ATC170523: Report of the Portfolio Committee on Economic Development on Budget Vote 25 and Annual Performance Plans of the Economic Development Department and its entities for the 2015-16/2019-20 Medium Term Expenditure Framework period, dated 23 May 2017
Economic Development
Report of the Portfolio Committee on Economic Development on Budget Vote 25 and Annual Performance Plans of the Economic Development Department and its entities for the 2015-16/2019-20 Medium Term Expenditure Framework period, dated 23 May 2017.
The Portfolio Committee on Economic Development, having considered Budget Vote 25, the Strategic Plans (2015/16 – 2019/20) and the Annual Performance Plans (2017/18) of the Economic Development Department and its entities, reports as follows:
- INTRODUCTION
The Portfolio Committee on Economic Development (the Committee) analysed the Strategic Plans, Annual Performance Plans (APPs) and the budgets of the Department and its four (4) entities on 03 and 09 May 2017. 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 engagements was to assess and analyse the Strategic Plans, APPs and budgets of the Department with a view of ensuring that there is alignment of reporting between the Strategic Plans, APPs and budgets. The Annual Performance Plan, the third of a standing five-year strategic plan, sets annual targets and aims to enhance implementation and accountability.
These important annual engagements take place in the context of a particularly challenging economic period for most parts of the world, but especially for South Africa. The global community continues to strive for improved economic conditions to benefit the majority of the world, both in developed and developing economies. The ratings downgrades of the country by two of the world’s ratings agencies put South Africa in a unique economic position for the first time since the advent of democracy. It implores the country to rethink the way of doing things as it seeks to march on towards full economic recovery, and thus avoiding a situation whereby the efforts to eradicate poverty, inequality and unemployment are derailed. Great efforts in the implementation of sound economic policies will be central going forward, and the Committee exercises its oversight role with this context in mind.
Our government has over time developed tools and instruments to tackle the challenges faced. These include the National Development Plan (NDP), the New Growth Path (NGP) (led by the Economic Development Department), the National Industrial Policy Framework and many others linked to them, all with a view of securing a better future for our land. These must be pursued by all so as to achieve a common goal of bettering the lives of our people, and more so the conveyance of a better South Africa for inheritance to future generations. The long term vision must always guide us in our individual and collective efforts for improved conditions.
The Economic Development Department has a crucial role to play in the economic activities of the country, especially the interpretation and implementation of the objectives of the instruments mentioned above. It has the responsibility to coordinate the formulation of cross sector policy programmes that will seek to improve the social capital of marginalised groups. It oversees the public financing institutions that fully participate in the new growth path and development. The policies led by the Department must also play a role in the creation of employment as per the call of the NDP, ensure a higher rate of investment, and the coordination of a more efficient and competitive infrastructure, amongst the many responsibilities. Similarly, together with partners in government and the private sector, it must ensure the development of a prosperous and balanced regional economy in Southern Africa and the continent, based on the principles of equity and mutual benefit.
The Committee will continue to play its role of ensuring vigorous oversight, and will give legislative support to the Department where necessary. This report outlines the nature of the engagements that took place on 03 and 09 May 2017, on the diverse issues affecting our economy, and the possible solutions that will be explored by the Department for the remainder of the Medium Term Expenditure Framework (MTEF).
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 ECONOMIC DEVELOPMENT DEPARTMENT
- BACKGROUND
The core mandate of the Department are to identify priorities for job creation, inclusive growth and industrialisation. Further to support the alignment of the state around implementation, oversee and provide strategic direction to development finance institutions, as well as the provision of strategic direction on competition policy and trade administrative matters through oversight of regulatory bodies.
The Department of Economic Development is responsible for monitoring and implementation of the action plans on the various job drivers in the New Growth Path (NGP). EDD is a key Department for the following outcomes of the Medium Term Strategic Framework;
- Outcome 4: Decent Employment through Inclusive Growth.
- Outcome 5: A skilled and capable workforce to support an inclusive growth path
- Outcome 6: An efficient, competitive and responsive economic infrastructure network
- Outcome 7: Vibrant, equitable, sustainable rural communities contributing towards food security for all
The Department provides technical support to the Presidential Infrastructure Coordinating Commission (PICC), whose Secretariat is chaired by the Minister of Economic Development. The Department plays an important role in the implementation of the Nine Point Plan of the State of the Nation Address. The priority areas of the plan are as follows:
- Resolving the energy challenges
- Revitalising the agriculture and agro-processing value chain
- Advancing beneficiation and adding value to mineral wealth
- More effective implementation of IPAP
- Encouraging private sector investment
- Moderating workplace conflict
- Unlocking potential of SMMEs, co-operatives, township and rural enterprises
- Cross cutting areas to reform, boost and diversify the economy, such as the water and sanitation infrastructure
- Growing the ocean economy and tourism
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 section16 (2008) section 16 as promulgated on 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 by-laws
The Department facilitated the signing of 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.
- 2014 – 2019 STATEGIC PLAN OF THE ECONOMIC DEVELOPMENT DEPARTMENT
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. The Department’s Strategic Objectives are the following;
|
PROGRAMMES |
STRATEGIC OBJECTIVES |
|
Programme 1: Administration |
|
|
Programme 2: Growth Path & Social Dialogue |
|
|
|
|
Programme 3: Investment, Competition & Trade
|
|
|
|
|
4. POLICY PRIORITIES FOR 2017/18
The 2017 State of the Nation Address’ (SONA’s) main economic theme was radical economic transformation for opening up the economy and giving black people opportunities to participate effectively in the country’s economy.
