ATC201120: Budgetary Review and Recommendation Report of the Portfolio Committee on Trade and Industry, dated 19 November 2020

Trade and Industry

Budgetary Review and Recommendation Report of the Portfolio Committee on Trade and Industry, dated 19 November 2020

 

The Portfolio Committee on Trade and Industry, having assessed the service delivery performance of the Departments of Trade and Industry (DTI) and of Economic Development (EDD), against its mandate and allocated resources, namely the financial and non-financial resources for the period 1 April 2019 to 31 March 2020; as well as for the Department of Trade, Industry and Competition (DTIC) for the period 1 April to 30 June 2020, reports as follows:

 

  1. Introduction

 

In 2019, the President, Mr M C Ramaphosa, announced the reconfiguration of government to promote coherence, better coordination and improve efficiency. This included a merger between the Ministries of Trade and Industry and of Economic Development. The President also recognised the structural challenges facing the economy, and that significant structural change would be required to address these challenges. He emphasised the need for a clear focus on the productive sectors of the economy, which falls within the mandate of the newly configured DTIC. This would also cover “economic transformation and job creation” and contributing towards “a better Africa and world”[1].

 

Subsequently, the world has experienced the impact of the global coronavirus (COVID-19) pandemic. This has negatively impacted on global economic growth, livelihoods and trade, as most countries had to implement some form of a lockdown to curb the rapid spread of the virus. This also included measures to mitigate against its socio-economic impact. The global pandemic started to impact the South African economy in January, as trading partners were closing their borders and this culminated in the domestic lockdown since 26 March 2020.

 

This Budget Review and Recommendation (BRR) Reportcovers the reconfiguration period from 1 April 2019 to June 2020, as well as the impact of the COVID-19 pandemic from January to June 2020. The merger between the two Departments has been effective from 1 April 2020. The pandemic has added to the fiscal constraint, which requires government to relook at how it prioritised its budgetary allocations to ensure value for money. In this regard, the DTIC’s budget allocation for the 2020/21 financial year had been reduced from R11,08 billion to R9,31 billion in July 2020.

 

During this period, there has been a focus on industrialisation including local public procurement, localisation and the development and implementation of the new Masterplans. Furthermore, parliamentary oversight has been strengthened over the National Regulator for Compulsory Specifications (NRCS) and the South African Bureau of Standards (SABS). This has been necessitated due to the need to monitor the implementation process of their turnaround strategies.

 

  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 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 power 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 DTI, the EDD, and the newly configured DTIC, as well as its entities, are adequately funded to fulfil their respective mandates.

 

  1. Purpose of the BRR Report

The purpose of this report is to analyse the annual financial and non-financial performance of the DTI and the EDD for the 2019/20 financial year, and for the first quarter of the 2020/21 financial year for the DTIC, against predetermined objectives to inform recommendations for their forward-looking budgets. This report assesses performance for the 2019/20 financial year, and the first three months of the 2020/21 financial year, namely from 1 April 2019 to 30 June 2020 within the context of the three-year Medium-Term Expenditure Framework.

 

  1. Method

The Committee met with the Office of the Auditor-General (AG) on 10 November 2020 to discuss the audit outcomes for the 2019/20 financial year. The Committee was also briefed by the DTI and the EDD on their 2019/20 annual reports and by the DTIC on its performance for the first quarter of the 2020/21 financial year. These meetings were held on 6 October and 10 November 2020.

 

  1. Limitations of the report

The BRR Report is intended to cover an 18-month period including the previous financial year’s annual report and the first six months (April to September) of the current financial year. Due to the timing of the BRR Report, second quarter financial and non-financial information were not available. The key challenge was that the DTIC and its entities were still in the process of compiling the preliminary performance information, which must be submitted to the Department of Planning, Monitoring and Evaluation (DPME) and the National Treasury by the end of October. The verified information would only be available in January of the following year. Therefore, the report has only captured performance up to the first quarter of the 2020/21 financial year.

 

  1. Outline of the contents of the report

This BRR Report consists of the introduction (Section 1) and four parts. Section 1 briefly provides an overview of 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.

 

Part A focuses on the assessment of the DTI and the EDD respectively for the 2019/20 financial year. Sections 2 provides a summary of the key financial and non-financial performance recommendations of the Committee as captured in its previous BRR Report. Section 3 set out the key policy focus areas for the DTI. This includes an overview of their strategic objectives and mandate and an assessment of its financial and non-financial performance against its vote allocation from 1 April 2019 to 31 March 2020, as well as the audit findings and human resource management, for the period ending 31 March 2020. Likewise, Section 4 does this for the EDD for the 2019/20 financial year.

 

Part B considers the financial and non-financial performance of the newly configured DTIC for the period ending 30 June 2020 under section 5. Then Part C (section 6) outlines key issues raised by the Committee during its deliberations with the departments.

 

Part D consists of Sections 7 to 9. Section 7 provides the Committee’s concluding remarks followed by a note of appreciation in Section 8. Section 9 then concludes with the Committee’s recommendations for the National Assembly’s approval.

 

 

PART A: FINANCIAL AND NON-FINANCIAL PERFORMANCE OF THE DEPARTMENTS OF TRADE AND INDUSTRY AND OF ECONOMIC DEVELOPMENT FOR THE 2019/20 FINANCIAL YEAR

 

  1. SUMMARY OF PREVIOUS KEY FINANCIAL AND PERFORMANCE RECOMMENDATIONS OF THE COMMITTEE

 

  1. 2019 BRR Report recommendations

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

2.1.1  Engaging the Minister of Finance, to coordinate the monitoring and enforcement of local content requirements as underpinned by the Preferential Public Procurement Framework Act.

2.1.2  Submitting the final reports on the forensic investigations undertaken by the National Regulator for Compulsory Specifications and the South African Bureau of Standards once these are completed.

2.1.3  Increasing the allocation to incentive programmes to facilitate deeper industrialisation, investment, industrial decentralisation and increased job opportunities.

2.1.4  Increasing the government grant to the South African Bureau of Standards to facilitate small, medium and micro enterprises support and local content verification in the outer years of the Medium-Term Expenditure Framework.

2.1.5  Assisting the National Regulator for Compulsory Specifications with its procurement process to implement the Information and Communication Technology modernisation project.”[2]

 

 

  1. Department of Trade and Industry

 

  1. Overview of the key relevant policy focus areas

 

  1. Strategic objectives

The DTI’s strategic objectives, which guide its work, are as follows:

  • Facilitating transformation of the economy to promote industrial development, investment, competitiveness, and employment creation;
  • 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;
  • Creating a fair regulatory environment that enables investment, trade and enterprise development in an equitable and socially responsible manner; and
  • Promoting a professional, ethical, dynamic, competitive and customer-focused working environment that ensures effective and efficient service delivery.[3]

 

In terms of its core functions, the DTI was responsible for overseeing 13 listed entities and administering 43 Acts[4]. These entities can be divided into three categories according to the type of work they perform, namely the development finance institutions (DFIs), the regulatory entities, and the technical infrastructure institutions (see table 1).

 

In addition to overseeing the DTI, the Committee oversees these entities, as a number of the DTI’s strategic objectives were implemented through these entities.

 

The Broad-based Black Economic Empowerment (B-BBEE) Commission is an entity under the administration of the DTI. During the financial year, the DTI had, however, indicated that the Commission had been intended to be an independently listed entity. During the 2018/19 financial year, the DTI, the B-BBEE Commission and the National Treasury had entered into negotiations to make the Commission a separate entity. However, this was not possible without an amendment to the B-BBEE Act (No. 53 of 2003).

