitable and socially responsible manner.
• Facilitating transformation of the economy to promote industrial development, investment, competitiveness and employment creation.
• Building a mutually beneficial regional and global relations to advance South Africa’s trade, industrial policy and economic development objectives

 

In terms of its core functions, the DTI is responsible for overseeing 13 entities and administering 42 Acts[1]. These entities can be divided into three categories according to the type of work they perform, namely the finance agencies, the regulatory agencies, and the specialist agencies (see table Error! Reference source not found.).

 

 

 

 

 

Table 1: List of entities reporting to the DTI

FINANCE AGENCIES		REGULATORY INSTITUTIONS		TECHNICAL INSTITUTIONS
Export Credit Insurance Corporation of South Africa (ECIC) National Empowerment Fund (NEF)		·  Company and Intellectual Property Commission (CIPC) Companies Tribunal (CT) National Consumer Commission (NCC) National Credit Regulator (NCR)  National Consumer Tribunal (NCT)  National Gambling Board of South Africa (NGB) National Lotteries Commission (NLC)		National Metrology Institute of South Africa (NMISA) National Regulator for Compulsory Specifications (NRCS) South African Bureau of Standards (SABS) South African National Accreditation System (SANAS)

 

in addition to overseeing the department, the committee oversees these entities. Mainly because a number of the DTI’s strategic objectives are implemented through these entities.

 

3.     Summary of previous key financial and performance recommendations of committee

 

3.1.         2015/16 BRRR recommendations[2]

 

1. Strengthening the incentive programmes with a view to improve its impact, particularly in terms of job creation; increase industrial competitiveness; and broaden the participation of enterprises in the economy.

 

1. Expediting the introduction of the regulations related to Credit Life Insurance Caps and on the maximum interest rate model to protect low income consumers.

 

3.2.         2016/17 Committee Budget Report[3]

 

3.2.1.     The committee had recommended that the Minister should consider reviewing the funding model for the Companies Tribunal and considering amending the Companies Act to facilitate the ease of the Tribunal to perform its duties.

 

4.     Overview and assessment of the department’s financial and NOn-financial performance (2015/16 FINANCIAL YEAR)

 

4.1        Non-financial Performance

 

The Department of Trade and Industry achieved 69 percent of its target for the financial year. A summary of the performance is outlined in the table below.

 

Table 2: Summary of the Non-financial Performance

Programme	Total Targets	Target Achieved	Target Not Achieved
Administration	9 (100%)	5 (56%)	4 (44%)
International Trade and Economic Development	2 (100%)	2 (100%)	0 (0%)
Special Economic Zones and Economic Transformation	4 (100%)	2 (50%)	2 (50%)
Industrial Development	4 (100%)	2 (50%)	2 (50%)
Consumer and Corporate Regulation	4 (100%)	2 (50%)	2 (50%)
Incentive Development and Administration	27 (100%)	23 (85%)	4 (15%)
Trade and Investment South Africa	2 (100%)	0 (0%)	2 (100%)
TOTAL	52 (100%)	36 (69%)	16 (31%)

Source: Department of Trade and Industry (2016a)

 

4.2    Financial Performance

 

The Department’s budget/appropriation was R9.59 billion for the 2015/16 financial year. During the financial year, the total budget was adjusted down to R9.49 billion and 99.7 per cent (approximately R 9.47 billion) of the total budget had been spent. Total underspending for the financial year amounted to R26.1 million.

 

Depicted below is the Department’s spending by programme against the budget for the financial year.

 

Table 3: Budget and Expenditure by Programme

Programme	Budget 2015/16    (R'm)	Final Appropriation    (R'm)	Actual Expenditure   (R'm)	Variance from Approved Budget (R'm)	Variance from Final Appropriation    (R'm)
Administration	689.7	727.6	727.6	-37.86	0.02
International Trade and Economic Development	164.8	113.6	113.6	51.24	-
Special Economic Zones and Economic Transformation	263.2	92.6	92.5	170.68	0.08
Industrial Development	1 973.5	1 953.6	1 953.6	19.88	0.01
Consumer and Corporate Regulation	294.5	287.6	287.4	7.08	0.20
Incentive Development and Administration	5 795.6	5 821.7	5 795.8	-0.18	25.87
Trade and Investment South Africa	412.3	501.2	501.2	-88.89	0.00
TOTAL	9 593.7	9 497.8	9 471.7	122.04	26.19

Source: Department of Trade and Industry (2016a:63)

 

During the financial year there was a shift of funds in between programmes. There were shifts from the Administration, International Trade and Economic Development, Industrial Development, Consumer and Corporate Regulation, and the Incentive Development and Administration programmes. These shifts were mainly a result of underspending in compensation of employees as a result of a number of vacant posts in the Department, and cost-containment measures implemented on goods and services in these programmes.

 

The funds were shifted to the Special Economic Zones and Economic Transformation (SEZ & ET) Programme and the Trade and Investment South Africa (TISA) Programme. Trade and Investment South Africa programme received an amount of R66.1 million that covered the R32 million in expected vouchers from the foreign mission offices, and R34 million for the interest make-up scheme of the ECIC. The shift to Special Economic Zones and Economic Transformation came from the Administration programme.

 

The budget is mainly divided into two, approximately R7.9 billion (84 per cent) of the budget goes to transfers and subsidies and R1.52 billion (16 per cent) of the budget remains for operations of the Department. The operational expenditure is for the compensation of employees; payment of goods and services; payments for capital assets; and payments for financial assets of the Department.

 

4.2.1. Transfers to Entities

 

Of the 13 entities, three are fully self-funded, these are CIPC, NEF and National Lotteries Commission (NLC)[4]. There has been significant decline in transfers to NRCS  and  SANAS. The Committee welcomes the increase in funding of the ECIC, the Committee in its 2013 BRRR has requested that the Minister consider the recapitalisation requests of the Export Credit and Insurance Corporation and the National Empowerment Fund in order for these institutions to fulfil their mandate.

 

For the 2014/15 and 2015/16 financial year, transfers to the Department’s entities were as follows:

 

 

 

Table 4: Transfers to the Department’s Entities

Entity	2014/15 (R'000)	2015/16 (R'000)	Change 2014/15 - 2015/16 (R’000)
Companies and Intellectual Property Commission (CIPC)	-	-	-
Companies Tribunal (CT)	13 313	14 221	908
Export Credit Insurance Corporation of South Africa (ECIC)	110 370	199 969	89 599
National Credit Regulator (NCR)	68 845	66 727	-2 118
National Consumer Commission (NCC)	53 376	54 596	1 220
National Consumer Tribunal (NCT)	40 164	46 029	5 865
National Empowerment Fund (NEF)	-	-	-
National Gambling Board (NGB)	29 797	31 983	2 186
National Lotteries Commission (NLC)	-	-	-
National Metrology Institute of South Africa (NMISA)	202 564	250 895	48 331
National Regulator for Compulsory Specifications (NRCS)	109 734	91 732	-18 002
South African National Accreditation System (SANAS)	35 712	26 025	-9 687
South African Bureau of Standard (SABS)	221 689	217 752	-3 937
Small Enterprise Development Agency (seda)[5]	628 650	-	-628 650
Total	1 514 214	999 929	-514 285

Source: Department of Trade and Industry (2016:86)

 

1. Audit Outcomes

 

The Auditor General’s report for the 2015/16 financial year of the Department notes the following:

The Department achieved a financially unqualified opinion with findings. The Auditor General highlighted the following:

 

• Impairment to the amount of R38 million was incurred as a result of debtors outstanding for longer than 12 months;
• The Framework for Managing Programme Performance Information (FMPPI) requires the Department as an auditee to have appropriate systems to collect, collate, verify and store performance information to ensure the reliable reporting of actual achievements against planned objectives, indicators and targets. The reported achievements against planned targets of 20 percent of indicators were not reliable when compared to the source information or evidence provided.
• The Financial Statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework as required by Section 40(1)(b) of the PFMA.

 

4.3. Financial and non-financial performance as at end of June 2016 (First Quarter 2016/17 Financial Year)[6]

 

The Department of Trade and Industry’s (the Department) budget for the 2016/17 financial year is R10.3 billion. The budget was split between seven programmes as identified by the Department, namely, Administration, International Trade and Economic Development, Special Economic Zones and Economic Transformation, Industrial Development, Consumer and Corporate Regulation, Industrial Development: Incentive Administration, and Trade and Investment South Africa.