The ultimate goal of the envisaged economic transformation is a competitive and inclusive economy. This goal ties in well with the Department of Economic Development’s mandate of promoting the creation of decent employment and inclusive growth, in particular through the work of the competition authorities.
In the 2017 Budget Review, National Treasury noted that barriers to inclusive growth and broad-based transformation should be broken through the de-concentration of the highly concentrated industries and those dominated by a few, accelerating the inclusion of millions of black South Africans into jobs and businesses, and returning to a path of rising per capita incomes for all.
According to National Treasury these obstacles can be overcome through the National Development Plan goals of;
- Improving education and skills development, starting with a more effective basic education and early childhood development sector.
- Strengthening competition laws to address skewed ownership and control, which is a barrier to business entry and the expansion of key markets that are essential for job creation.
- Increasing private-sector participation in sectors dominated by public enterprises, and ensuring that effective regulatory authorities curb the power of monopolies.
- Providing support and incentives for labour-intensive sectors, including agriculture, agro-processing and tourism.
- Overcoming the spatial fragmentation of South Africa’s cities, so that people have easier access to jobs and infrastructure.
4.1 Amendments to Legislation
During discussions with the International Trade Administration Commission (ITAC), the Competition Commission and the Department on their 2016/17 APPs, there were indications of possible amendments to their respective legislation.
- ITAC reported that it will make submissions to the Department on the possible changes to the International Trade Administration (ITA) Act No. 71 of 2002.
- Amendments to the Competition Act No. 89 of 1998.
In addition, ITAC was still waiting on the Department to fill the Deputy Commissioner’s post which has been vacant for years (+/- 4 years).
4.2 NEF to be incorporated into IDC to guarantee funding for black entrepreneurs
The Ministers of Trade and Industry and of Economic Development announced that the National Empowerment Fund (NEF) will become a wholly-owned subsidiary of the Industrial Development Corporation (IDC) to help meet the considerable demand for funding by Black entrepreneurs.
In response the Department of Trade and Industry and EDD will appoint a technical team to expedite the finalisation of the process. The Minister of Trade and Industry will continue to provide legislative and policy guidance to the NEF.
- THE BUDGET OF THE DEPARTMENT AND ITS ANNUAL PERFORMANCE PLAN FOR 2017/18
The Department implements the aspirations of the National Development Plan, New Growth Path, Nine Point Plan, key focus areas and its objectives using three programmes namely Administration, Growth Path and Social Dialogue; and Investment Competition and Trade. See Table below.
Table: Linking programmes with performance goals and budget
|
PROGRAMMES |
STRATEGIC OBJECTIVES |
KEY PERFORMANCE INDICATOR & PRODUCTS/OUTPUTS |
|
Programme 1: Administration Budget : R80.7 m |
|
2 KPIs (2 Products/) |
|
Programme 2: Growth Path & Social Dialogue Budget: R35.6 m
|
|
3 KPIs (18 Products) |
|
3 KPIs (7 Products) |
|
|
Programme 3: Investment, Competition & Trade Budget: R681 m
|
|
6KPIs (114 Products) |
|
4KPIs (13 products) |
|
|
4KPIs (13 products) |
|
|
Total |
|
23 KPIs (180 products/outputs) |
5.1 DEPARTMENTAL BUDGET
The Department is expected to implement its plan and achieve its goals using funds that have been appropriated by National Treasury. According to National Treasury, for the 2017/18 financial year, the national budget is R1.56 trillion. Of that amount, the Department has been allocated R797.3 million or 0.05 per cent of the national budget. This is an increase of R131.3 million compared to the 2016/17 departmental budget of R666 million.
The increase is reflected in the budget growth of the Growth Path and Social Dialogue; and Investment Competition and Trade programmes. Between the 2015/16 and the current financial year, the Growth Path and Social Dialogue Programme’s budget increased by R4.6 million or by 14 per cent nominally, from R31 million in 2016/17 to R35.6 million in the current financial year. According to National Treasury, the increase will finance the implementation of the Youth Employment Accord.
The Investment Competition and Trade programme saw the largest budget increase of R134.1 million or 24.5 per cent in nominal terms. According to Treasury, the increase in the budget is due to the following:
- Additional funding of R150.4 million to the Competition Commission for capacity building,
- R45 million for the Industrial Development Corporation for the Presidential Infrastructure Coordinating Commission’s technical unit and technical project management team,
- R95 million for the establishment of the Steel Development Fund.
The amount allocated to the Administration programme however decreased by R7.4 million compared to the 2016/17 appropriation. This is in part due to reductions in the Department’s goods and services, mainly in the travel and subsistence and the compensation of employees’ budgets.
Table: Budget Allocation by Programme
|
Programme |
Budget |
Nominal Rand change |
Real Rand change |
Nominal % change |
Real % change |
|||
|
R million |
2016/17 |
2017/18 |
2018/19 |
2019/20 |
2016/17-2017/18 |
2016/17-2017/18 |
||
|
Programme 1: Administration |
88,1 |
80,7 |
79,4 |
84,6 |
- 7,4 |
- 12,2 |
-8,40 per cent |
-13,83 per cent |
|
Programme 2: Growth Path and Social Dialogue |
31,0 |
35,6 |
39,6 |
42,4 |
4,6 |
2,5 |
14,84 per cent |
8,03 per cent |
|
Programme 3: Investment Competition and Trade |
546,9 |
681,0 |
725,8 |
777,2 |
134,1 |
93,7 |
24,52 per cent |
17,14 per cent |
|
TOTAL |
666,0 |
797,3 |
844,8 |
904,2 |
131,3 |
84,0 |
19,71 per cent |
12,62 per cent |
Source: Economic Development Department
In drafting the 2017/18 Annual Performance Plan, the Department took the following into consideration;
- The Department sought to improve the quality of some of its products and avoid work aimed simply at meeting targets rather than changing the lives of South Africans.