 

Table 1: List of entities reporting to the DTI

Development Finance Institutions

 

Regulatory Entities

 

Technical Infrastructure Institutions

  • Export Credit Insurance Corporation of South Africa
  • National Empowerment Fund
 
  • Company and Intellectual Property Commission
  • Companies Tribunal
  • National Consumer Commission
  • National Credit Regulator
  • National Consumer Tribunal
  •  National Gambling Board of South Africa
  • National Lotteries Commission

 

  • National Metrology Institute of South Africa
  • National Regulator for Compulsory Specifications
  • South African Bureau of Standards 
  • South African National Accreditation System

 

  1. Overview and Assessment of the Financial and Non-Financial Performance for the Period 1 April 2019 to 31 March 2020

This section provides a comparison between what the DTI targeted in its Annual Performance Plan (APP) against its performance set out in the Annual Report for the 2019/20 financial year. It then provides an overview of the AG’s audit outcomes.

 

  1. Non-financial performance

For the financial year under review, the DTI had 25 performance targets. The Department achieved 17 performance targets while eight had not been achieved. This translates to 68% achievement of its planned targets for the financial year. This is significantly less than the previous financial year (2018/19) when 88% of the targets had been achieved. In this regard, six of the eight programmes had targets that had not been achieved, and only the Administration Programme, and the International Trade and Economic Development Programme had achieved 100% performance. Furthermore, in Programme 7 (Trade Investment South Africa) and Programme 8 (Investment South Africa), none of the targets had been achieved.

 

Shown in the table below is the summary of the performance of the DTI for the 2019/20 financial year. The table also provides a comparison of the performance for the 2018/19 and the 2019/20 financial years.

 

 

 

 

 

 

Table 2: Summary of 2019/20Performance Indicators per Programme

Programme

Performance targets

Achieved

 

Achievement comparison with 2018/19

1

Administration

4

4 (100%)

 

4 (100%)

2

International Trade and Economic Development

4

4 (100%)

 

3 (100%)

3

Special Economic Zones and Economic Transformation

4

3 (75%)

 

3 (75%)

4

Industrial Development

3

1 (33.3%)

 

2 (66.6%)

5

Consumer and Corporate Regulation

3

2 (66.6%)

 

3 (100%)

6

Incentive Development and Administration

4

3 (75%)

 

3 (75%)

7

Trade Investment South Africa

2

0 (0%)

 

2 (100%)

8

Investment South Africa

1

0 (0%)

 

1 (100%)

 

Total all Programmes 2018/19

25 (100%)

17 (68%)

 

21 (88%)

Source:DTI (2019band 2020).

 

With 68% (17 targets of 25 targets) of the targets achieved, 98,9% (R9,97 billion) of the budget was spent for the financial year. Shown in the table below are the achieved targets against the budget spent per programme.

 

  1. Administration

This programme had 4 targets, all of which had been achieved and exceeded. The four targets and actual achievement were as follows:

  • Actual staff turnover was 3% against a target of 6,8%. The DTI stated that the targets had been overachieved because of the tough economic times in the country and the high levels of unemployment; therefore, most employees remained in their current positions including at the DTI. 
  • Actual employment of people with disabilities was 3,9% against a target of 3,7% of employees.
  • Actual achievement of 54% of women employed in senior managementpositions against a target of 50%.
  • 57% of 21 811 payments had been processed within 15 days and the remaining 43% had been processed within 30 days against a target of 100% payment of eligible creditors processed within 30 days.

 

  1. International Trade and Economic Development

Under this Programme, all four performance targets had been achieved. The targets had been:

  • Two status reports produced on progress for the Tripartite-Free Trade Agreement negotiations,
  • Four status reports produced on progress of African Continental Free Trade Area (AfCFTA) negotiations,
  • Two reports on implementation of Southern African Development Community-European Union (EU) Economic Partnership Agreement(EPA), and
  • Sixteen status reports produced on engagements in Global Fora.

 

  1. Special Economic Zones and Economic Transformation

In this Programme, there had been four targets, of which three had been achieved. The three targets that had been achieved were:

  • The submission of two Special Economic Zones (SEZs) to the Minister for designation,
  • The submission of two implementation reports on the Industrial Parks to the Minister, and
  • The submission of two implementation reports on the B-BBEE Amendment Act and Regulations to the Minister.

 

The target that had not been achieved was in respect of non-financial support interventions to support black industrialists in the Industrial Policy Action Plan (IPAP) Sectors. The target had been 80 interventions; however, the DTI had only achieved 67 interventions. According to the DTI, the target had not been achieved because planned meetings, an outbound Trade Mission to Tanzania, and Supplier Day session that had been planned for the fourth quarter of the financial year had been cancelled or postponed to the following financial year due to the global Covid-19 pandemic outbreak.

 

  1. Industrial Development

Only one of the three targets had been achieved under this Programme.The target that had been achieved and exceeded was in respect of the designation of products for local procurement. A total of four designation requests for products had been prepared, namely for: plastic pipes and fittings products; bulk materials handling (conveyor system equipment); ester oil; and instrument transformers.

 

The targets that had not been achieved were both related to the IPAP, the tabling of the 2020/21 IPAP and the submission of implementation reports for the IPAP. The targets were not achieved because during the financial year the DTI changed the policy direction in line with the change in administration. The new policy direction changed the implementation of the industrial strategy through the IPAP to a re-imagined industrial strategy through masterplans. As a result, during the financial year, the DTI led the development of four masterplans, namely for the: Automotive;Retail-Clothing, Textile, Leather and Footwear(CTFL); Poultry; and Sugar industries. Three masterplans had been finalised, with the Sugar Masterplan being finalised after March 2020.

 

  1. Consumer and Corporate Regulation

Under this programme, two of the three targets had been achieved. The two targets that had been achieved were:

  • The development of four progress reports on the development of the Companies Amendment Bill for the Minister’s approval, and
  • The number of education and awareness workshops conducted on policies and legislation and a report produced for the Minister’s approval. The DTI had exceeded the target of 24 workshops and had conducted 27 workshops.

 

The target on the Socio-Economic Impact Assessment System (SEIAS) report for the Companies Amendment Bill had not been achieved. The DTI stated, “The revised SEIAS report could not be submitted to DPME for certification and submission to Minister for introduction into Parliament due to delays in the NEDLAC[5] process that commenced in June 2019”[6].

 

  1. Incentive Development and Administration

This is the DTI’s largest programme, it accounts for 58,9% of the total budget allocation. In this programme, there were four targets and three had been achieved. The targets that had been achieved were:

  • A target of R18 billion of projected investments to be leveraged from projects/enterprises approved had been exceeded and R32 billion had been leveraged.
  • A target of 8 000 new jobs supported from enterprises approved had been exceeded and 18 258 new jobs had been supported, as the DTI approved projects had been both capital and labour intensive.
  • A target of 10 000 jobs retained from approved enterprises and projects had been exceeded and a total of 24 257 jobs had been retained

 

However, the target to approve 900 enterprises/projects for financial support across all incentives had not been achieved. About 512 enterprises/projects had been approved.

 

  1. Trade Investment South Africa

In this Programme, there had been two targets, none of which had been achieved. These targets were:

  • The generation of R4,25 billion in export sales. Export sales had not been achieved due to the lockdown as a result of the global Covid-19 pandemic. For the financial year, R2,67 billion in export sales had been generated.
  • The assistance of 864 companies under Export Marketing and Investment Assistance in support of value-added exports. The DTI had only supported 828 companies.

 

  1. Investment South Africa

Under this Programme, there had been one target. That target had been the facilitation of R50 billion in investment projects in the pipeline. However, by the end of the financial year, merely R220,9million worth of investment had been facilitated.

 

  1. Financial performance

The DTI’s budget/appropriation had been R10,08 billion for the 2019/20 financial year. By the end of the financial year, the DTI had spent 98,9% of its budget or R9,9 billion. This was consistent with the performance of the DTI in the previous financial year, wherein 99,6% of the budget had been spent. In terms of programmes, there had been under-expenditure in all programmes.