 

In the first quarter of the 2016/17 financial year, the Department had projected spending of R3 billion; however, the Department had fallen short of this projection by R569 million. Total expenditure for the quarter was R2.4 billion. By the end of the first quarter 76.6% of the total annual budget was available.

 

The largest expenditure programmes in the first quarter were the Incentive Development Administration, Industrial Development programme and Trade Export South Africa respectively. Most of the programmes experienced significant underspending during the quarter. However, the Incentive Development Administration had significant underspending of 32.7 percent and the Trade Export South Africa has overspending of 8.7 percent.   Overall expenditure was 19.1 percent less than the budget.

 

Table 5 below shows the Department’s expenditure for the first quarter by programme.

 

             Table 5: Department's Budget and  Expenditure

Programme	Budget 2016/17 R’000	Year-to-date (YTD)				Available budget R’000	% budget available
		YTD Cash flow projections R’000	YTD Expenditure       R’000	Variance R’000	% variance
Administration	736,625	183,193	160,743	22,450	12.25%	575,882	78.2%
International Trade and Economic Development	126,383	26,721	24,333	2,388	8.94%	102,050	80.8%
Special Economic Zones and Economic Transformation	108,282	24,263	24,082	181	0.75%	84,200	77.8%
Industrial Development	1,735,679	722,338	704,246	18,092	2.50%	1,031,433	59.4%
Consumer and Corporate Regulation	313,525	150,799	147,564	3,235	2.15%	165,961	52.9%
Incentive Development Administration	6,922,407	1,652,527	1,112,637	539,890	32.67%	5,809,770	83.9%
Trade Export South Africa	336,539	210,422	228,622	(18,200)	(8.65%)	107,917	32.1%
Investment South Africa	48,077	11,141	9,818	1,323	11.87%	38,259	79.6%
TOTAL	10,327,517	2,981,404	2,412,045	569,359	19.10%	7,915,472	76.6%

Source: Department of Trade and Industry (2016b)

 

4.4.         Issues raised during the deliberations

 

The following concerns were raised related to the performance of the DTI during the Committee’s deliberations:

 

The DTI may be using the National Regulator for Compulsory (NRCS) Specifications as a strategic non-tariff barrier by ensuring that there are delays in the processing of Letters of Authority (LOAs): The DTI pointed out that the NRCS was required to set and enforce minimum standards to ensure safety of products for the protection of consumers and in this regard pursued the necessary processes. The role of NRCS is to lock out unsafe imports and ensure the protection of South African citizens. In terms of the LOA, the NRCS was in the process creating a more efficient process.

 

Whether agriculture was being promoted more aggressively as a means of encouraging growth and job creation: The DTI reported that agro-processing and the promotion of agriculture value chains had been addressed in the Nine-Point Plan. Furthermore, there were sector specific interventions and programmes which targeted agro-processing.  

 

The impact of the price of steel on the manufacturing sector and the economy as a whole:. The four consecutive price increases in the context of a global over-supply of steel was of a serious concern for the Committee, especially the request from Arcelor Mittal South Africa (AMSA) for another 30 percent tariff protection. The DTI informed the Committee that  tariff applications was the responsibility of the International Trade Administration Commission (ITAC). ITAC deals with the merits of the application and makes a recommendation to the DTI in this regard. The DTI would consult a number of stake holders to ensure that its decision benefit the whole industry instead of one company. The Committee requested that the DTI provide regular feedback on the progress on developments within the steel industry, including negotiations on steel price and tariffs. 

 

The impact of the Protection of Investment Act on investment: The DTI informed the Committee that they were not aware of any investment that had been withheld as a result of the implementation of the Act. Investors continue to invest in the country, particularly in the automotive sector. The DTI confirmed that its incentive programmes were in demand and operating effectively, which contributed positively in attracting investors into the country.

 

The status of black economic empowerment in South Africa: The DTI informed the Committee that it was committed to inclusive growth and the facilitation of broad-based black economic participation through targeted interventions. The department confirmed that the Guidelines for Good Business Practice for South African companies had been approved by Cabinet in September 2015. The DTI added that the functioning of the newly established Broad-Based Black Econcomic Empowerment (B-BBEE) Commission was critical for the implementation of the BBBEE legislation and to the DTI’s objective of facilitating broad-based economic participation through targeted interventions to achieve more inclusive growth. It was noted that inclusive economic participation goes hand in hand with economic development and industrialisation.

 

Black Industrialist Programme: The DTI‘s aim was to develop productive black industrialists. In this regard, the target was to support 100 Black Industrialists in the medium term (30 in 2016, 40 in 2017, and 40 in 2018) through the funding provided by the Industrial Development Corporation (IDC) and the DTI. 

 

Status of the Credit life regulations: The DTI informed the Committee that work with respect to credit life regulations was concluded in 2015. However, the DTI had to work with other stakeholders including National Treasury and the Department of Justice in this regard. The DTI confirmed that regulations would be published before the end of the year (2016).  

 

Timelines associated with trade negotiations and the focus on tariffs: The DTI’s informed the Committee that issues related to tariffd were important for South Africa, particularly with respect to negotiations with European and African regions. Negotiations due to their complex nature take long to negotiate, not only in agreements where South Africa wass involved but in all agreements that were negotiated globally. In terms of the tripartite negotiations, there had been an agreement among the parties to move forward to deal with other areas besides tariffs and to conclude negotiations in this regard.  The DTI however, noted that South Africa needed a new approach in dealing with Africa, as other African countries were industrialising. (the work of the Trade and Invest South Africa Unit of the Department becomes critical in this regard). 

 

Payment of creditors within 30 days: The Committee welcome the Department’s and entities achievement of paying all its creditors within 30 days. The Committee requested that the DTI share its best-practised with its entities and other government departments. The DTI informed the Committee that timeous payment of creditor by all departments and entities had been taken on board. A call centre had been established within the Small Enterprise Development Agency (SEDA) that deals with queries from small businesses with regards to payments by departments.

 

Auditor General’s findings: In its report the office of the Auditor General reported that planned targets of 20 percent of indicators were not reliable when compared to the source information or evidence provided. This particularly related to performance information of the National Tooling Initiative (a training programme facilitated by the Department). The office of the Auditor General could not confirm the number of students that were supported by the DTI funding. However, the DTI pointed out that the performance management indicator referred to the toolmakers’ apprenticeship, and DTI had always reported on the entire number of students going through specific training. Funding for this initiative was provided by the  National Skills Fund and the DTI. The concern raised by the AG’s office was that the DTI did not report specifically on the portion reflected in the DTI’s budget (DTI’s contribution in the initiative, excluding the National Skill Fund contribution). The DTI was committed to working with the office of the Auditor General to resolve the matter in 2016/17 financial year. The Committee welcomed the Minister’s decision to meet with the audit team to identify the issues and effectively implement what was required.

 

5          Financial and non-financial performance of identified entities

 

5.1  Companies and Intellectual Property Commission

 

The Companies and Intellectual Property Commission’s (CIPC) mandate can be broadly defined as the administration and performance of all the powers and functions assigned to it by the Companies Act (No. 71 of 2008).

 

The Companies and Intellectual Property Commission’s (CIPC) strategic objectives are;

·      To contribute to a knowledge-based economy and competitive local industries by promoting innovation, creativity and indigenous cultural expression and knowledge.

·      To promote broader formal economic participation by enhancing service delivery and extending the reach of CIPC.

·      To improve the competitiveness of the South African economy by enhancing the reputation of South African businesses and the South African business environment.

 

5.1.1       Non-financial performance for the 2015/16 financial year

 

CIPC met 75 percent of the targets in the financial year. The CIPC had a total of 16 performance indicators for the financial year. Of the 16 targets, 12 targets were met or exceeded while 4 targets were not met. The sections bellows depicts performance of the entity per strategic goal. This means 75percent achievement for the entity’s targets. 

 

The section below provides the entity’s non-financial performance for the financial year, followed by the performance of the entity per strategic goal.