- The Department’s Key Performance Indicators used terms such as “initiatives” and “engagements” to describe outputs. This made it difficult for the Auditor General to assess whether the activity had taken place.
- The APP is presented within an unpredictable economic environment which requires some flexibility in the crafting of Key Performance Indicators.
To address the abovementioned concerns, in the current financial year’s Annual Performance Plan, the Department is seeking effective ways to improve its performance. As a result, the Department has prioritised the following;
- Making SMART use of resources to attain maximum value for money
- Enhancing coordination and partnerships in the State including EDD drawing on resources across the public sector to help achieve its goals (e.g. MOU with Wits and UJ)
- Improving partnerships with the business community and organised labour
- Having a strong focus on economic transformation through our work and our KPIs
- KEY PERFORMANCE AREAS FOR 2017/18
The following are the Key Performance Areas on which the budget for 2017/18 will be spent.
|
Key Performance Indicators |
Output |
|
Unqualified Audit Opinion |
|
Level two obtained for G&A by MPAT |
|
4 Reports |
|
4 Reports |
|
2 Reports |
|
3 Reports |
|
10 Reports |
|
2 Reports |
|
64 Reports |
|
8 Action minutes |
|
4 Action minutes |
|
30 Records of meetings |
|
4 Records of Co-ordination actions |
|
4 Reports |
|
14 Action minutes |
|
3 Reports |
|
4 Reports |
|
4 Records of engagement |
|
1 Action minute |
|
2 Action minutes |
|
4 Reports |
|
2 Action minutes |
|
5 Records of engagements |
- COMMITTEE OBSERVATIONS
Key issues and observations raised by the committee during its deliberations:
During its deliberations, the committee raised questions relating to the following;
- The Department undertaking additional work given its human resource capacity constraints:
The number of KPIs has increased from 164 in 2015/16 to 170 in 2016/17 reaching 183 in the current financial year and about 100 reports need to be produced by the end of the financial year. Meanwhile, the number of funded posts filled, have been decreasing gradually from 140 in 2015/16, to 129 in 2016/17 down to an estimated 127 in 2017/18. The Department reported that EDD will be capacitated through Memoranda of Understanding with universities, establishing Ministerial Expert Panels and other innovative ways of involving experts who wish to positively contribute to national interests.
- Strategies to be implemented to counter the negative impact of the ratings agency downgrades on the core work of the Department:
Since the tabling of the 2016/17 Annual Performance Plan South Africa has been downgraded by a number of ratings agencies to non-investment grade. The Department stated that the downgrades will negatively affect the economy. The Department added that there is a need to map a road back to investment grade.
- Delays in amending the International Trade Administration (ITA) Act No.71 of 2002.
Despite the ever-changing economic and global trade environment, the ITA Act, has never been amended. Plans have been underway to start the process of amending the legislation however nothing concrete has come before Parliament as yet. The Department stated that amending certain parts of the ITA Act has implications for other Southern African Customs Union (SACU) member countries. ITAC was not ready to come forward with the amendments in previous years but expects to be able to do so in the current financial year.
- Furnishing the Committee with more information on the amendments to the Competition law.
The Competition Commission alluded to a need to amend the Competition Act No. 89 of 1998 to make it possible to implement the criminalisation clauses of the Competition Amendment Act No.1 of 2009. The Department reported that there were no technical changes to be made per se, but an announcement was imminent in this regard.
- Whether the Steel Development Fund is intended to facilitate the entry of new players or to strengthen the existing capacity in the Steel industry.
For the current financial year, Cabinet approved R95 million for the Steel Development Fund. The aim of the Fund is boost the competitiveness of foundries and steel fabricators. The Industrial Development Corporation will be responsible for administering the Fund. The Department reported that the Fund was intended to do both, to facilitate the entry of new players or to strengthen the existing capacity. More detail will be shared in the Department’s Budget Vote speech.
- Clarity on the Broad Based Black Economic Empowerment (B-BBEE) Facilitator Status granted to the IDC.
The B-BBEE Facilitator Status was granted to the IDC by the Department of Trade and Industry. The aim is to promote economic empowerment as part of IDC’s mandate. The Department added that the facilitator status recognises the IDC as B-BBEE compliant. Because the IDC is a state owned entity, the status further deems it to be a B-BBEE company equivalent for procurement purposes.
- Impact and progress made since 2009 in developing the rural and remote areas of the country.
In 2009, the Department of Rural Development and Land Reform (DRDLR) was introduced as a champion for rural transformation. EDD reported that from its vantage point, government has not fully achieved its goals for economic development in a number of rural areas, particularly the ex-homelands areas. The Department has found that the challenges in terms of urbanisation and spatial development require a better planning framework for the country and it is proving to be a lot more complex than initially anticipated.
- RECOMMENDATIONS
The Department should;
- Provide quarterly updates to the Committee, on progress in respect of the following staff related matters;
- The filling of all posts in which staff are in acting positions, in particular that of the Accounting Officer. The Committee notes that the last fully-appointed Director-General of the Department left before the 2015/16 financial year.
- The implementation of the MOUs and Ministerial Expert Panels and other strategies for acquiring the requisite skills for the Department.
- The reviewing of organisational structure
- Drafting of the Employee Retention Strategy
- Ensure that the post of ITAC’s Deputy Chief Commissioner is filled without further delay and the Department report to the Committee on progress in its Third Quarter Performance Report.
- Work with other entities to speed up the process of mapping of the road back to investment grade.