 

Table 3: Expenditure by Programme

Programmes (R’000)

Final budget

Expenditure

Expenditure (%)

Variance (%)

Administration

824 760

807 745

97,94%

2,06%

International Trade and Economic Development

125 082

124 332

99,40%

0,60%

Special Economic Zones and Economic Transformation

165 289

156 299

94,56%

5,44%

Industrial Development

2 091 561

2 076 606

99,29%

0,71%

Consumer and Corporate Regulation

336 215

329 908

98,12%

1,88%

Industrial Development Administration

5 937 323

5 902 927

99,42%

0,58%

Trade and Investment South Africa

538 303

505 655

93,94%

6,06%

Investment South Africa

66 194

66 131

99,90%

0,10%

TOTAL

10 084 727

9 969 603

98,86%

1,14%

Source: DTI (2020: 126)

 

The DTI attributed the under-expenditure to the following[7]:

  • The global outbreak of COVID-19 which affected a number of the DTI’s activities including trade export missions and pavilions that had been planned for the last quarter and could not take place; international events and fora in the areas of trade and investment that had been cancelled; investment milestones by companies had been delayed due to capital equipment that was ordered from abroad; delivery of Information and Communication Technology equipment which had been scheduled to be delivered in March 2020; and delays in receiving vouchers from the foreign offices (the DTI has employees in different countries) for expenditure;
  • Vacant positions that had not been filled due to the merger process with the EDD, hence underspending on compensation of employees; and
  • The delay in listing the B-BBEE Commission impacted the implementation of certain projects leading to underspending in Programme 3.

 

Unspent funds had been 1,14% of the total budget, which was R115,1 million. The main programmes that had significant underspending were the Incentive Development and Administration Programme with R34,3 million underspending, the Trade and Investment South Africa Programme with R32,6 million, and R14,9 million in the Industrial Development Programme.

 

  1. Expenditure by category

Expenditure by economic classification is detailed in the table below.According to the economic classification, the expenditure comprises mainly of transfers and subsidies (transfers to DTI entities, transfers to public entities and international organisation, and incentives). Compensation to employees accounted for approximately 10% of the total budget. This bodes well for service delivery as the largest share of the budget is channelled towards implementation, which takes place mainly within entities of the DTI. While this is positive, it should be noted that most of the DTI entities are driven by human capital (in other words, the implementation of their mandates are labour intensive), therefore, the compensation of employees accounts for a large share of some entities’ budgets.

 

 

 

 

 

 

 

Table 4: Expenditure by Economic Classification

Economic Classification (R’000)

Final Budget

Expenditure

Expenditure (%)

Variance (%)

Current payments

1 766 109

1 684 266

  1.  
  1.  

Compensation of employees

1 046 769

  •  
  1.  
  1.  

Goods and services

719 340

689 048

  1.  
  1.  

Transfers and subsidies

8 286 660

8 259 002

  1.  
  1.  

Public corporations and private enterprises

7 368 639

7 344 131

  1.  
  1.  

Departmental agencies and accounts

701 201

701 201

100,00%

0,00%

Non-profit institutions

178 897

178 897

100,00%

0,00%

Foreign governments and international organisations

32 667

29 646

  1.  
  1.  

Households

  •  
  •  

97,55%

  1.  

Payments for capital assets

17 435

11 815

  1.  
  1.  

Payments for financial assets

14 523

14 520

99,98%

  1.  

Total

10 084 727

9 969 603

  1.  
  1.  

Source: DTI (2020: 190)

 

There had been significant under-expenditure on the compensation of employees; goods and services, and transfers and subsidies to public corporations and private enterprises. On goods and services, an underspending of 4,2% (approximately R30,3 million) was reported. This had been as a result of the global outbreak of COVID-19 which affected a number of the DTI’s activities as discussed above, and late receipt of vouchers from the foreign offices for expenditure. In addition, the delay in listing the B-BBEE Commission affected the implementation of certain projects.

 

  1. Audit outcomes

The AG annually conducts an audit assessment of the DTI’s financial and non-financial performance reporting. In terms of its non-financial performance, Programme 6, Incentive Development and Administration, had been assessed to determine whether their reported performance information was useful and reliable. The outcome of this assessment had been that the AG “did not identify any material findings on the usefulness and reliability of the selected programmes”[8].

 

In terms of the DTI’s financial reporting, the AG noted that the DTI had obtained a clean audit report. No irregular or fruitless and wasteful expenditure had been incurred during the financial year.

 

  1. Human resources

As at 31 March 2020, the DTI had a staff complement of 1 153 employees compared to an approved structure of 1 228 posts, as well as an additional 57 employees. This represented a vacancy rate of 6,1%.

 

In terms of employment equity, 93,5% of employees had been black, 59,4% had beenfemale and 3,9% had beenpeople with disabilities (47 employees). At senior management service level, 87,3% had beenblack and 54% had beenfemale.

 

Table 5: Employment equity breakdown as at 31 March 2020

Racial Breakdown

Male

Female

Total

African

412

592

1 004

Coloured

34

31

65

Indian

19

43

62

White

26

53

79

Total

491

719

1 210

Source: DTI (2020: 103)

 

During the financial year, there had been 31 appointments in critical positions and 93 terminations. The reasons for the terminations had been three deaths, 40 resignations, 30 contracts expired, two discharges due to ill health, six employees retired, 11 employees were transferred to other public service departments and one employee took early retirement.

 

There had been 45 disciplinary actions taken during the 2019/20 financial year. The majority of cases had been related to non-disclosure of financial interests (24 cases). There had also been three cases of alleged fraud and four cases of fraud. The outcomes of the disciplinary actions had been four verbal warnings, four written warnings and 21 final written warnings. Furthermore, in 16 disciplinary cases, two cases had been withdrawn and 14 disciplinary cases had still been pending.

 

 

 

  1. Economic Development Department

 

  1. Overview of the key relevant policy focus areas

The EDD’s strategic objectives, which guide its work, were as follows[9]:

  • Ensuring good governance in the administration of the Department;
  • Coordinating jobs drivers and the implementation of the New Growth Path (NGP) economic strategy in support of the National Development Plan;
  • Facilitating social dialogue and the implementation of social accords;
  • Coordinating infrastructure development and strengthening its positive impact on the economy and citizens; and
  • Promoting productive investment, industrial financing and entrepreneurship for jobs and inclusive growth.

 

It should be noted that the EDD’s role of coordinating infrastructure development and housing the Presidential Infrastructure Coordinating Commission (PICC) was being relocated to the Ministry of Public Works and Infrastructure.

 

In terms of its core functions, the EDD is responsible for overseeing four listed entities and administering three Acts[10]. In addition to overseeing the EDD, the Committee oversees these entities, as a number of the EDD’s strategic objectives are implemented through these entities, namely the:

  • Competition Commission,
  • Competition Tribunal,
  • Industrial Development Corporation (IDC), and
  • International Trade Administration Commission of South Africa.

 

  1. Overview and Assessment of the Financial and Non-Financial Performance for the Period 1 April 2019 to 31 March 2020

This section provides a comparison between what the EDD targeted in its APP against its performance as set out in the Annual Report for the 2019/20 financial year. Furthermore, it outlines other areas of performance, mainly internal administrative areas that the EDD is required to report on. It then provides an overview of the AG’s audit outcomes.

 

  1. Non-financial performance[11]

The EDD achieved 13 of its 16 key performance indicators or 81% of targets. Performance per programme is discussed below.

 

  1. Administration

In this Programme, there had been one target and that was to obtain an unqualified audit outcome which had been achieved.