 

Table 6: Summary of the Non-financial Performance

Strategic Goal	Number of measures per Strategic Goal	Targets Achieve/ Exceeded	Targets Not Achieved/ partially achieved
Strategic Goal 1: Improve the competitiveness of the South African business environment	4 (100%)	3(75%)	1 (25%)
Strategic Goal 2: Promote innovation, creativity and indigenous cultural expression	5 (100%)	4 (80%)	1 (20%)
Strategic Goal 3: To promote broader formal economic participation by enhancing service delivery and extending the reach of CIPC	7 (100%)	5 (71%)	2 (29%)
TOTAL	16 (100%)	12 (75%)	4 (25%)

Source: Companies and Intellectual Property Commission (2016a)

 

The CIPC has made great strides in the achievement of its targets. A number of targets were exceeded, mainly those that ensure that the CIPC collaborate with other stakeholders in delivering its services. One of those achievements is the development and rolling out of Self Service Terminals across the country to assist with registration of smaller companies or registration of companies in areas where CIPC offices are far. In CIPC’s previous engagement with the Portfolio Committee on Trade and Industry, this strep was greatly welcomed as it addresses the needs of a wide range of businesses. Furthermore the provision of CIPC services in the country’s banks is another highlight in the performance of the entity.

 

Turnaround time associated with registering companies/co-operatives has been an area of concern for a number of year. The achievement of almost all of the targets related to registrations is good in the performance records of the entity.  In addition, the move towards more online registrations by the entity is a highlight in the performance of the entity and should assist further in the future. In the 2015/16 financial year online transactions were as follows:

 

• Company registrations (95 percent)
• Director changes (89 percent)
• Trade mark applications (95 percent)
• Patent applications (79 percent)
• Design applications (31percent)
• Copyright in film applications (95 percent)

 

Notwithstanding the achievements of the entity, a number of performance areas are of concern.  The number of companies with an active business status that have filed annual returns remains an area of concern, currently approximately half of the companies file annual returns through CIPC. Another area of concern is the number of filled posts as compared to the approved structure. By the end of the 2015/16 financial year, 74percent of positions of the approved structure were filled. This is an area of great concern because the filling of vacancies is critical for service delivery of the entity and a high vacancy rate may have an adverse impact on the entity.  

 

 

5.1.2.    Financial Performance for the 2015/16 financial year

 

For the 2015/16 financial year, CIPC’s revenue amounted to R438.9 million. Total revenue was R15 million over the initial estimate, the estimated total income was
R423.9 million. This income was 5percent more than income collected in the previous financial year (2014/15).

 

There was significant increase in income from Companies (23.1 percent), Annual Returns of Companies (17.6 percent), and Trademarks (16.6 percent). While income from Copyright in film, Cooperatives, Annual Returns: CC, Patents and designs, and Data sales decreased compared to the previous financial year.

 

There has been changes in terms of the share of revenue sources, as depicted in the graphs below. The share revenue from Company Annual Returns increased from 36 percent of total revenue in the 2014/15 financial year to 40 percent in the 2015/16 financial year.

 

Expenditure for the financial year totalled R351.7 million. The main expense was employee compensation, accounting for 66 percent of total expenditure at R231.4 million. The CIPC had budgeted R243.6 million for compensation of employees, however, actual expenditure was R12.2 million less than budgeted due to vacancies. Compensation of employees was R32 million more than the previous financial year due to.

 

In terms of expenditure on goods and services:

 

• Expenditure on Consultants and special services totalled R42 million, this amount is R3 million more than the previous financial year.
• Operating lease charges amounted to R29.6 million, R7.5 million less than budgeted but R4.4 million more than the previous financial year.
• Audit fees amounted to R6.9 million compared to the budgeted amount of
  R10 million.
• Expenditure on Communication and postage amounted to R5.5 million compared to the budget of R12.3 million.
• Expenditure on stationery, printing and publications totalled R4.5 million compared to a budget of R7.8 million
• Travel and subsistence R3.9 million, R2 million more than the previous year.

 

Capital Expenditure for the financial year totalled R6 million;

 

• Computer hardware       R5.5 million
• Computer software        R187 000
• Furniture and equipment R370 000

-

5.1.3. Human Resources

 

CIPC continues to have a high vacancy rate, approximately 26.6 percent. 76 vacant positions were filled during the 2015/2016 financial year. The vacancy rate has increased from 22.8 percent in the 2012/13 financial year to a very high 29.7 percent in the 2013/14 financial year. As seen in the table 4 below, of the 640 posts, there are still 170 vacant posts in the entity including critical posts such as posts in management, and an executive post.

 

Table 7: Human Resource Profile as at 31 March 2016

Total Posts	640
Total Employment	470
Vacancies	170
Vacancy rate	26.60% (% of total available posts)
African Employees	366 (77.9% of total employees)
Female Employees	281(59.8% of total employees)
Employees with disabilities	8 (1.7% of total employees)

Source: Companies and Intellectual Property Commission (2016a)

 

The CIPC continued to experience significant labour related issues during the financial year. Among those is the moratorium on recruitment of personnel which prohibits recruitment of new employees until certain matters are addressed with Labour Unions; the non-appointment of a Commissioner and those acting in critical positions such as the Chief Financial Officer.  All these have had an adverse impact on the work of the CIPC.

 

5.1.4.    Audit Outcomes

 

The Audit Committee is an oversight structure established in line with the requirements of the PFMA, Treasury regulations and related requirements for good governance. CIPC Audit Committee has 5 members, however, the entity reports that  the “Internal Audit did not function effectively during the year, due to capacity challenges as the function did not complete its planned audits in a timely manner. Internal Audit requires a strategic review to ensure its future sustainability”[7]. This is concerning since the Internal Audit Committee  is the internal oversight structure that should oversee the work of the entity and ensure proper day to day functioning of the entity.

 

For the 2015/16 financial, the CIPC had incurred irregular expenditure of more than
R6 million resulting from incorrect calculations on increases of medical and housing allowance. This occurred despite the existence of a remuneration committee of the CIPC.

 

The CIPC incurred fruitless expenditure of R 27 000 emanating from an overpayment to a supplier. It is noted that the money will be recovered, however, there needs to be strengthening of controls to ensure such occurrences are not repeated. This is concerning as it is not the first time a similar incident had occurred, the CIPC had incurred wasteful expenditure of

 

5.1.5.   Financial and non-financial performance as at end of June 2016 (First Quarter 2016/17 Financial Year)[8]

 

5.1.5.1. Non-Financial Performance

 

According to the CIPC’s first quarter report, CIPC had 15 planned targets of which 13 were achieved (87 percent). The target on the average number of days to register a company was not met due to due to system challenges. The ICT systems was available 95 percent of the time against a target of 97 percent to provide for ease of access for registration

 

Highlights on targets met included:

·         The annual average time and target to register a company and cooperative is two working days from the date of receipt of an application.

·         All cooperatives registered were processed and finalized within the average time of 2 working days.

·         Approximately 47 percent of companies that were due for filling Annual Returns filed against the set target of 39 percent. 

·         An education and awareness campaign was done in collaboration with the Department of Small Business.

·         A pilot is underway to make self-service technology (including the fingerprint technology uses at SSTs) and is available to interested third parties.

 

5.1.5.2. Financial Performance

 

The CIPC is a self-funded entity, generating income from the services it provides to businesses. For the financial year budgeted income budget for the 2016/17 financial year is R520.8 million while budgeted expenditure is expected to be R540.5 million. This is expected to lead to a deficit of R19.7 million.

 

For the first quarter (April to June), budgeted income was R130.2 million, however, actual income received for more than budgeted at R147.2 million. Expenditure was expected to reach R110.8 million, actual expenditure totalled R82.6 million.  

 

5.1.6. Issues raised during the deliberations

 

The following concerns were raised related to the performance of the CIPC during the committee’s deliberations:

 

• Filling of vacancies at CPIC and labour stability: The Committee enquired about the status of human resources at CIPC, in particular whether the acting management positions affect service deliver. The Acting Commissioner reassured the Committee that despite the vacant positions and other labour rated challenges, the entity continues to improve. In terms of the filling of the Action Commissioner post, the DTI said they were undergoing a process of appointing a Commissioner, interviews were done in June 2016, shortlisting had been concluded and an announcement would be made soon. Furthermore, it was emphasised that the entity had been relatively stable with  no industrial action since June 2015.  The Acting Commissioner meets regularly with the two unions that represent employees at CIPC and they continue working towards resolving labour challenges.