- Brief the Committee on the steps taken and timeframes for drafting of the amendments to the ITA Act.
- Provide the Committee with quarterly updates on the Steel Development Fund and on the developments in the competitiveness of the Steel industry in general.
- Ensure that the process to incorporate the National Empowerment Fund into the IDC is such that it broadens the organisation’s capacity and reach, so as to empower emerging, especially black, entrepreneurs.
- Report on the effectiveness of the B-BBEE status on the IDC’s operations annually.
- Report on progress made in addressing spatial development and urbanisation challenges in the country.
- Report on a quarterly basis, on the impact of the efforts to ensure alignment and integration of economic priorities at all spheres of government, particularly at provincial and municipal levels.
PART B: THE ENTITIES
- INDUSTRIAL DEVELOPMENT CORPORATION (IDC)
Established in 1940, the IDC has been instrumental in implementing the country’s industrial policy, establishing some of the industries that are today cornerstones of South Africa’s manufacturing sector. Over its 75 years of existence, the IDC has driven growth by building partnerships, providing funding and other forms of support to companies and ensuring their long-term sustainability.
The Corporation reports that its priorities are aligned with government’s priorities of job creation, reducing inequalities and contributing to economic transformation. For the 2016/17 financial year, the IDC began the implementation of an internal restructuring initiative called Project Evolve. The IDC reports that the restructuring process, under new business heads, has grouped industries into related sectors. The aim is to ensure that the IDC is more effective in funding those sectors that will have the most beneficial effects on the economy.
In terms of Project Evolve priority industries have been classified into the following;
- Value Chains – Metals, Chemicals and pharmaceuticals, Agro-processing and Agriculture
- New Industries – Forward looking and innovation sectors,
- Special high Impact sectors – Entertainment and clothing and textiles
- High Impact Sectors – sectors which contribute to development goals
- Industrial Infrastructure – utilities sector i.e. electricity, water and telecommunications and logistics.
- IDC 2016/17-2020/21 CORPORATE PLAN
The IDC has 5 new key focus areas, namely;
1. Response to current operating environment:
- Providing support to companies in distress
- Supporting sectors with immediate impact on job creation
- Sector specific interventions for sectors significantly affected by operating environment
2. Project Evolve implementation
- Value chains/priority sectors strategies & key initiatives/projects
- Development Impact
3. Financial sustainability
- Improve collections, manage impairments, more appropriate pricing, strengthen planning, optimise portfolio, more optimal products, and increased leveraging of outside funds
4. Subsidiaries management
- More proactive engagements, monitoring and reporting, deploying IDC resources and services, formal management performance reviews
5. Organisational culture and capabilities
- Build the appropriate internal environment and more focussed development of human capital
- Governance and regulatory matters.
- Further improve governance by implementation of conflict of interest policies, strengthening fraud and corruption prevention strategies, risk management, and increased transparency
The IDC’s main target is to approve R100 billion in loans over the next five years.
The IDC reports that it had anticipated the ratings downgrades and had in place strategies to respond. In planning the strategy and although the negatives are acknowledged, the corporation sees some opportunities (positives) that could arise out of the situation, that is:
1. Price performance of listed shares could improve as a result of weaker rand and commodity prices.
2. Export focused business partners are likely to benefit from a weaker exchange rate.
3. There could also be investment opportunities for import replacement
Table: IDC Strategy Pillars
|
Increasing Industrial Development Impact |
Ensuring Long-Term Sustainability |
|
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Financial Capital |
Human, Social, Natural and Manufactured Capital |
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|
|
Human resources
Stakeholders
Natural environment
Utilisation of resources
|
- BUDGET AND FORECASTS
1.2.1 Key Financial Implications (IDC Mini-Group)
|
R million |
Baseline |
Target |
|
|
Cash flows |
2017/18 to 2021/22 |
||
|
Advances (R'm) |
96 605 |
122 838 |
|
|
External funds raised (R'm) |
57 686 |
61 886 |
|
|
of which foreign borrowings |
6 186 |
6 186 |
|
|
Proceeds from sale of shares |
16 100 |
29 459 |
|
|
Balance sheet |
end-2021/22 |
||
|
Financing at market values (R'm) |
173 718 |
184 223 |
|
|
Borrowings (R'm) |
63 646 |
67 846 |
|
|
Debt/equity (%) |
59% |
59% |
|
|
Impairments as % of portfolio at cost |
18.2% |
18.7% |
|
|
Impairments as % of portfolio at market values |
13.4% |
13.7% |
|
|
Income statement |
Five years from 2017/18 to 2021/22 |
||
|
Dividend income |
19 341 |
19 330 |
|
|
Interest and fee income |
30 773 |
33 523 |
|
|
Borrowing costs |
16 089 |
17 897 |
|
|
Impairments and bad debt write-offs |
19 015 |
24 447 |
|
|
Net operating income before capital realisations |
5 960 |
3 083 |
|
Net approvals increased by 26% year-on-year to a record level of R14.5 billion in 2015/16, as well disbursements by 4.6% year-on-year to R11.4 billion. The Industrial Development Corporation reported a profit amounting to R223 million in 2016. It was significantly low in comparison to the previous financial years’. IDC’s profits dropped by 87% from R1.65 billion in 2014/15 to R223 million in 2015/16. The Steel producer Scaw Metals, which is 74% owned by the IDC, recorded losses of R1.1 billion, while the agrochemicals group Foskor, which is 59% owned by the IDC posted a R568 million loss.
The impairment charge of R3.6 billion to the income statement for the year ended 31 March 2016 was double the figure for 2015. The impairment ratio as a percentage of IDC’s book at market value increased significantly from 8.8% to 10.1%.