 

  1. Growth and Social Dialogue

Under this Programme, there had been six targets and fivehad been met. The achieved targets were:

  • Four analytical and public policy advocacy reports on socio-economic development and the NGP had been produced.
  • Four reports on the NGP jobs drivers and coordination structures, such as (i) the Township Economy Development Coordinating Structure, (ii) the Inter-agency Working Group on Illicit Trade and (iii) the bio-fuels value chain coordinating structure for the Gauteng Province.
  • Two reports on the implementation of the Green Economy Accord.
  • Three reports on black women and youth with access to employment and entrepreneurship opportunities.
  • Ten reports on support provided to provinces in terms of economic development.

 

The target that had not been met was the production of five reports on social dialogue interventions to help save and create jobs as well as report on the implementation of Social Accords. However, two reports had been produced, namely on: (i) the assessment of the New Temporary Employer/Employee Relief Scheme; and (ii) support to Chief Executive Officers (CEOs) on businesses trading in Africa.

 

  1. Investment, Competition and Trade

Under Programme 3, about 78% of the targets had been achieved (seven of nine targets).

  • 72 quarterly Cabinet-level progress reports of the infrastructure Strategic Integrated Projects (SIPs) had been produced against a target of 64 SIP Reports.
  • Six action minutes in relation to the implementation ofCabinet and PICC strategic decisions on infrastructure had been produced against a target of four action minutes.
  • 33 PICC meetings had been held and facilitated against a target of 30 records of meetings having been produced.
  • Five reports on initiatives to increase localisation in the infrastructure and industrialisation programmes, including through the Preferential Procurement Policy Framework Act (Act No. 5 of 2000), and local supplier development had been produced against a target of four reports.
  • 24 action minutes had been produced related to investment and infrastructure projects unblocked, fast-tracked, facilitated or assessments completed against a target of 23 projects.
  • Seven reports had been produced on the level and impact of industrial finance by DFIs and government departments, including funding allocations on township enterprises.
  • Four records had been produced of Ministerial or departmental oversight engagements with the IDC.

 

The two targets that had not been met are detailed below:

  • Only three of the targeted four coordination actions to drive implementation of SIP 5: Saldanha-Northern Cape Development Corridor, of the National Infrastructure Plan had been achieved.
  • 14 of the targeted 15 reports on the work of the four economic regulators had been completed. This included reports on certain large mergers; the extension of the policy directive on the Price Preference System for exportation of ferrous and non-ferrous waste and scrap metals; the promulgation of Government Notices regarding the COVID-19 pandemic; and the Price Discrimination and Buyer Power Regulations emanating from the Competition Amendment Act (Act No. 18 of 2018).

 

  1. Financial performance

By the end of the financial year, the EDD had spent R966,3 million or 97,6% of the annual budget. The largest proportion had been spent on transfers and subsidies, which amounted to R840,8 million that was 87,7% of total expenditure. According to the EDD, the under-expenditure of R7,6 million on transfers and subsidies was as a result of under-spending on the Tirisano Construction Fund, as some companies contributing to the Fund were having financial difficulties and had not made their full contribution in this regard. The EDD’s expenditure on its programmes was R125,5 million, accounting for 12,99% of total expenditure.

 

In terms of its programmes, the Investment, Competition and Trade Programme underspent by the largest amount (R7,5 million or 38,7% of the programme’s budget). There had also been under-expenditure in the other two programmes: theGrowth Path and Social Dialogue, and the Administration Programmes with underspending of R4,3 million (or 11,8% of the programme’s budget) and R3,7 million (or 4,4% of the programme’s budget) respectively.

 

Table 6: Expenditure by Programme

Programmes(R’000)

Final budget

Expenditure

Expenditure (%)

Variance (%)

Administration

85 164

81 432

95,6%

4,4%

Growth Path and Social Dialogue

36 385

32 090

88,2%

11,8%

Investment, Competition and Trade

19 803

12 095

61,1%

38,9%

Transfers and Subsidies

848 291

840 741

99,1%

0,9%

Total

989 643

966 358

97,6%

2,4%

Source: EDD (2020: 104, 124-125)

 

  1. Expenditure by economic classification

In terms of expenditure by economic classification, there had been significant underspending in the compensation of employees’ budget. Expenditure on this item was R83,3 million, which was R12,6 million less than the budget. According to the EDD, this was as a result of a number of resignations as well as unfilled vacancies because of the merger process with the DTI to form the DTIC. The Department’s compensation of employee’s budget was also increased in the current year. The underspending on goods and services of R2,9 million was attributed to State Attorney fees which had not yet been paid because of invoices that had not been received by the EDD. A detailed account of expenditure against the budget is shown in the table below.

 

Table 7: Expenditure by Economic Classification

Economic classification (R’000)

Final budget

Expenditure

Expenditure(%)

Variance (%)

Compensation of Employees

95 943

83 312

86,8%

3,2%

Goods and Services

44 463

41 480

93,3%

6,7%

Transfers and Subsidies

848 491

840 821

99,1%

0,9%

Payment of Capital Assets

746

746

0,0%

0,0%

Total

989 643

966 359

97,6%

2,4%

Source: EDD (2020: 105-106)

 

  1. Audit outcomes

The AG annually conducts an audit assessment of the EDD’s reported financial and non-financial performance information. In terms of its non-financial performance, Programme 2, Growth path and social dialogue, was assessed to determine whether its reported performance information was useful and reliable. The outcome of this assessment was that the AG “did not identify any material findings on the usefulness and reliability of the selected programmes”[12].

 

In terms of the EDD’s financial reporting, the AG noted that the EDD had obtained an unqualified audit opinion with no findings. There had been no irregular or fruitless and wasteful expenditure identified during the financial year.

 

  1. Human resources

As at 31 March 2020, the EDD had 97 employees against an approved staff complement of 121 employees. Therefore, there had been a vacancy rate of 23,9%. However, no vacancies could be filled during the financial year because of the merger of the EDD with the DTI.

 

Of the 97 employees, 62% were female and 38% were male. Furthermore, 3% of the employees were people with disabilities. A profile by race is shown in the table below.

 

Table 8: Demographic breakdown of employees

Race

Male

Female

Total

African

33

54

87

Coloured

1

2

3

Indian/Asian

2

1

3

White

1

3

4

Total

37

60

97

Source: EDD (2020:80)

 

A profile of employees by skills level is shown in the table below. In terms of employees in Senior Management positions, 54% were women and 46% were men.

 

Table 9: Number of employees per skills level

Skills level

Number

Semi-skilled

8

Highly Skilled (production)

29

Highly Skilled (supervision)

32

Senior management

28

Total

97

Source:EDD (2020: 80-81)

 

During the 2019/20 financial year, there had been five employees appointed or transferred to the EDD and 11 terminations of employment. The terminations consisted of two deaths, three resignations, four employees’ contracts expired, one employee had been dismissed for misconduct and one had been transferred from the EDD.

 

 

PART B: FINANCIAL AND NON-FINANCIAL PERFORMANCE OF THE DEPARTMENT OF TRADE, INDUSTRY AND COMPETITION FOR THE FIRST QUARTER OF THE 2020/21 FINANCIAL YEAR

 

  1. Overview of the key relevant policy focus areas

 

  1. Strategic objectives

In alignment with the President’s announcement of the restructuring of government departments on 14 June 2019, the new DTIC was formed on 1 April 2020. It is the amalgamation of the mandates, legislation, financial resources, human resources, and entities of the former DTI and EDD.

 

The DTIC’s mission is to[13]:

  • Promote structural transformation, towards a dynamic industrial and globally competitive economy;
  • Provide a predictable, competitive, equitable and socially responsible environment, conducive to investment, trade and enterprise development;
  • Broaden participation in the economy to strengthen economic development;
  • Continually improve the skills and capabilities of the DTIC to effectively deliver on its mandate and respond to the needs of South Africa’s economic citizens;
  • Co-ordinate the contributions of government departments, state entities and civil society to effect economic development; and
  • Improve alignment between economic policies, plans of the state, its agencies, government’s political and economic objectives and mandate.