 

• Rollout of Self Service Terminals (SST): The Committee requested timelines on the rollout of SST across the country. The CIPC noted that they partnerned with various stakeholders in the rolling out of SSTs, including municipalities and the Department of Economic Development (at a provincial level). It was critical for CIPC to have those partnerships, however, for some provinces they take long to establish hence the delays in setting SSTs in provinces such as Mpumalanga and Limpopo. The CIPC continues to engage the various stakeholders involved.

 

• Runners: The CIPC was requested to provide an update on runners that had been operating outside the CIPC claiming they could fast-track applications. The Acting Commissioner emphasised that there had been less runners recently. This was attributed to the new system of working on applications. The new system randomly assigns cases to staff members and had made it difficult to fast-track certain applications through internal staff, as runners claimed they were able to do.

 

• Bogus business rescue practitioners: The Committee was of the view that there were bogus practitioners and wanted CIPC to clarify this. The CIPC responded by saying that the legislation provides for compliance and licencing conditions for business rescue practitioners. Should practitioners be non-compliant with the legislation their licences may be terminated. Furthermore, the CIPC was engaging with various industry bodies with respect to laws and regulations  that govern the work of the practitioners. 

 

• Audit Outcomes: The Committee raised concerns with issues highlighted by the office of the Auditor General  in particular, with regard to oversight responsibility and the effectiveness of human resources. The CIPC informed the Committee that they had an internal risk Committee which oversees the implementation of the internal action plans  developed to address challenges. Furthermore, managers from the different divisions report regularly to the risk committee on its progress.

 

• Decline in the registration of cooperatives: With respect to  the decline in the number of co-operatives being registered in the past financial year, The CIPC, together with theDepartment of  Small Business Development   and are working closely on a study to determine the reasons for the decline in registrattion.

 

• Over-payment of employees: The Committee raised concerns about an amount of R6 million which had be overpaid to employees as a result of miscalculation of employee cost. This was stated by the Auditor-General as irregular expenditure. The CIPC informed the Committee that this was a result of an adjustment in salaries that was based on an incorrect interpretation.

 

• Functioning of the call centre: The Committee enquired about the reasons for the low call answering rate at the CIPC. According to CIPC, the Swedish model that was implemented in 2012/2013 did not work. To address the challenges, call centre job descriptions were developed, with 13 new call centre agents and three  managers employed to address the challenge. CIPC however, said more still need to be done. 

 

• Expenditure trend: The entity’s financial performance showed that total expenditure was 14 percent less than budgeted. According to CIPC this was as a result of cost saving measure, in particular savings of partnerships established for locating SSTs located in partner premises (CIPC does not pay any rent) and savings from doing certain activities in-house rather than using consultants. The Committee welcomed this.

 

5.2. National Consumer Commission

 

The National Consumer Commission (NCC) was established by the Consumer Protection Act (CPA) (No. 68 of 2008) and became operational on 1 April 2011. The NCC’s core mandate is to assist in protecting consumer rights by increasing consumer awareness of what these rights are; investigating prohibited conduct by business; and enforcing compliance with the provisions of CPA.

 

According to the Act, the NCC’s functions include the:

 

·         Development of codes of good practice relating to the provisions of the Act.

·         Promotion of legislative reform through consultation with provincial consumer protection authorities, national organs of state, consumer protection groups, alternative dispute resolution agents and suppliers.

·         Promotion of consumer protection within organs of state.

·         Enforcement of the Act including the investigation and evaluation of any prohibited conduct and offences, issuing and enforcing compliance notices.

·         Research to increase knowledge of the nature and dynamics of the consumer market.

·         Promotion of public awareness of consumer protection matters.

·         Liaison with other regulatory authorities on matters of common interest.

·         Provision of advice and recommendations to the Minister.

 

The NCC’s strategic objectives are to:

 

·         Promote compliance with the Consumer Protection Act; and

·         Be a well-governed and capacitated organisation.

 

5.2.1       Non-financial performance 2015/16 financial year

 

The NCC’s performance is discussed below, non-financial information as well as the financial performance. The NCC achieved 55 percent of its targets, 10 of the 18 targets were achieved.

 

Table 8: Summary of the Non-financial Performance

Strategic Goal	Number of measures per Strategic Goal	Targets Achieved/ Exceeded	Targets Not Achieved/ partially achieved
Programme 1: Administration	1 (100%)	0 (0%)	1 (100%)
Programme 2: To promote Consumer Safety and Protection	9 (100%)	5 (55%)	4 (44%)
Programme 3: To conduct research and promote advocacy and consumer empowerment	8 (100%)	5 (63%)	3 (37%)
TOTAL	18 (100%)	10 (55%)	8 (45%)

Source: National Consumer Commission (2016a)

 

Targets not met:

 

• The target on the filling of vacancies was not met. 86percent of the funded positions were filled against a target of 95percent due to 12 posts that became vacant during the financial year.
• The target for NCC to assess and report on the performance of accredited Ombud Scheme(s) in line with MOU entered into between NCC and Scheme(s) was not met. The MOU’s were not concluded between the parties as the Ombuds felt that this was not necessary as adequate provision for monitoring and compliance was already provided for in the codes accredited by Minister.
• The target to access Advertising Standards Authority of South Africa (ASASA) was not met. Finalisation of ASASA code exceeded 12 months due to protracted discussions.
• The code of good practice on towing services was not developed due to poor planning, the NCC had to conduct further research on towing services before it could develop the Code.
• The benchmarking of the Opt out Register was not done. This was due to the terms of reference for the appointment of a transactional adviser not being compiled and the feasibility study not commenced. The project is however funded with an amount of R2 million received from the National Treasury.
• Three (3) research reports on State of Consumer Protection in South Africa were not submitted to the Minister as planned.
• A second newsletter was slightly delayed. Only one newsletter was done instead of two as targeted.
• The ICPEN conference was not attended as planned due to the timing challenges.

 

Financial performance for the 2015/16 financial year

 

The NCC received a transfer of R54.6 million from the Department of Trade and Industry as grant funding, a 2.3 percent increase from the previous financial year. It also received interest income of R1.5 million. NCC’s total income for the year was amounted to R56.1 million, 2.2 percent more than the previous financial year.

 

Employee related costs amounted to R36.5million.  Employee related costs increased by 11.4 percent the previous financial year.

 

Employee cost of R36.6 million account for the largest share of expenses at 64.1 percent of total expenses. Other main expenses (quoted under general expenses) for the entity are as follows:

 

• Office rental totalling R4.9 million
• Advertising R3.8 million
• Security services R1.4 million
• Consulting and professional fees R1.4 million

 

5.5.3. Human Resources

 

The NCC’s structure has 85 funded posts. At the end of March 2016, 73 posts were filled. The vacancy rate is at 14 percent (12 vacant posts). A total of 7 posts were filled and 10 employees resigned during the financial year.

 

Table 9: Human Resource Profile as at 31 March 2016

Approved Posts	85
Number of employees	73
Vacancy Rate	12 (14%)
Female Employees	36 (49.3% of employees)
Black employees	68 (93.2% of employees)
Women in Top and Senior Management Service (TSMS)	6 (8.2% of TSMS)
Employees with Disabilities	1 (1.4% of employees)

Source: National Consumer Commission (2016a:98-103)

 

This financial year the NCC has abandoned its original structure which had 182 approved posts because some of the posts were not funded and increases in the budget over the 2015/16 - 2017/18 period will not be adequate to fund all the vacancies.

 

The NCC has had historical issues in terms of staff capacity, knowledge and competence to enforce the Consumer Protection Act and comply with the PFMA. In the 2015/16 financial year, the entity spent R521 778 on training its staff (1.43 percent of personnel).

 

5.2.4. Financial and non-financial performance as at end of June 2016 (First Quarter 2016/17 Financial Year)[9]

 

In the first quarter of the 2015/16 financial year, the NCC received a transfer of R14.5 million from the DTI, and a further R484 527 was generated from interest income. This makes total income for the quarter of R 14.9 million, this was slightly more than the budgeted income.

 

The NCC spent R14.2 million, against budgeted expenditure of R14.9 million. The NCC had a surplus of R742 605. Total underspending is approximately 4 percent of budgeted expenditure. The main source of under expenditure is underspending on employee costs and maintenance and repairs costs, employee costs were 10 percent less than budgeted and maintenance and repairs costs were 21 percent less than budgeted for the period. By the end of the quarter total expenditure was at 24 percent. 