1.2.2 Disbursement Targets vs. Borrowings
|
Borrowing sources |
Budgeted Borrowings for FY 2016/17 |
Actual Borrowings (01 April 2016 to 31 January 2017) |
Budgeted Borrowings for FY 2017/18 |
|
(R' millions) |
|||
|
Domestic borrowings |
8 775 |
8 062 |
6 578 |
|
Public bonds |
2 900 |
722 |
2 000 |
|
Bank loans |
3 875 |
6 340 |
2 578 |
|
Private placements bonds |
2 000 |
1 000 |
2 000 |
|
Foreign borrowings |
4 098 |
2 558 |
4 385 |
|
DFI’s/ Multilateral agencies |
1 142 |
280 |
2 310 |
|
Bank loans and other |
2 956 |
2 278 |
2 075 |
|
Total borrowings |
12 873 |
10 620 |
|
- COMMITTEE OBSERVATIONS
The following were observations and/or concerns made by the Committee:
- The lack of progress made on issues of localisation – including the lack of requisite skills, willingness and preparedness of industries;
- Transparency in the selection processes will be of importance to the Black Industrialist Programme, as will the need for wider geographical inclusiveness.
- Ensuring sustainable job creation in negotiated deals with foreign investors;
- The provision of equitable funding and support to all provinces.
- RECOMMENDATIONS
Following the deliberations, Portfolio Committee on Economic Development recommends that the Executive Authority and Accounting Officer (s) ensure that:
- The Corporation’s investment strategy puts more emphasis on local procurement of renewable energy and automotive materials, amongst others, so that the MTSF target of 75 per cent local procurement be reached by 2019. Equally, the strategy must ensure that local jobs are promoted so as to achieve the National Development Plan’s goals on creation. Attention must be given to the BAIC project in Port Elizabeth in both these cases.
- A monitoring strategy is developed to ensure that the Black Industrialists Programme is inclusive enough to reduce income inequalities in the country.
- The corporation increases investments in tourism infrastructure to support and increase the impact of the country’s tourism industry.
- The IDC’s debt to equity ratio is maintained at a sustainable level, taking its development mandate into account;
- The Corporation increases its presence and funding support in the various provinces, as well strengthen its business support unit to cover these areas. Emphasis is made on increased presence and support in rural provinces, particularly the Free State and North West provinces.
- THE COMPETITION COMMISSION
The Competition Commission was established in terms of the Competition Act No. 89 of 1998, as an investigative and enforcement agency. It is vested with powers to investigate and control restrictive business practices, abuse of dominance and mergers in order to achieve equity and efficiency in the South African Economy.
The Competition Commission consists of the Commissioner and one or more Deputy Commissioners, appointed by the Minister of Economic Development. The Commissioner, is the Chief Executive Officer of the Competition Commission and is responsible for the general administration of the Commission and for carrying out any function assigned to it in terms of the Act. The Commissioner is appointed for a five-year term and is accountable to the Minister of Economic Development and Parliament. The Deputy Commissioner, assists the Commissioner in carrying out the functions of the Commission. The Commission is made up of seven divisions, namely:
- Enforcement & Exemptions
- Mergers & Acquisitions
- Advocacy and Stakeholder Relations
- Legal Services
- Policy & Research
- Corporate Services
- Cartels
4.1 STRATEGIC GOALS
The Commission has three strategic goals for the 2015-2020 period. These are;
- Effective enforcement and merger control
- Efficient and effective merger regulation.
- Competitive markets through action against cartels and abuse of dominance.
- Improved public interest outcomes in markets (relating to jobs, industrialisation, exports, development of black-owned businesses and SMMEs.
- Increased competition compliance.
- Improved understanding of market dynamics in priority sectors.
- Strategic Collaboration and Advocacy
- Improved co-ordination on the application of economic policy and competition policy.
- Recognition of developmental perspectives in domestic and international competition law discourse.
- Improved compliance and awareness.
- High-performance Agency
- Improved organisational efficiency.
- Accountably managed resources.
- Highly motivated and productive people.
4.2 Alignment to Government Outcomes
The Commission’s strategic response to Government’s policies and planning outcomes during the period 2015-2020 includes the following:
- Considering socio-economic outcomes in case analysis, particularly in cases which have a large impact on the price of goods, public access to resources and market entry for small firms and historically disadvantaged individuals;
- Designing conditions and remedies which address employment, market concentration and other socio-economic challenges, and monitoring compliance thereof;
- Expanding the opportunities for South African participation in world markets, in line with the promotion of economic growth through the use of enforcement, exemptions and merger instruments;
- Continued advocacy and enforcement in regulated sectors to drive competitive conduct;
- The Commission’s selection of its priority sectors to include those with high-growth and jobs potential;
- Considering the linkages between trade policy and competition policy in its work. This includes ensuring alignment of the Commission’s priority sectors to IPAP-designated sectors and pursuing Market Inquires in economically-strategic sectors;
- Collaborations and partnerships to be pursued with other state actors on economic policy;
- Continued advocacy and training work with municipalities, trade unions and the general public, particularly on bid-rigging and competition awareness.
4.3 ANNUAL PLANS FOR 2017/18
Key features of the 2017/18 APP are reported as follows:
- Consolidation of decision to improve efficiencies internally:
- Cradle-to-grave principle in case management;
- Investments in ICT for an integrated IT and Knowledge Management system.
- Phasing in of new Organisational Structure within costs:
- Creation of Advocacy division;
- New capacity for Market Inquiries;
- Strategic remodelling of the “Screening Unit”;
- Increasing overall capacity in terms of seniority in order to reduce outsourcing.