 

The DTIC is responsible for administering 45 pieces of legislation; and overseeing 17 entities (excluding the B-BBEE Commission, which is a trading entity within the administration of the DTIC) which contribute towards fulfilling its mandate.

 

  1. Overview and Assessment of the Financial and Non-Financial Performance for the Period 1 April 2020 to 30 June 2020

This section provides a comparison between what the DTIC targeted in its APP against its performance set out in its first quarter report for the 2020/21 financial year.

 

  1. Non-financial performance

For the first quarter, the DTIC had a total of 25 targets. Of the 25 targets, 16 were achieved or exceeded and nine were not achieved. This means that 64% of the targets were achieved. The actual non-financial performance for the first quarter against quarterly targets, as set out in the APP, is detailed below.

 

  1. Programme 1: Administration

Programme 1 had four targets; three were fully achieved while one was partially achieved. The unachieved target related to the number of interns appointed, where 53 of the targeted 54 interns were appointed. The last internship position had not been filled as the three recommended applicants had declined this position.

 

  1. Programme 2: Trade Policy, Negotiations, and Cooperation

In Programme 2, there had been four targets for the first quarter related to the status reports prepared for engagements at international fora, such as negotiations on the AfCFTA, the implementation of the Southern African Customs Union-Mozambique EPA with the United Kingdom and engagements in the Brazil, Russia, India, China, and South Africa platform and at the G20. All of these were fully achieved.

 

 

  1. Programme 3: Spatial Industrial Development and Economic Transformation

Under this programme, there had been no targets set for the first quarter of the 2020/21 financial year.

 

  1. Programme 4: Industrial Competitiveness and Growth

In Programme 4 there had been five targets set. Four of the five targets had been fully achieved and one had not been achieved. The target that had not been achieved relates to the preparation of a designation request for a product for local procurement for the Minister.  According to the DTIC, the research had been conducted but further interventions had been required for completion. This was expected to be submitted by the second quarter.

 

  1. Programme 5: Consumer and Corporate Regulation

Under this programme, one of the two targets had not been achieved. The unachieved target was the number of education and awareness campaigns on policies and legislation conducted. While seven campaigns had been targeted, these could not take place because of the national lockdown. Furthermore, this target was then consequently removed from the DTIC’s amended APP in July 2020.

 

  1. Programme 6: Industrial Financing

Under this programme, there were four targets, three of which had been under-achieved and one not achieved as a result of the national lockdown. These were as follows:

  • R314 million in projected investments had been leveraged from approved projects/enterprises against a target of R3 billion.
  • 345 new jobs had been supported from approved projects/enterprises against a target of 1 500 jobs.
  • The target of 2 500 jobs retained from approved enterprises/projects had nopt been achieved.
  • Four enterprises/projects had been approved for financial support across all incentives against a target of 100 enterprises/projects.

 

  1. Programme 7: Export Development, Promotion and Outward Investments

Under this programme, there had been no targets set for the first quarter of the 2020/21 financial year.

 

  1. Programme 8: Inward Investment Attraction, Facilitation, and Aftercare

In this programme, there had been two targets, none of which had been achieved as a result of the national lockdown. These were as follows:

  • R1,3 billionworth of investment projects had been facilitated in pipelinesagainst a target of R10 billion. This target had subsequently been revised to R2 billion.
  • The DTIC had targeted to prepare one statistical report on company registration within one day. However, the Companies and Intellectual Property Commission’s (CIPC) focus during lockdown levels 5 and 4 had been on ensuring that all essential service companies were registered. It had facilitated the registration of 490 000 essential services companies in this regard.

 

  1. Programme 9: Competition Policy and Economic Planning

In this programme, there had been three targets, all of which had been achieved and exceeded. The targets were for the following reports:

  • Policy and statutory initiatives in support of the Ministry;
  • Public interest matters; and
  • Coordinated actions in implementing competition policy commitments, recommendations and orders.

 

  1. Programme 10: Economic Research and Coordination

In this programme, the two targets had been achieved. The targets were for an analytical policy report and a research report.

 

  1. Financial performance

The DTIC’s budget as tabled in February had been R11,08 billion for the 2020/21 financial year. However, the adjusted budget decreased by R1,77 billion to R9,31 billion in July 2020. This decrease was 16% of the original budget.  The DTIC’s work and budget is divided among its ten programmes, all of which experienced a net decline in their budget allocation. 

 

The DTIC’s had projected to spend R3,8 billion by 30 June 2020. By the end of the first quarter, the DTI had spent 69,4% or R2,6 billion of its quarterly budget. This has been significantly impacted by the COVID-19 pandemic which led to a national lockdown since 26 March 2020, as a result there had been a 30% underspending in the overall budget. There was also underspending in all programmes. However, based on the value of under-spending, the largest underspending took place in programme 6 (Industrial Financing) (R646,5 million), programme 7 (Export Development, Promotion and Outward Investments) (R225,8 million), programme 4 (Industrial Competitiveness and Growth) (R119,4 million), and programme 9 (Competition Policy and Economic Planning) (R59,7 million). Detailed expenditure by programme is provided in the table below.

 

Table 10: First Quarter Expenditure by Programme

Programmes (R’ 000)

Total Allocation Proposed

Q1 Budget

Q1 Expenditure

Variance (%)

Available Budget

Administration

857 590

208 711

172 943

17,1%

684 647

Trade Policy, Negotiations, and Cooperation

128 449

29 534

20 833

29,5%

107 616

Spatial Industrial Development and Economic Transformation

159 943

36 290

26 990

25,6%

132 953

Industrial Competitiveness and Growth

1 653 246

1 380 871

1 261 429

8,6%

391 817

Consumer and Corporate Regulation

312 766

268 629

236 380

12,0%

76 386

Industrial Financing

4 860 006

1 022 667

376 120

63,2%

4 483 886

Export Development, Promotion and Outward Investments

410 889

252 480

26 693

89,4%

384 196

Inward Investment Attraction, Facilitation, and Aftercare

55 699

14 338

11 454

20,1%

44 245

Competition Policy and Economic Planning

789 398

572 587

512 862

10,4%

276 536

Economic Research and Coordination

82 724

31 965

4 701

85,3%

78 023

Total

9 310 710

3 818 072

2 650 405

30,6%

6 660 305

Source: DTIC (2020a and 2020b)

 

  1. Expenditure by economic classification

There was a significant under-expenditure in incentives, the compensation of employees, goods and services, and transfers and subsidies to public corporations and private enterprises. On incentives, an underspending of 64,8% (approximately R633 million) had been reported. This was as a result of the global outbreak of COVID-19 which affected a number of the DTIC’s activities as discussed above. Detailed expenditure by economic classification is provided in the table below.

 

Table 11: First Quarter Expenditure by Economic Classification

Programmes(R’000)

Total Allocation Proposed

Q1 Budget

Q1 Expenditure

Variance (%)

Available Budget

Current payments

1 925 294

460 091

328 623

28,57%

1 596 671

Compensation of employees

1 171 420

276 072

235 454

14,71%

935 966

Goods and services

753 874

184 019

93 169

49,37%

660 705

Transfers and Subsidies

7 351 295

3 355 890

2 316 081

30,98%

5 035 214

Incentives

4 660 894

976 257

342 819

64,88%

4 318 075

Departmental Agency Transfers

1 646 943

1 749 751

1 349 174

22,89%

297 769

Other Transfers

1 043 458

629 882

624 087

0,92%

419 371

Payment of Capital Assets

34 121

2 091

5 701

-172,64%

28 420

Total

9 310 710

3 818 072

2 650 405

30,58%

6 660 305

Source: DTIC (2020a and 2020b)

 

 

 

 

 

 

PART C: ISSUES RAISED DURING THE DELIBERATIONS

 

  1. Issues raised during the deliberations

The following concerns were raised in relation to the performance of the DTI, the EDD and the DTIC during the Committee’s deliberations:

 

6.1     Economic crisis facing the country:A view was expressed thatthe current economic crisis facing the country was not as a direct result of the COVID-19 pandemic but was exacerbated by government’s response to the crisis with its lockdown of the economy. This had caused immense suffering for millions of South African, with millions losing their jobs. According to some Members, to address the current crisis, government should acknowledge that its decision to lockdown the country with the added regulatory burden placed on businesses resulted in a deeper economic slowdown. The Committee enquired what measures are being considered to reduce the regulatory burden placed on businesses to stimulate an economic recovery.