 

The main expenditure items for the quarter were employee related costs (64 percent of total expenditure) and general expenses (33 percent).

 

5.2.5. Key issues raised by the committee

 

The following concerns were raised related to the performance of the NCC during the committee’s deliberations:

 

• The delay in resolving consumer complaints with respect to the towing industry: The NCC informed the Committee that it was the Department of Transport’s responsibility to develop a regulatory framework to achieve the protection of consumers through the development of standards for tow truck operators and establishing ethic for the industry as well as keeping a register of operators that would meet those standards. Once a regulatory framework was established a Code of Conduct should be considered in terms of the Consumer Protection Act (CPA), 2008, to supplement the framework.

 

• The outcomes of the investigation with respect to the cell phone industry: The NCC informed the Committee that their investigation into the cell phone industry had a “limited scope” and focused on the “Terms and condition” used as a basis to transact with consumers as against the provisions of the CPA, 2008. The investigation established that a certain level of non-compliance existed across the industry with particular provisions of the CPA, 2008. The entities under investigation therefor undertook to amend the con-compliant provisions of the “Terms and Conditions” of their respective consumer agreements in order to comply with the provisions of the Act. A concern for the NCC was that two issues remained unresolved that related to the expiry date in term of section 63, and guaranteeing a call limit, where agreed upon with the consumer. With regard to the unused data the NCC was of the view that only a declaratory order would possibly provide a solution.

 

• The need for further clarity with respect to warranties: Warranties were regulated by common law of contract in sales transaction, according to the NCC. Sale terms pertaining to warranties were voluntary with no obligations on suppliers. The NCC informed the Committee that the CPA, 2008, introduced a mandatory statutory warranty of six months. Products that were defective outside the prescribed six month period would not benefit from a refund, repairs or replacement remedies.  The NCC, as a creature of stature, could only seek recourse to protect the consumers if the six month had not expired or where a contractual warrantee exceeds the six month period.

 

• The vacancy rate within the NCC: The NCC informed that Committee that it advertised all vacant positions during the first quarter of 2016/17 financial year. Of the 85 vacant positions 79 positions were filled with the recruitment for the four other vacant post underway. Going forward the NCC had put strategies in placed to ensure that posts were advertised immediately after a resignation.

 

• Reasons for the delay in submitting research reports: The NCC acknowledged, that in terms of their Annual Performance Plan for 2015/16 financial year it had to conduct research in three areas, which was not achieved. They informed the Committee that of the three research reports, two were conducted by staff and one was outsourced. All three research reports experienced delays, but had committed themselves to implement risk mitigation plans to ensure that deliverables were met on time.

 

 

 

5.3. National Regulator for Compulsory Specifications

 

The National Regulator for Compulsory Specifications (NRCS) is national regulatory agency.

Its mandate is to protect consumers and the environment against unsafe and harmful products through ‘locking out’ non-compliant products from trade in the domestic market. This is done by means of surveillance at the ports of entry into South Africa and within the country. The NRCS develops and enforces compulsory specifications that promote public safety and protect consumers and the environment. 

 

The NRCS’ four strategic objectives are to:

 

• Develop, maintain and administer compulsory specifications and technical regulations,
• Maximise compliance with all specifications and technical Regulations,
• Inform and educate NRCS’s stakeholders on the mandate of the NRCS, and
• Ensure an optimally capacitated institution

 

5.3.1. Non-financial Performance for the 2015/16 financial year

 

The NRCS had 28 performance targets for the financial year. 19 of the targets were achieved, representing 68 percent achievement on targets. The table below depicts the NRCS’ performance per strategic objective.

 

Table 10: Summary of the Non-financial Performance

Strategic Goal	Number of measures per Strategic Goal	Targets Achieved/ Exceeded	Targets Not Achieved/ partially achieved
SG1: To develop, maintain and administer compulsory specifications and technical regulations	3 (100%)	2 (67%)	1 (33%)
SG2: To maximise compliance with all specifications and technical Regulations	18 (100%)	11 (61%)	7 (39%)
SG3: To inform and educate NRCS stakeholders on the mandate of the NRCS	4 (100%)	3 (75%)	1 (25%)
SG4: To ensure an optimally capacitated institution	3 (100%)	3 (100%)	0 (0%)
TOTAL	28 (100%)	19 (68%)	9 (32%)

Source: National Regulator for Compulsory Specifications  (2016a)

 

5.3.2. Financial Performance for the 2015/16 financial year

 

In the 2015/16 financial year, the entity’s budgeted income was approximately R356.5 million. The largest share of budgeted income was to be acquired from levies for compulsory specifications amounting to R163.9 million. The funding through transfers from the Department of Trade and Industry (DTI) was the second largest source of income for the NRCS at R91.7 million.

 

Other sources of income included revenue from services rendered, other sundry income and interest income. Income from levies for compulsory specifications was less than budgeted for the financial year at R154.6 million while income from other services and interest income was more than budgeted at R45.2 million and R14.4 million respectively. Total actual income totalled R309.9 million.

 

Table 11: Financial performance: Income 

Income	Budget2015/16 FY (R’000)	Actual Income 2015/16 FY (R’000)	Variance %
Transfers from the dti	91 732	91 732	0.0%
Levies from Compulsory Specifications	163 941	154 591	-5.7%
Services	37 973	45 223	19.1%
Other Income	62 840	18 381	-70.7%
TOTAL INCOME	356 486	309 927	-13.1%

Source: National Regulator for Compulsory Specifications  (2016a)

 

The NRCS spent R308.3 million, leaving a surplus of R1.6 million. The largest expenditure item for the NRCS is employee costs which amounts to R239.8 million (78 per cent of total expenditure). Goods and services counted for 22 per cent (R68.5 million) of total expenditure. 

 

Table 12: Expenditure

Expenditure	Budget 2015/16 FY (R'000)	Actual Expenditure 2015/16  FY	Variance %
Compensation of Employees	257 346	239 843	-6.8%
Goods and Services	99 057	68 468	-30.9%
TOTAL EXPENDITURE	356 403	308 311	-13.5%

Source: National Regulator for Compulsory Specifications  (2016a)

 

However, both the compensation of employees and expenditure on goods and services were below the budgeted amounts. Total expenditure was therefore 13.5 percent below budget.  

 

5.3.3. Financial and non-financial performance as at end of June 2016 (First Quarter 2016/17 Financial Year)[10]

 

The NRCS had 29 performance targets for the first quarter 2016/17 financial year. 19 of the targets were achieved, representing 68 percent achievement on targets. All targets were met on Strategic objective one “developing, maintain and administer compulsory specifications and technical regulations” and strategic objective three “to inform and educate NRCS stakeholders on the mandate of the NRCS” were met. On strategic objective two there we 22 targets for the quarter, 12 targets were met and 10 were not met.

 

For the first quarter of the 2016/17 financial year, the entity’s budgeted income was approximately R73.3 million, however actual income was less at R48.7 million. The funding through transfers from the Department of Trade and Industry (DTI) was the largest source of income for the NRCS at R25.5 million despite it being below the budgeted amount of R42.9 million. The second largest share of budgeted income was to be acquired services rendered amounting to R13.7 million. Income from levies for compulsory specifications was 52 percent less than the budgeted amount at R6.7 million against a budget of R14 million.

 

Total expenditure was therefore 23.2 percent below budget. The compensation of employees and expenditure accounted for 80 percent of total expenditure. Furthermore, compensation of employees and expenditure was 12 percent below target (R57.2 million against a target of R64.7 million. Expenditure on goods and services was 51 percent below the budgeted amounts (R13.9 million against a target of R27.9 million). 

 

5.3.4. Key issues raised by the committee

 

The following concerns were raised related to the performance of the NRCS during the committee’s deliberations:

 

• The increase in expenditure and the long-term financial stability of the NRCS: The NRCS informed the Committee that its expenditure had increased and that their cash surplus was used to fund certain projects. A concern for the NRCS was that its cash surplus would be depleted within approximately three years, but discussions were ongoing with the DTI to ensure that the budget figure remained in the outer years of the Medium Term Expenditure Framework. Measures to ensure the effective collections of levies would also be implemented, and that sufficient funds were available to cover the cost for the implementation of the new Information and Communication Technology (ICT) infrastructure. 

 

• Implementation of new ICT systems and the impact on employees: The NRCS informed the Committee that the implementation of a new ICT system would not lead to retrenchments. Due the size of the South African economy they would require additional capacity to do the necessary surveillance work. The new ICT system would assist with this work and would allow the NRCS to focus on areas of high risk.