- Implementation of Criminalization provisions:
- Focus on capacity-building internally, and collaborating with other entities.
The annual review of priority sectors was undertaken, and the following remain prioritised for enforcement and advocacy for 2017/18:
- Food & Agro Processing- entire value chain (production, processing, distribution and retail).
- Intermediate Industrial Input Products- inputs into strategic manufacturing products such as steel, chemicals and fertilizers.
- Construction & Infrastructure- includes construction products & services and transport & logistics (movement of goods & products).
- Healthcare- entire value chain, including services and pharmaceutical market.
- Energy- includes markets related to Electricity, Renewables, LPG (industrial and domestic usage), Nuclear and Fuel.
- Banking & Financial Services- entire sector, including industries such as Insurance and Retail & Corporate banking activities.
- Information & Communication Technology- includes telecoms services and products, including markets related to inter-connection.
Enforcement and Advocacy
Cartel Investigations
- The Commission will continue to intensify its cartel enforcement and will build on successes from the past financial year.
- 14 Cartel initiations are planned for 2017/18.
- The Commission aims to complete at least 75% of the cases under investigation within 12 months.
- Over 60 cartel cases are on the current Tribunal litigation roll, all at various stages of the process.
Abuse of Dominance Investigations
- The Commission will build on successes achieved in 2016/17 in Abuse of Dominance.
- The Commission aims to complete 65% of investigations within 24 months.
- There are several on-going abuse of dominance investigations in priority sectors.
- Furthermore, 3 new cases in priority sectors will be initiated during 2017/18.
Merger Investigations
- The volume of mergers notified has been on the increase in the past 4 years but efficiency targets upheld.
- The Commission aims to have at least 75% of merger decisions upheld before the courts.
New Market Inquiries
- Public Transport
- The Commission is launching a market inquiry into Public Transport during 2017/18.
- Terms of Reference will be issued for public comments in June/July.
- Retail Sector
- The inquiry is currently underway and due for completion in the financial year.
- Stakeholder activations have been undertaken in townships in Cape Town, Durban and Johannesburg. The first set of Public Hearings is due to take place during the year.
Previous Market Inquiries
- Private Healthcare
- Currently underway with the Inquiry due for completion by end of the year.
- Liquid Petroleum Gas
- Handed over a final report to the Minister of EDD, who has since tabled it to Parliament.
- The Commission will follow up to ensure that recommendations are implemented.
- BUDGET
The Mergers & Acquisitions, Enforcement & Exemptions, Cartels, Legal Services and Policy & Research are the core programmes directly involved with the implementation of the Competition Act. Nonetheless, support activities such as Administration spend more than 80% of their resources offering support to the core activities. The following table summarises the projected expenditure per division.
Source: Competition Commission Annual Performance Plan
The financial resources have been allocated to ensure that the Commission could focus on the identified strategic areas. As is customary, financial revisions are done during the financial year, and any adjustments are effected accordingly.
- COMMITTEE OBSERVATIONS
The following were observations and/or concerns made by the Committee:
- The need to review the organisational structure of the Commission;
- The need to ensure transformation in the field of competition law;
- Sustainability of the costly nature of market inquiries.
- RECOMMENDATIONS
Following the deliberations, the Portfolio Committee on Economic Development recommends that the Executive Authority and Accounting Officer (s) ensure that:
- The review of the organisational structure at the Commission is supported and prioritised as the work of the organisation increases;
- The Commission utilises the allocated funds to speed up the training and up skilling of existing personnel, the recruitment of requisite skills, so that the need for outsourcing is phased out eventually. The Commission must report on progress in this regard, by-annually.
- Cost containment measures are in place when undertaking market inquiries so that they remain sustainable and beneficial to the South African economy.
- The Commission collaborates with other regulators in the various sectors to ensure that small- and medium-sized enterprises have an equitable opportunity to participate in the economy.
- The Commission continues with its commendable outreach plans to schools and universities in efforts to reach the previously disadvantaged, and encourage their entry into the field of competition law.
- Bursaries and scholarships are made available to deserving students, especially in the previously disadvantaged institutions of higher learning, with the intention to recruit them on successful completion of their studies.
The Committee noted that processes are underway to consult stakeholders on the amendments of the Competition Act. The amendments will be crucial in supporting the challenging work of the Commission, especially in such areas as the abuse of dominance. The Committee will await a timely report from the Minister in this regard.
- COMPETITION TRIBUNAL
The Competition Tribunal adjudicates competition matters, in accordance with the act and has jurisdiction throughout South Africa. It is independent and subject to the constitution and the law. It must be impartial and perform its functions without fear, favour or prejudice. When a matter is referred to it in terms of the act the tribunal must:
- Adjudicate complaints of prohibited conduct (Restrictive practice, Abuse of dominance)
- Impose a remedy
- Award costs
- Grant an order for interim relief
- Authorize or prohibit a large merger
- Adjudicate appeals from Commission's decisions on:
- Intermediate mergers
- Exemption.
7.1 STRATEGIC FOCUS
The Competition Tribunal has three broad strategic objectives, namely;
- Ensuring effective and efficient adjudication:
The Tribunal reports that matters brought before Tribunal were heard within adopted delivery time frames; which saw the expeditious conclusion of hearings, and an improved management of Information. On Large, Intermediate and smaller Merger Targets, 75% was the proportion of large mergers to be set down within 10 business days of filing (Merger Target).
- Building and developing effective stakeholder relationships:
Includes having 75% of final merger decisions to be issued to the press within two business days of the order date, and 100% of the final prohibited practice decisions to be issued to the press within two business days of the order date. This objective also constituted of revamping the website; publishing an online magazine, and the releasing of an in-house newsletter, all of which required regular commitment.