 

The DTIC informed the Committee that theWorld Health Organisation (WHO) had formally declared COVID-19 a pandemic on the 11th of March 2020. On 26 March 2020, South Africa started its first 21 days of lockdown. In taking such a drastic decision, Government had toconsidered a number of factors including:

  • The relatively limited treatment protocols for successfully treating infected people;
  • The very rapid and apparent ease of the spread of the virus;
  • Rapidly rising infections and the high fatality rate in the countries initially most affected by the COVID-19 pandemic at the time, which included China, South Korea, Iraq and Italy;
  • The low state of readiness of South Africa’s private and public hospitals; and
  • The likelihood of a rapid and uncontrolled spread of COVID-19 virus in especially township and informal settlements where population densities are high.

 

In addition to these factors, Government was also acutely aware that a large number of countries were imposing lockdowns which – at that time – were one of only a very few known interventions capable of slowing the spread of the COVID-19 virus.

 

With the growing risk of the uncontrolled spread of COVID-19 in South Africa, Government had to act decisively to safeguard the lives of South Africans. It imposed a relatively strict lockdown, and implemented a comprehensive package of economic and social measures to mitigate the economic impact of the COVID-19 pandemic.

 

Even with the benefit of hindsight, Government remains confident that it responded appropriately and with the necessary speed to stem the spread of the COVID-19 virus and to avert a potentially deadly crisis. According to the DTIC, countries that failed to implement strict lockdown measures have seen a continued rise in the spread of the virus with significant loss of life, including over 215 000 lives lost in the United States of America.

 

With regard to reducing the regulatory burden for the formalisation of enterprises, the DTIC informed the Committee, that the CIPC had introduced a simple to use platform, the Bizportal, to facilitate company registration. The Bizportal integrates a number of government services, namely company registration, BEE certificate application, tax number creation, Unemployment Insurance Fund and Compensation Fund registration. In addition, the option exists to apply for a bank account through any of six business banks in South Africa. This Bizportal registration platform was launched by the President at the second Investment Conference in November 2019 and the results have been evident through the increased number of company registrations since the previous financial year.

 

Company registrations take place in less than 24 hours and despite significant increases in the number of applications, the CIPC has maintained this service standard. A mobile application is also available and has further extended CIPC’s services. Apart from the digital platforms, there are walk-in centres in every province with staff to assist entrepreneurs with registration and related services.

 

6.2     Policies to address the economic downturn:It would appear that current economic policies implemented by government are not having the desired outcome with high unemployment remaining prevalent, especially among the youth. The Committee enquired what new policies are being considered to address the current economic crisis facing the country.

 

On 15 October 2020, the President of the Republic of South Africa released the Economic Reconstruction and Recovery Plan. The Plan, which has been widely consulted with social partners, prioritises four interventions:

  • Decisive action to address key outstanding structural reforms in areas such as electricity generation and supply; improving the efficiency and cost of South Africa’s freight logistics infrastructure; and accelerating the release of spectrum to facilitate access to high-speed broadband.
  • Introduction of large-scale, public employment interventions to rapidly create 800 000 job opportunities across South Africa.
  • Substantial expansion of localisation interventions to a range of additional sectors of the economy, working closely with the private sector and labour.
  • Substantial expansion and accelerated delivery of large-scale, infrastructure investments which are designed to crowd-in private sector investment, and catalyse sustainable economic growth. 

 

According to the DTIC, these interventions are expected to fundamentally improve South Africa’s competitiveness, increase investment levels and, consequently, rapidly return the economy to growth and job creation.

 

6.3     Bailouts: A view was expressed that it is important that the DTIC’s view on whether bailouts of state entities are economically prudent given South Africa’s current economic status be communicated. It would appear that government intends bailing out South African Airways (SAA) to the tune of R10 billion. The Committee enquired whether government should rather consider channelling funds to job creation projects as well as the coronavirus relief fund that would contribute to economic revival, rather than supporting an entity such as SAA. The DTIC informed the Committee that Cabinet had previously noted that State-owned Companies could play an important role in implementing Government’s development agenda. In the case of SAA, Government is of the view that the airline is a critical player in facilitating South Africa’s trade and diplomatic relations on the African continent. In addition, SAA provides significant flights to South Africa’s major tourist regions such as Cape Town and Durban, and this is an important factor in attracting foreign tourists to South Africa.

 

Given the tight fiscal environment in South Africa, Government is still considering how best to provide additional support to SAA. It is expected that the Minister of Finance, Mr T Mboweni, would pronounce on this when he tabled the 2020 Medium-term Budget Policy Statement.

 

6.4     Export tax on scrap metal:In his 2020 Budget Speech, the Minister of Finance announced the implementation of an export tax on scrap metal with implementation modalities being finalised. The National Treasury is considering these taxes to alleviate pressure from unfair trade practices on domestic metal industries. Given the current economic reality facing the country, the Committee enquired whether the DTIC and the National Treasury would consider a further round of consultation with stakeholders to find an amicable solution to the problem facing the scrap metal industry and downstream users of scrap metal. The DTIC informed the Committee that subsequent to the tax pronouncements made by the Minister of Finance, as part of the 2020 Budget announcements on 26 February 2020, the 2020 annual draft tax bills were published to give effect to the tax proposals announced in the Budget.  Due to the complex nature of the draft bills, greater consultation with the public was required on their contents and this was completed as outlined below.

 

On 31 July 2020, the 2020 Draft Taxation Laws Amendment Bill, containing the export tax proposal, was published by National Treasury, together with the South African Revenue Service (SARS) for public comment by 31 August 2020. Workshops with stakeholders to discuss their written comments on the tax bill were held on 9 September 2020. The National Treasury, together with the SARS, also briefed the Standing Committee of Finance on the draft Bill on 19 August 2020. Subsequently, oral presentations by the public were made at hearings held by the Standing Committee of Finance on 7 October 2020.On 13 October 2020, National Treasury and SARS presented the 2020 Draft Response Document containing a summary of draft responses to the public comments received. After these have been considered by Parliament, it will be presented to the Minister for approval, prior to the formal introduction/tabling in Parliament.

 

6.5     Implementation of masterplans: The Committee enquired whether the DTIC had conducted an assessment on the impact of the Covid-19 pandemic on the implementation of Masterplans. The DTIC responded as follows:

 

  • In terms of the Retail-CTFL Masterplan, during the COVID-19 alert level lockdown, the Masterplan activities continued, with attention also being directed towards the Medical Textiles and public sector procurement (as CTFL is a 100% designated sector and the local procurement drive falls within the Masterplan’s commitments). While many of the activities and implementation plans were stalled during COVID-19 pandemic alert levels, the Programme Management Office (PMO) and stakeholders directed focus towards working on the commitments rollout with agility as far as possible. With the announcement of level 1, all the CTFL Masterplan activities have resumed with attention given to ensuring achievements could be measured. During bilateral meetings with retail stakeholders, the PMO had evaluated that job creation targets would continue to be the focus – with revival and revitalisation of the CTFL sector being central to the phased rollout approach, currently Phase 1 was being implemented. Additionally, the PMO was leading a United National Industrial Development Organisation (UNIDO) project on the Circular Economy with the Department of Environment, Forestry and Fisheries and SARS using the Clothing and Textiles sector as a pilot project for the rollout of a Circular Economy implementation.  One of the major implementation targets for this quarter (in Alert Level 1) was the rollout of a national educational campaign on buying local. This is to stimulate demand and shift market dynamics to support local CTFL purchasing by society and to enhance public sector procurement of CTFL products, such as medical products. The DTIC informed the Committee, that it hadsecured commitments from major retail stakeholders on their alignment to progress to job creation – with many stakeholders committing to meeting targets even during a weak economic climate and COVID-19 realities.
  • The Chemicals and Plastics Masterplans were still being developed.
  • The Automotive Masterplan’s implementation was in progress.
  • In terms of the Steel Masterplan, the industry had been in distress prior to the COVID-19 outbreak and the effects of the pandemic had aggravated this further. The development process of this Masterplan had to factor this in.
  • In terms of the Poultry and Sugar Masterplans, all South African agriculture and agro-processing had continued to operate at 100% during the various lockdown stages of the COVID-19 pandemic and some investment pledges by Poultry and Sugar Industries had already been activated and work was in progress.