 

• The performance contract of the CEO of the NRCS: The Chairperson informed the Committee that she had received correspondence from the Minister of Trade and Industry in which he addressed the matter relating to the contract of the CEO. Several areas of misalignment were noted with the current Annual Performance Plan (APP) and that the Minister had requested the CEO to revise both the APP and his performance contract agreement.  The Committee also agreed that the future performance contract agreement of the CEO should clearly indicate timelines for targets to improve accountability.

 

• The high rate of non-compliance with compulsory specifications and technical regulations especially within chemicals, materials and mechanicals (CMM), and electro-technical. The NRCS informed the Committee that the reasons for the low percentage with respect to the issuing of LOA’s within the electro-technical sector was as a result of the thoroughness of process and the volume of applications received.   With respect to the CMM, the NRCS informed the Committee the non-compliance was as a result of dormant compulsory specifications (VCs) on treated timber and safety glazing.

 

• The Auditor-General findings and the NRCS plan of action to address these emphasis of matters: The NRCS informed the Committee that the necessary measures to address the concerns raised by the Auditor-General of South Africa had been put in place. A detailed action plan to address these shortcomings would be submitted to the Committee.

 

5.4. National Empowerment Fund

 

The mandate of the National Empowerment Fund (NEF) is to promote and facilitate the participation of black people in economic activities. Furthermore, the NEF encourages the creation of wealth for black people through the promotion of savings and investment.  This mandate is aligned to the country’s aim of promoting the participation of black people in the economy and creating jobs. 

 

The NEF achieves this mandate by giving financial and non-financial support to black empowered businesses. The NEF offers a range of products and services aimed at assisting black empowered businesses. These include financial support through various funds targeted at starting businesses, expansions and acquisitions; and non-financial support such as mentoring of small businesses, providing funding and business planning advice as well as risk monitoring for start-ups. 

 

5.4.1. Non- Financial Performance for the 2015/16 financial year

 

During the financial year under review (2015/16 financial year), NEF had 15 performance targets. Of the 15 targets 12 were achieved. This equates to 80 percent achievement of targets.

 

Table 13: Summary of the Non-financial Performance

Output	Number of measures per Output	Targets Achieve/ Exceeded	Targets Not Achieved/ partially achieved
Provide finance to business ventures established and managed by black people	3	3 (100%)	0
Invest in black empowered businesses that have high employment creating opportunities.	1	1 (100%)	0
Support the participation of black women in the economy	2	10 (0%)	2 (100%)
Facilitate investment across all provinces in South Africa	1	1 (100%)	0
The provision of non- financial support and training for black owned businesses and entrepreneurs	3	3 (100%)	0
Conduct investor education seminars in provincial towns and increase understanding by participants	1	1 (100%)	0
Establish the NEF as a sustainable Development Finance Institution.	4	3 (75%)	1 (25%)
TOTAL	15 (100%)	12 (80%)	3 (20%)

Source: National Empowerment Fund (2016a:45-46)

 

Among the targets that were not achieved were those that relate to the objective of “Supporting the participation of black women in the economy”.  

 

• Disbursements to portfolios owned by women was below the 40 percent targets at 29 percent for the financial year.
• Committed deals to businesses partially/ totally owned by women was below the 45 percent targets at 30 percent for the financial year.

 

 

 

 

Table 14: Fund performance for the 2015/16 financial year

Fund	Approvals	Commitments	Disbursements
iMbewu Fund (SME)	R255 million	R191 million	R177 million
Rural and Community Development Fund (Rural)	R88 million	R95 million	R54 million
uMnotho Fund Corporate Finance)	R355 million	R308 million	R285 million
Strategic Projects Fund (Venture Capital)	R121 million	R63 million	R86 million
Women Empowerment Fund	R252 million	R194 million	R196 million
Third Party Funding for Enterprise Development	R177 million	R177 million	R21 million
TOTAL	R1 248 million	R1 028 million	R819 million

Source: National Empowerment Fund (2016a:3)

 

5.4.2. Financial Performance for the 2015/16 financial year

 

The main sources of income for NEF are the interest income as well as the dividends. For the current financial year, total income reported was R590.5 million and was more than budgeted. This was mainly due to an increase in revenue earned as a result of the increased dividend income, especially on the MTN share portfolio; unconditional Enterprise Development Funds raised, as well as profit on partial disposal on shareholding in Busamed (a Strategic Projects Fund investment). 

 

In terms of expenses, compensation of employees comprised the largest share of expenses. Compensation of employees accounted for 67 percent (R159.9 million) of total expenses. However, this was R34.3 million less than budgeted because not all the budgeted posts were filled. 

 

There was an increase in impairment provisions during the financial year. Impairment provisions on investments increased by over 60 percent at R790.8 million in 2015/16 compared to R476.3 million in the 2014/15 financial year. The increase in impairments is attributed to harsh economic conditions that impacted on businesses during the year.  The NEF has however instituted various interventions which have resulted in impairment provisions being reduced by almost R200 million in the first half of the 2016/17 financial year.

 

By the end of the observed financial year (2015/16), the NEF’s total assets were R5.3 billion, approximately 10 percent less than the previous financial year. Total current liabilities amounted to R188.1 million for the financial year. 

 

5.4.3. Audit Outcomes

 

The NEF was audited by independent auditors, SizweNtsalubaGobodo Inc. For the 2015/16 financial year, the NEF received an unqualified audit opinion from its auditors with no matters of emphasis and/or additional matters. The independent auditors also established that there were no material findings in terms of the usefulness and reliability of the NEF’s performance reporting against its Annual Performance Plan.

 

5.4.4. Human Resources

 

The NEF’s structure allows for at least 195 employees. 183 posts were funded for the year under review. By the end of the 2015/16 financial year, 161 employees were employed. This number results in a relatively high vacancy rate. However, according to the NEF, it was still able to perform its functions.

 

Table 15: Human Resource Profile

Total Employment	161
Funded Posts	183
Vacancies	22 (12% vacancy rate)
% of Female employees	59%

Source: National Empowerment Fund (2016a)

 

 

 

 

5.4.5. Financial and non-financial performance as at end of June 2016 (First Quarter 2016/17 Financial Year)[11]

 

The NEF had 13 performance targets for the first quarter 2016/17 financial year. Of those targets 9 were achieved, representing 69 percent achievement on targets.

 

For the first quarter of the 2016/17 financial year, the entity’s budgeted revenue was approximately R88.4 million, however actual income more than budgeted at R97.7 million. Expenditure totalled R75.2 million. This results in NEF’s operating surplus of R 22 544 531 for the quarter.

 

In terms of expenses, compensation of employees comprised the largest share of expenses. Compensation of employees accounted for 44.3 percent (R33.3 million) of total expenses. However, this was R17.3 million less than budgeted because not all the budgeted posts were filled. Other main expenditure items included: professional fees, marketing costs, leasing costs, and administration costs projects.

 

There was an increase in impairment provision of R39.9 million during the quarter. Actual impairment was R23.8 million. This increases total impairment to R749 million resulting in an overall portfolio impairment ratio of 25 percent against a target of 18 percent.

 

5.4.6. Key issues raised by the committee

 

• The rationale behind the exclusion of certain provinces from the rural development project: The NEF informed the Committee that the Rural Development and Land Reform Fund was designed to promote sustainable change in social and economic relations and supporting the goals of growth and development in the rural and per-urban areas. The strategic and patriotic intent is to redress the past injustices and strengthening of relative rights of people working the land . The Department of Rural Development and Land Reform submitted a list of farmers who showed interest in off-loading 50percent of shares in their farms to rural communities that would allow for broader participation in economic activities.  This is a voluntary process but the NEF would be willing to assist farmers in the Mpumalanga and the Northern Cape to broaden economic activity of the rural community.

 

• The skewed allocation of resources and how the NEF seeks to address this anomaly: The NEF expressed their concern regarding the skewed allocation of resources. The CEO of the NEF informed the Committee that these processes were driven by provinces that work with potential entrepreneurs to drive economic transformation in a particular province. The NEF also identified opportunities in economically depressed areas. The NEF was of the view that Members of Parliament and of Provincial Legislatures should engage their local and provincial governments to ensure that it utilised the programmes of the NEF to accelerate economic transformation. 