- Adherence to good corporate governance and sound business practice: translates to the maintenance of an unqualified audit outcome year on year
The Competition Tribunal reported that it would benefit for the amendments to the Competition Act, 1998 (Act No. 89 of 1998) and the Competition Amendment Act, 2009 (Act No. 1 of 2009), whose review process have been put in place by the Executive Authority.
7.2 Alignment of Tribunal’s strategic objectives National Strategic Outcomes (NSO) as follows
NSO 4: Decent employment through inclusive growth
NSO 6: Efficient, competitive and responsive infrastructure network
NSO 12: Efficient, effective and development orientated public service and an empowered, fair and inclusive citizenship.
7.3 FINANCIAL OVERVIEW
The table below present’s the Competition Tribunal’s financial overview per Strategic Objective:
|
Category |
Objective |
Amount |
|
Timeous hearings and issuing of judgements |
Adjudication process |
R23 310 151.72 |
|
Effective business processes |
Adjudication process |
R2 346 999.58 |
|
Stakeholder awareness |
Effective Stakeholder Communication |
R1 152 965.92 |
|
Effective oversight and governance |
Accountable, transparent and sustainable entity |
R3 841 871.41 |
|
Effective financial management |
Accountable, transparent and sustainable entity |
R2 159 152.62 |
|
Sustainable capacity |
Accountable, transparent and sustainable entity |
R3 039 301.35 |
|
Administration (incl. depreciation) |
R10 543 015.66 |
|
|
Administrating the Competition Appeal Court |
R628 913.45 |
|
|
Capital expenditure |
R1 184 098.32 |
|
|
TOTAL BUDGET |
R48 206 470.03 |
Source: Competition Tribunal
- COMMITTEE OBSERVATIONS
The following observations were made:
- The Committee acknowledges the filling of key posts, especially those of the two new panel members in the Deputy Chairperson Mr E Daniels, and part-time member Professor H Cheadle. The Committee congratulates the two commissioners and wishes them well in the execution of their duties.
- There is a need for the creation of new posts in the Tribunal, so as to keep up with the increasing workload of the organisation.
- The need to ensure transformation in the field of competition law.
- RECOMMENDATIONS
Following the deliberations, Portfolio Committee on Economic Development recommends that the Executive Authority and Accounting Officer (s) ensure that:
- Review the functioning and/or structure of the Tribunal (which may include the creation of new posts) so as to address capacity constraints, considering especially, the increasing workload of the Tribunal and the provisions of the Competition Act. A progress report must be submitted to the Committee on a six-monthly basis.
- The Tribunal continues with its commendable outreach plans to schools and universities in efforts to reach the previously disadvantaged, and encourage their entry into the field of competition law.
- Bursaries and scholarships are made available to deserving students, especially in the previously disadvantaged institutions of higher learning, with the intention to recruit them on successful completion of their studies.
- As part of efforts to transform the field, the Tribunal is advised to review its language policy on its external publications.
- THE INTERNATIONAL TRADE ADMINISTRATION COMMISSION (ITAC)
The International Trade Administration Commission (ITAC) is a schedule 3A Public Entity. It was established in terms of the International Trade Administration (ITA) Act, No 71 of 2002, and came into force on 1 June 2003. ITAC replaced its predecessor, the Board of Tariffs and Trade (BTT) which was established in 1986. The predecessor of the BTT is the Board on Trade and Industries (BTI) which dated back to 1924. The aim of ITAC, as stated in the Act, is to;
- Foster economic growth and development in order to raise incomes;
- Promote investment and employment in South Africa; and
- Promote investment and employment within the Common Customs Union Area by establishing an efficient and effective system for the administration of international trade subject to this Act and the Southern African Customs Union (SACU) Agreement.
The core functions of ITAC are:
- Customs tariff investigations;
- Trade remedies; and
- Import and export control.
ITAC used to fall within the purview of the Department of Trade and Industry which is for trade and industrial policy. The administration of the ITA Act was transferred to the Minister of Economic Development (Policy and Oversight) in 2009, except for decision making powers on individual tariff and trade remedy investigations that have been retained by the Minister of Trade and Industry. ITAC now accounts to EDD on policy matters but the DTI considers recommendations on tariff applications.
The Commission is constituted of 2 Full- time Commissioners (Chief Commissioner and Deputy Chief Commissioner – the latter remains vacant). The Chief Commissioner is supported by ten part-time Commissioners. There are four Senior Managers (Technical Advisory Services, Legal Services, Internal Audit and Policy and Research) one Chief Economist (Trade and Economic Analysis) and one General Manager (Corporate Services) who report directly to the Chief Commissioner.
There are various units within ITAC; the Tariff Investigations Unit, (tariff investigations are divided into two groups: agro-processing, chemicals, textiles, clothing and footwear), and motors, metals and machinery, Trade Remedies Unit and; Import and Export Control Unit.
These three units have managers, senior investigators, investigators, administrators and secretaries. At the end of March 2015 ITAC had a staff compliment: 125 - Core business: 70; Support services: 55 and 11 contract employees.
10.1 STRATEGIC OBJECTIVES
The organisation’s Key Strategic Objectives are:
- Ensure contribution to employment creating growth and development through effective delivery of international trade instruments;
- Ensure strategic alignment and continued relevance with the Economic Development Department and national agenda;
- Ensure organisational efficiency and effectiveness of ITAC.