 

6.6       Manufacturing of yellow goods: While the Committee acknowledged work done to expand component manufacturing in the automotive and construction vehicle sectors, it was concerned that South Africa was not necessarily developing its capacity to manufacture construction vehicles locally. It enquired whether the DTIC would be considering the development of such a plant. According to the DTIC, there are currently two companies locally manufacturing some construction vehicles, namely Bell (Bell Equipment) and Dezzi (Desmond Equipment), both were based in KwaZulu-Natal. During 2018/19,the DTIC went through a process of extensive consultation with the yellow metal sector in order to develop key interventions to support localisation and growth. The interventions that had been considered included preferential procurement of certain yellow metal products such as Front-end loaders and tractor loader backhoes. A process to implement these interventions is underway and includes consultations with the National Treasury, amongst other stakeholders.

 

6.7     Expansion of agro-processing: The expansion of the automotive industry in the Eastern Cape economy was welcomed. However,a concern was expressed that while the province is largely an agricultural and rural province, it has hardly seen any investment in the agro-processing sector. The Committee enquired whether the DTIC is considering any measures that would increase investment within the agro-processing sector in the province.

 

The DTIC informed the Committee that it had availed agro-processing grant funding of over R1 billion to be accessed by companies operating in the furniture, fibre, food, feed and fertiliser manufacturing sectors. To date, applications had been received from Eastern Cape with two applicationsbeing approved worth R17,75 million projected investments, with a grant of R 4,39 million approved that would sustain 84 jobs and would create a further 22 jobs. According to the DTIC, the focus in terms of public and private investment is to invest into machines and technology, technical infrastructure, to support new market penetration, product development, and strategic alliances and partnerships. These will assist the sector to meet challenging international standards for safety and quality.

 

6.8     Financial sustainability of theIDC: The IDC recently was downgraded by Moody’s Investors’ Services. In a response to the impact of this downgrade and on the IDC’s ability to provide support in fighting the Covid-19 pandemic, the Minister had indicated that the IDC would continue providing support to fight the pandemic. It would appear that the IDC is facing financial problems, and the Committee enquired what its financial status was and what measures are being considered to mitigate this. According to the DTIC, on 31 March 2020, Moody’sdowngraded the long-term foreign currency ratings of the IDC to Ba1 from Baa3 and maintained a negative outlook. The rating agency had downgraded IDC’s Baseline Credit Assessment to Ba3 from Ba2. The national scale rating had been affirmed. Moody’s argued that the rating decision reflected the weakening capacity of the South African government to support the development banks in case of need, due to the recent downgrade of South Africa’s government bond rating to Ba1 from Baa3. The key driver behind the rating downgrade was the continuing deterioration in fiscal strength and structurally very weak economic growth, which Moody’s expected could not be addressed effectively by current policy settings.

 

The DTIC acknowledged that, like most organisations around the world, the IDC had not been immune to the impact of the economic impact of the COVID-19 pandemic. Despite this, it retained a strong balance sheet and the ability to implement its industrial development mandate.

 

Despite the downgrade, the IDC had provided financial support to the tune of R3 billion, plus an additional R300 million from the DTIC, to limit the impact of the pandemic. This had been allocated as follows:

  • COVID-19 Essential Supplies (R536 million approved and R431 million disbursed);
  • COVID-19 Distress Fund (R160 million approved); and
  • COVID-19 Small and Medium Enterprises Distress Fund.

 

Furthermore, the DTIC continued to support their existing clients as they struggle to withstand the impact of COVID-19 by deferring R767 million of repayments as restructured facilities. Further social investments to combat the effects of COVID-19 have included support to:

  • Contributions to the Solidarity Fund (R25 million) and Gift of the Givers (R5 million);
  • Donations to several non-profit organisations (NPOs), mainly as food parcels, to support the most vulnerable (R4,8 million); and
  • Employee contributions towards the Solidarity Fund (R283 000).

 

Notwithstanding the hostile operating environment, the IDC is ensuring that cash inflows and outflows are carefully monitored and managed with focus being placed on the following:

  • Clients are managed pro-actively to ensure optimal collection of capital, interest and dividends;
  • All drawdown requests are assessed to ensure that transactions remain bankable, specifically in light of the changed operating environment brought about by the COVID-19 pandemic;
  • Actively seeking to share risk and collaborate with other funders;
  • The maintenance of strong relationships with domestic and foreign lenders to renegotiate maturities which fall due for repayment (if it is the preferred route), and to negotiate and conclude new borrowing facilities;
  • In line with its Long-term Sustainability Plan, it is implementing interventions designed to lower portfolio risk profiles and achieve the turnaround of under-performing investments;
  • Operating costs are being managed carefully; and
  • Adequate capitalisation to continue fulfilling its mandate and role as development financier in partnership with other funders.

 

6.9     South African Biofuels Regulatory Framework: In February 2020, Government gazetted the Biofuels Regulatory Framework. The Committee enquired about the objectives and the current status of this Framework.  As stated in Gazette No. 43003 of 7 February 2020, the Regulatory Framework has a sole purpose of providing a policy and regulatory framework for the implementation of the Biofuels Industrial Strategy of 2007. It targets biofuel penetration of 4,5% volume/volume of the national fuel pool with 2% expected to come from first generation biofuels technologies. It also provides a mechanism to incentivise manufacturers/producers of biofuels as well as farmers of biofuel feedstock.

 

On 17 September 2020, the DTIC met with the Department of Mineral Resources and Energy (DMRE) and the National Treasury to discuss the development of an incentive that would encourage the use/manufacture of Biofuels. The National Treasury was of the view, that because the DTIC’s intention would be to leverage the fuel levy, it should consult with SARS and the National Treasury’s tax team on the matter. The DTIC informed the Committee that it was currently in the process of scheduling another follow-up session with the DMRE, National Treasury and SARS on the matter.

 

Recently, the DTIC nominated three officials to officially represent it in the multi-departmental Biofuels Task Team chaired by the DMRE. According to the DTIC, the key agenda item for discussion in the following meeting, would include progress regarding the development of criteria to select prospective producers (manufacturers) of biofuels and prospective farmers of feedstock. In the interim, the DTIC would continue engaging with the National Treasury and the DMRE to understand how the incentive mechanism, provided for in the framework, would be rolled out.

 

6.10   Presidential Investment drive: The DTIC is at the centre of the Presidential Investment drive. The Committee enquired how the onset of the Covid-19 pandemic had impacted on the implementation of the investment commitments made at the previous investment conferences and what measures are being considered to ensure that investment commitments are implemented.According to the DTIC, InvestSA regularly tracks and monitors progress and unblocks issues on the 102 projects of R664 billion pledged in 2018 and 2019. This included facilitating German technical experts, under lockdown level 4, to meet the timelines for the Mercedes plant in order to ensure that it is in production by 2021.