 

• The NEF’s investment within the health sector: The NEF informed the Committee that they had entered the local private health-care sector by investing in black owned entities to dilute the dominance of the other players within the industry. This was in line with the organisation’s strategic decision to support black entrepreneurs in the early stages of business in key sectors. In line with the NEF’s support of government’s macro objectives, the NEF mentioned that in this instance it was supporting the Department of Health which had issued licenses to black doctors.  Busamed was amongst the first black-owned private hospital groups that received four commercial licenses from the Department of Health to provide health-care facilities in the Gauteng, Free State, and the Western Cape.
• Capitalisation of the current 25 strategic projects: The NEF informed the Committee that the projects were at various stages of development. The project lifecycle moves from scoping/conceptualisation, pre-feasibility, bankable feasibility, financial close and commercialisation stages. Some projects were at the feasibility stage whereas other projects had progressed to financial close. The NEF informed the Committee that they had the necessary funds for current projects to the extent to which they have been developed. However, funds were not available to proceed with all projects to financial close based on the current future equity rights of over R4 billion. If NEF was to be fully re-capitalised it would look at different funding structures to ensure that it funds as many projects as it can to financial close stage.

 

• The status of the recapitalisation process of the NEF: The NEF informed the Committee that the prospects for the recapitalisation of the National Empowerment Fund by the Industrial Development Corporation (IDC) looked positive. Negotiations between the Department of Trade and Industry and the Department of Economic Development had been ongoing and an agreement was reached for the IDC to proceed with the recapitalisation of R1billion. The NEF would eventually become a stand-alone subsidiary of the IDC.

 

• Concerns with respect to the high impairment level: The NEF informed the Committee that they were also concerned with the high impairment level but that it was also linked to the current macro-economic environment. The NEF had a number of initiatives/interventions in place to address this particular challenge such as balance sheet restructuring, equity and /or working capital injection, operational restructuring, the introduction of a strategic equity partner and / or turnaround specialist and business rescue for businesses that come under distress.

 

• Value for money with the investment in game farming: The NEF was of the opinion that if you have six beneficiaries for a R21 million investment it was one of the most equitable ways to ensure the broadening of ownership.  Ownership had increased but this process also had a multiplier effect to extend to additional beneficiaries linked to the six and other sectors in the economy.

5.5. South African Bureau of Standards

 

South African Bureau of Standards (SABS) is a statutory body that was initially established in terms of the Standards Act (No. 24 of 1945). Subsequently, there have been a number of legislative reforms and is now governed by the Standards Act (No. 8 of 2008). SABS is the national standardisation institution in South Africa. The SABS is mandated to:

 

·           Develop, promote and maintain South African National Standards (SANS) to promote access to markets; and advance the socio-economic well-being of South Africa in a global economy.

·           Promote quality in connection with commodities, products and services, such as in the localisation of production in support of government’s Industrial Policy Action Plan (IPAP) and enabling trade.

·           Render conformity assessment services and assist in matters connected with facilitating access to markets for South African industries by improving their competitiveness in the global environment.

 

The services provided by the SABS include:

 

• Development, maintenance and promotion of Standards for commodities; 
• Assurance, through management system certification schemes, on the effectiveness and validity of a client's management system(s) in terms of quality, safety and good governance;
• Third-party assurance of quality, safety and reliability of products, through product certification schemes (such as the SABS Mark), to the consumer. Products that have met requirements specified in South African National Standards are awarded the SABS Mark, which can be used to support claims of conformity to standards; and
• Testing on a wide spectrum of products across industry sectors and technologies at the SABS’s dedicated test laboratories, situated in Pretoria and at various strategic locations throughout South Africa. These services remain the most comprehensive offered by any single organisation in the southern African region;
• Third-party consignment inspection services to external purchasing bodies. This assists in their purchasing operations, including the production of item descriptions, the preparation of tender documents, the adjudication of contracts and the inspection of deliverables; and
• Developing and offering structured training courses for Standards and Specifications.
• Other services that the SABS provides to support socio-economic growth include: 
• The promotion of the value of design and innovation as a route to growing competitiveness in the economy, through the dissemination of Design knowledge and practice and the demonstration of success from the use of Design-based methods and intervention. This function is particularly focused on applying design tools to support the growth of the SMME sector and youth entrepreneurship to create jobs; and
• Appointment by government to conduct local content verification services in accordance with Preferential Procurement Policy Framework Act (PPPFA) regulations. This supports government policy to encourage industrial development through increased preferential procurement of products and services designated to be constituted of a specified amount of local content. 

 

 

 

 

5.5.1     Non-financial Performance for the 2015/16 Financial Year

 

SABS achieved 82 percent (9 out of 11) of pre-determined performance indicators. The SABS’ non-financial is depicted below.

 

Table 15: Summary of the Non-financial Performance

Output	Number of measures per Output	Targets Achieve/ Exceeded	Targets Not Achieved/ partially achieved
Growth: Increase the use of standardisation services by broadening the geographic   footprint, as well as the scope of services offered	4	4 (100%)	0 (0%)
Customer/Stakeholder: Put the customer at the forefront of everything SABS does.	2	1 (50%)	1 (50%)
Productivity: Improve the operational performance of the SABS to enable delivery of quality outputs for customers and the South African economy.	2	2 (100%)	0 (0%)
Competent and Empowered Employees: Develop and retain a competent workforce that is aligned with the organisation’s mandate.	3	2 (66.6%)	1 (33.3%)
TOTAL	11 (100%)	9 (82%)	2 (18%)

Source: South African Bureau of Standards (2016)

 

5.5.2. Financial Performance for the 2015/16 Financial Year

 

The entity’s income is acquired from commercial operations including Testing, Certification, Training, and Standards, as well as grant funding received from the Department of Trade and Industry (DTI). For the 2015/16 financial year, SABS’ revenue amounted to R815.7 million, of this amount R544.6 million is from commercial activities of the entity and R189.7 million from grant funding from the Department. The grant funding allocation for the SABS was reduced by R45 million for the 2015/2016 financial year.

 

This amount was below the budgeted amount of R821.4 million, approximately R5.6 million less. Income from services rendered was R77.9 million less than budgeted. Grant funding from the Department was R1.4 million less than budgeted. 

 

Table 16: Revenue Collection 2015/16 Financial Year

Income	Budget 2015/16 R'000	Actual Income R’000
Revenue from services	622 574	544 650
Other income	7 761	81 433
Government grants	191 101	189 663
TOTAL INCOME	821 436	815 746

Source: South African Bureau of Standards (2016)

 

Total expenditure amounted to R818.8 million. Expenditure was dominated by remuneration to employees which amounted to R500.4 million. Employee remuneration accounted for approximately 61percent of total expenditure. Other significant expenditures included;

 

• Contract services R47.4 million
• Travel expenditure R34.9 million
• Consulting and technical fees R24.0 million
• Advertising expenditure R9.9 million
• Repairs and maintenance expenditure R9.3 million

 

5.5.3. Human Resources

 

By the end of the 2015/16 financial year, 1 021 employees were employed. A total of 72 new employees were employed and 107 employees left (of which 52 left by resigning) the entity during the financial year. Other employees left the entity due to expiry of contract, dismissal, retirement, and ill health.

 

Employment profile targets are we follows:

 

§           Black (Africans, Coloured and Indian): 77 percent against a target of 79 percent;

§           Women (of all races): 43 percent against a target of 45 percent; and

§           Persons with disabilities: 2 percent against a target of 2 percent.

 

5.5.4. Audit Outcomes

 

The SABS has been audited by the Auditor General and it should be noted that the entity has maintained a clean audit for the past four years. For the 2015/16 financial year, the SABS received an unqualified audit with no findings (clean audit opinion). The Auditor General also established that there were no material findings in terms of the usefulness and reliability of the SABS’ performance reporting against its Annual Performance Plan. Furthermore, the Auditor General noted that there were no findings of irregular expenditure.

 

5.5.5. Financial and non-financial performance as at end of June 2016 (First Quarter 2016/17 Financial Year)[12]

 

According to the SABS’s first quarter report, SABS had 10 planned targets, only 2 were achieved (20 percent). 80 percent of the targets for the quarter were therefore not met.

 

Targets not met included:

·         A sector-specific publications was not produced as planned.

·         ToR for the selection of the vendor was not completed due to a change in approach to appoint a property advisor.