The following are the priority projects for the 2017/18 financial year:
- ITA Amendment Bill;
- Review of AD Regulations;
- Strengthening Reciprocal Commitments;
- Impact Assessments;
- Review of Safeguard Guidelines in line with the EPA and
- Impact study on the Price Preference System
10.2 KEY HIGHLIGHTS OF THE 2017/18 ANNUAL PERFOMANCE PLAN
The following are key highlights of the update reports of Annual Performance Plan for the period:
- Trade Remedy Investigations: There are three trade remedy instruments: anti-dumping duties, countervailing duties, and safeguard measures. Of these three, anti-dumping is the most frequently invoked, both globally and in South Africa.
- Update on Steel Investigations:
- In the year 2015 ITAC conducted ten investigations to increase Most Favoured Nation (MFN) tariffs rates from zero to 10% based on applications by AMSA and one additional investigation by Evraz Highveld Steel and Vanadium.
- The ten tariff investigations in respect of AMSA covered:
- galvanised/coated and painted steel; tin plate; wire rod; rebar; semi-finished products of iron or non-alloy steel; steel plate; cold rolled; sections; other bars and rods; and hot rolled.
- The one tariff investigation with regards to Evraz was on structural steel.
- Two safeguard investigations were initiated on Hot Rolled & Cold Rolled steel.
- On 22 August 2016 an investigation was self-initiated by ITAC to look at a possible increase in tariffs on a number of downstream products.
- These investigations take place in the context of tough global and domestic economic conditions that have seen ITAC having to exercise flexibility and pragmatism in response to real economic needs.
- The guiding principle in these investigations has been to ensure economic viability, sustainability of production, investment and jobs in the whole steel industry value chain. In other words SA needs both the upstream and the downstream.
- Steel Committee
The Minister of Economic Development established the Committee of the Commission on Steel in terms of section 14 of the ITA Act, 2002, on 10 June 2016. The purpose is to monitor the impact of changes in import tariffs; reciprocal commitments made by the applicants; jobs in the whole value chain; and import and export trends. The Committee makes recommendations to the Commission. The Committee’s membership constitutes the commissioners and industry representatives. The Department of Trade and Industry and EDD officials attend and participate in the Committee. It is only the component of Commissioners that has decision-making powers. The Committee has been established for a period of five years.
The Committee shall report to the Commission at least by-annually and its first report to the Commission was made in December 2016.Its first meeting was held on 20th June 2016 in which among others presentations were made by the primary industry (and downstream and the second meeting was held on 28th July in which presentations were made by NUMSA and Solidarity and continues to meet and engage all the relevant stakeholders.
- Poultry Tariff Regime: Import Tariffs on poultry meat were increased towards the end of 2013.The increases were based on an application brought by SAPA on behalf of: Rainbow Farms Ltd; Astral Operations Ltd; Sovereign Food Investments Ltd; AFGRI Poultry Ltd; and Supreme Poultry Ltd (Country Bird Holdings).
- Import and Export Control: Minerals beneficiation has been identified as one of the areas where jobs will be created and this has meant an alignment of ITAC’s export control measures to give support to beneficiation.
- Impact Assessments: To ensure continued relevance and alignment to both the dti and EDD, the Commission has begun to gauge the performance of the beneficiaries of its instruments against the policy objectives set out in the National Growth Path, Industrial Policy Action Plan as well as the Trade Policy Strategic Framework.
- Judicial Reviews: In respect of court cases, ITAC appeared in domestic courts 28 times (High, Supreme and Constitutional courts) since its establishment in 2003.Out of the 28 cases, 20 were ruled in favour and 8 against ITAC (the eight were mostly in the early days of ITAC).
- BUDGET
Over the past years ITAC’s total expenditure has been steadily rising against the total revenue. During the 2014 MTEF allocations, ITAC’s baseline budget for 2015/16 and 2016/17 financial years was reduced by R4.8 million and R7.3 million respectively, a total reduction amounting to R12.3 million. The shortfall caused by that reduction was financed from ITAC’s accumulated surpluses, which as at the end of the 15/16 financial year was R19.9 million. The remaining accumulated surplus amount is expected be fully utilised by the end of the 2017/18 financial year.
- COMMITTEE OBSERVATIONS
The following observations were made:
- The filling of key posts, especially that of Deputy Chief Commissioner,
- The further acquisition of the necessary expertise to support the increasing workload of the organisation.
- The need for further engagement on the impact of the Price Preference System (PPS).
- RECOMMENDATIONS
Following the deliberations, Portfolio Committee on Economic Development recommends that the Executive Authority and Accounting Officer (s) ensure that:
- Reasonable progress is made with regards to the review of the organisation’s human resource structure, so as to cater for the increasing demands of the organisation’s work.
- The review of the Safeguard Guidelines in line with the relevant Economic Partnership Agreements (EPAs) and the impact study on the Price Preference System is prioritised so as to ensure certainty in the sector. Progress reports must be sent to the Committee on a quarterly basis.
- Begin the process of designing mechanisms for the monitoring of all reciprocal commitments made in the steel and other industries.
- CONCLUSION
The Portfolio Committee would like to thank Minister Patel and Deputy Minister Masuku; former Directors-General, the current Acting Director-General Mr. Malcolm Simpson and the staff at the Department; the collective leadership of the entities in particular the board and Chief Executive Officer of the IDC for their sterling work, the Chairpersons, Chief Commissioners (their deputies and commissioners) of the competition authorities and ITAC, for their efforts in accelerating economic transformation for the betterment of the lives of our people.
The Committee thus recommends, that the National Assembly approves the following:
- The implementation of the Strategic Plan and APP (2015/16 – 2019/20) of both the Economic Development Department and the entities
- The budget as allocated and;
- The observations and recommendations of the Committee.
Report to be considered.
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