·         The Standards Action Plan  was not signed-off

·         The 30 percent  target to implement the Testing Action Plan was not met

·         The target for technical employees to complete specialist training with leading partners was not met, skills gaps are still being identified.

·         The target to recruit PhD and Masters graduated into the knowledge hub sectors in support of Testing and Standards Development was not met, the recruitment process is still underway.

·         Two (2) target on revenue generated were not met, revenue generated was less than generated due to a decrease in funding from the DTI and slow uptake of Local Content Verification.

5.5.6. Key issues by the committee

 

The following concerns were raised related to the performance of the SABS during the committee’s deliberations:

 

• Verification of local content: The Committee was concern about the challenges associated with the verification of local content. The question arose on whether a government agency should be responsible for verification of local content or whether the service could be outsourced to other verification agencies. Members asked what the challenges with local content verification were and whether the service can be outsourced to other verification agencies. Futhermore, the issue of who bears the cost of  local content verification, was still not resolved. The Committee was of the opinion that the DTI, together with the National Treasury, should find an amical solution. The Committee was of the opinion that the SABS should be the verification agent.

 

• Decline in the development of standards: The Committee Members raised concerns with regard to  the decline in the number of standards developed by the SABS. In response the SABS noted that in the past the target for developing 450 standards  per annum. This resulted in irrelevant standards being developed in order to  meet the target. A  decision was taken thatto only standards that are relevant and that support the Industrial Policy Action, would be developed. The SABS published a total of 221 standards in 2015/16 of which 107 were new and 114 were revised/amended. During standards systematic review process in 2015/16, a total of 584 standards were reaffirmed. 

 

• Voluntary nature of SABS testing and SABS mark: With regard to the voluntary nature of testing, the SABS informed the Committee that the SABS approval mark provides the guarantee and credibility for a particular product. A SABS approved product should be the preferred product for the consumer. The SABS informed the Commkittee , that it was not compulsory that products were tested. In cases where there had been an abuse of the SABS mark (used even though product was not SABS tested), companies were requested to rmove the mark, failure to do so would result in  legal action.

 

 

 

 

6. Conclusions

 

Based on its deliberations, the committee drew the following conclusions.

 

6.1. The DTI is on a the correct path with the implementation ot its strategic objectives such as the creating an inclusive economy through job creation, and the development of the productive sectors of the economy.

 

6.2 The Committee welcomed the DTI and its entities achievements, particularly with the reduced financial resources for some entities.

 

6.3  The Committee acknowledged the improved financial and non-financial performance of the DTI and its entities as expressed by the Auditor-General, however the Committee should continue to strengthen its oversight functions over entities that that were facing challenges. The DTI and some of its entities received an unqualified report, but noted that the NRCS remained the only entity to receive a qualified audit opinion. The committee noted that the qualified audit opinion received by the NRCS was of a technical nature as it relates to levy collection, however, the Committee emphasised the need for this to be speedily addressed.

 

6.4  The Committee welcomed the work of the NRCS in terms of improving the time it takes to issue Letters of Authority, in particular the risk based approach. However, the Committee cautioned that this approach should not compromise the safety of South African citizens in relation to imports with technical requirements and compulsory specifications.  

 

6.5  The NCC plays an important role in ensuring that consumer rights were effectively protected. For some time the entity has experienced a skills gap within the organisation hindered it from achieving its mandate despite a number of training initiatives. The Committee encouraged the NCC to address its skills gap and place qualified people in the right positions.

 

6.6  The Committee welcomed the progress made by the CIPC to stabilise its labour relations. The Committee, however, raised concerns with a number of critical posts which were vacant, particularly those in senior management. 

 

6.7  The Committee welcomed the report on progress made in relation to Credit Life Insurance Caps. 

 

6.8  The Committee noted the impact that MCEP targets that were not met had on the overall performance of the Department. The Committee noted that the process for securing alternative funding for an incentive programme to replace MCEP was still ongoing.

 

6.9  The Committee noted the global demand and price increase impacted on the local steel industry. Mechanisms to address these challenges should be considered as this had a negative impact on the industrialisation drive.

 

6.10        The Committee raised concerns with NEF’s high impairment rate of 26 percent and acknowledges that it was a result of the current difficult economic conditions that were prevailing in the country.

 

6.11     The Committee welcomed progress made in terms of recapitalisation of the NEF. However, noted that it was  critical that the process is concluded to ensure that projects that had already been identified do not become unfunded.

 

6.12     The Committee welcomed the work done by the SABS, particularly on the verification of local content. However, the Committee raised concerns with this continuing being an unfunded mandate.

 

6.13     The Committee acknowledged the internal challenges faced by the economy; however, emphasised that the impact of global economic factors continue to have an adverse impact country’s economic performance. The Committee reiterated that measures introduced through the nine-point plant to address the internal challenges facing the economy should continue being implemented.

 

7.     Appreciation

 

The committee would like to thank the Minister of Trade and Industry, Dr R Davies, and the Director-General, Mr L October, the Group Chief Operating Officer, Ms J Scholtz, the Parliamentary Liason officer, Ms Saroj Naidoo, and all other senior managers of the DTI, as well as the entities and their management, for their cooperation and transparency during this process. The committee also wishes to thank its support staff in particular the committee secretaries, Mr A Hermans and Mr T Madima, the content advisor, Ms M Sheldon, the researcher, Ms Z Madalane, the committee assistant, Mr D Woodington, and the executive secretary, Ms T Macanda, for their professional support and conscientious commitment and dedication to their work.  The Chairperson wishes to thank all Members of the committee for their active participation during the process of engagement and deliberations and their constructive recommendations reflected in this report.

 

8.     Recommendations

 

Informed by its deliberations, the committee recommends that the House requests that the Minister of Trade and Industry should consider:

 

1. Reviewing the effectiveness of the Department and its entities plans and programmes to ensure the acceleration of industrialisation and job creation.

 

1. Additional funding for the NCC in the outer of years of the Medium Term Expenditure Framework to address its capacity constraints.

 

 

Report to be considered.

 

 

 

 

References

 

Auditor-General of South Africa (2016) Trade and Industry Portfolio.

 

Companies and Intellectual Property Commission (2016a) CIPC Annual Report 2015/16.

 

Companies and Intellectual Property Commission (2016b) CIPC First Quarter Performance Report 2016/17.

 

Department of Trade and Industry (2015) Annual Performance Plan 2015/16.

 

Department of Trade and Industry (2016a) Annual Report 2015/16.

 

Department of Trade and Industry (2016a) Presentation on the Annual Report 2015/16 to Portfolio Committee on Trade and Industry. Parliament: Cape Town, 13 September.

 

Department of Trade and Industry (2016b) First Quarter Performance Report 2016/17.

 

National Consumer Commission (2016a) Annual Report 2015/16.

 

National Consumer Commission (2016b) First Quarter Performance Report 2016/17.

 

National Empowerment Fund (2016a) Annual Report 2015/16.

 

National Empowerment Fund (2016b) First Quarter Performance Report 2016/17.

 

South African Bureau of Standards (2016a) Annual Report 2015/16.

 

South African Bureau of Standards (2016b) First Quarter Performance Report 2016/17.

 

National Regulator for Compulsory Specifications (2016) Annual Report 2015/16.

 

National Regulator for Compulsory Specifications (2016b) First Quarter Performance Report 2016/17.

 

Portfolio Committee on Trade and Industry (2015) Budgetary Review and Recommendation Report of the Portfolio Committee on Trade and Industry, dated 20 October 2015.

 

Portfolio Committee on Trade and Industry (2016a) Report of the Portfolio Committee on Trade and Industry on Budget Vote 34: Trade and Industry, dated 19 April 2016.

 

 

 

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[1] Department of Trade and Idnustry (2015b)

[2] Portfolio Committee on Trade and Industry (2015)

[3] Portfolio Committee on Trade and Industry (2016a)

[4] Previously known as the National Lotteries Board.

[5] Small Enterprise Development Agency moved to the Small Business Development Department.

[6] Department of Trade and Industry (2016b)

[7] CIPC (2016:67)

[8] Companies and Intellectual Property Commission (2016b)

[9] National Consumer Commission (2016b)

[10] National Regulator for Compulsory Specifications (2016b)

[11] National Empowerment Fund (2016b)

[12] South African Bureau of Standards (2016b)