 

6.11   Ease-of-doing business: The Committee noted the undertaking of the President that South Africa should work towards a top 50 rank with regard to the ease-of-doing business. Notwithstanding the implementation of the export monitoring mechanism, the Committee enquired what measures are being considered by the DTIC to achieve this objective of the President. To support the Ease-of-Doing Business program, the DTIC informed the Committee that a dedicated website was being developed. Doing Business South Africa would provide complete information within two clicks on the entire lifecycle of starting and operating a business in South Africa. This would be a comprehensive site providing useful information on registration, set-up and operation of a domestic business, thus encouraging more start-ups and the establishment ofsmall, medium and micro enterprises, youth- and women-owned businesses. 

 

6.12   Export capacity of SEZs: Given the large investment into SEZs, the Committee enquired what has been the effect on South Africa’s export capacity. Export Capacity broadly refers to the maximum output of products and services that a firm or a country can export.  There are close to 135 resident companies/operational investors in all nine government supported SEZs. All these companies benefit from trade-related stimulants associated with SEZ. These include an active “Free Port”, offering a duty-free area adjacent to a port of entry; a “Free Trade Zone” offering a duty-free area for value-adding activities within the Zone for subsequent export; and a “Sector Development Zone” focused on the development of a specific sector or industry for the export market.

 

As one of their output indicators, SEZs are required to set annual export targets. Two of the largest SEZs in terms of resident companies are Dube Trade Port and COEGA, which have a combined estimate target of R510 millionof export revenue to be generated for the 2020/21 financial year.The overall reporting for all SEZs would be collected at the end of the financial year. The DTIC work with the SEZs to put in place mechanisms to track, monitor or keep an auditable record of export sales generated by individual resident companies/operational investors. This monitoring and evaluation tool would be used to provide accurate impact assessment as well as improve export performance given the importance of SEZ platform for fostering export-oriented industrial activities. Assessment and procurement of auditing solutions was underway.

 

6.13   Delays in listing theB-BBEE Commission: Currently the B-BBEE Commission is a trading entity under the DTIC that is funded through its budget. The DTI had, however, during the 2018/19 financial year indicated that the Commission was intended to become an independent entity and should be listed as a separate entity. In the 2018/19 financial year, the DTI, the B-BBEE Commission and the National Treasury had entered into negotiations to list the Commission. However, there were continued delays in this process. The Committee enquired what the status of these negotiations was and what are the issues that are delaying this process. The DTIC responded that National Treasury had provided strategic advice that it could not list the B-BBEE Commission because it did not meet the requirements of the Public Finance Management Act (Act No. 1 of 1999) for listing. This was due to the provision in the B-BBEE Act which established the Commission within the administration of the DTI. The DTIC’s long term envisaged goal was to amend the B-BBEE Act to meet the requirements for listing the B-BBEE Commission. Consultations on the amendment process which include other provisions in the B-BBEE Act had commenced. In the meantime, the B-BBEE Commission would operate within the DTIC until the amendment to the Act.This would be with full support from the DTIC to enable the Commission to operate and execute its mandate, with the Commissioner given full delegations of an accounting officer.

 

6.14   Legislation:A concern was expressed that legislation has not been forthcoming from the Department with legislation on Liquorpromised since the 5th Parliament. The Committee enquired what the legislative programme of the DTIC was and when the Committee could expect it to table a prioritised list of legislation for its consideration. The DTIC informed the Committee that the Liquor Amendment Bill had been pre-certified by the Office of the Chief State Law Adviser (OCSLA) and had been prepared for submission to Cabinet to seek approval for introduction into Parliament. Once Cabinet granted approval, the Bill would be submitted to the OCSLA for final review and certification. The DTIC anticipated that the Bill would be introduced in Parliament during the second quarter of 2021.

 

The Leader of Government Business had recently requested that all Members of Cabinet submit a Re-prioritised Legislative Programme in light of the impact of the COVID-19 pandemic. Subsequent to submitting the Re-prioritised Legislative Programme, the DTIC informed the Committee that the Liquor Amendment Bill and the Industrial Designs Bill were finalised and pre-certified by the OCSLA and both Bills were included in the Re-prioritised Legislative Programme.

 

6.15   Intellectual Property Legislation: The Committee noted that the United States of America has raised a number of concerns with respect to the Copyright Amendment Bill (CAB) and the Performers’ Protection Amendment Bill. The Committee enquired whether the EU and South Africa’s other trading partners had raised any concerns and what these were. The DTIC informed the Committee, that the EU has raised concerns on certain provisions of the CAB. However, the DTIC was of the view that the EU was supportive of the broad principles and process relating to the Bill. In March 2020, the Presidency had received correspondence from the EU Ambassador to South Africa where she raised concerns with respect to the copyright regime of South Africa.  In the letter, she raised concerns regarding the fair use clause and the list of broadly defined exceptions which, according to the EU, were bound to result in a significant degree of legal uncertainty with negative implications for foreign investments and the South African creative community. The letter further indicated that European right holders continued expressing their concerns and that all creative sectors in the EU, including the film industry, music and publishing industry, have pointed to the possibility of revisiting their investment plans in South Africa.  Furthermore, the letter highlighted that other sectors, such as those which are high technology based, could also suffer due to the concerns of the legal uncertainty. The EU claimed the CAB had moved away from the level of protection of copyright protected works offered by international standards and this would have a negative effect on the South African economy. The EU recommended that the Bill be deferred and not be adopted. According to the EU, there should be an engagement process to closely anchor the South African copyright regime to the international conventions and treaties.

 

6.16   Economic Research and Coordination Programme: The Committee enquired what had been the DTIC’s expenditure on the Economic Research and Coordination Programme and how many people were employed within the Programme. The DTIC informed the Committee that the spending on the Economic Research and Coordination Programme as at the end of September 2020 was R11,3 million. In addition, the Economic Research and Coordination Branch has a staff complement of 42.

 

6.17   Budgeting by the DTIC: In his June 2020 budget speech, the Minister of Finance announced a move towards zero-based budgeting, particularly for large programmes, to enable the stabilisation of public debt. The Committee enquired the extent to which the DTIC was implementing zero-based budgeting. Furthermore, it requested that the DTIC provide the processes and/or criteria being used to determine whether a line item would ensure value for money and maximise the economic benefit for South Africans. The DTIC informed the Committee that it is currently using the budget framework/guidelines as issued by the National Treasury in preparing the budget. The use of zero-based budgeting would be effected as soon as it was rolled out by the National Treasury.

 

The DTIC had revised its APP for the 2020/21 financial year, to respond more effectively to the impact of the COVID-19 pandemic in industry and across the economy. This had resulted in changes to the programmes’ indicators – with amongst others, the addition of new indicators, or amendments to the existing indicators. To give effect to this, the DTIC undertook an extensive review of the 2020/21 budget across all its programmes – and the budget was reprioritised towards spending/programmes that aim to respond to the economic challenges, whilst also ensuring value for money.

 

6.18   Transfers and subsidies:The DTI had indicated that an amount of R1,19 billion had been transferred for purposes other than incentives or grants to its entities. The Committee enquired what constituted the transfers of R1,19 billion.  The DTIC informed the Committee that the other transfers comprised of:

  • R97,4 million to external programmes namely the Clothing and Textiles programme, the National Foundry Technology Network, the National Cleaner Production Centre, Fibre and Textile, Aerospace industry, Protechnik laboratories, and the Workplace Challenge, as well as the Council for Geoscience for the monitoring stations that form part of the International Monitoring System of the Comprehensive Nuclear-Test-Ban Treaty Organisation.
  • R189,9 million to NPOs namely Proudly South African, the Centurion Aerospace Village, the Automotive Supply Chain Competitiveness Initiative, and Trade and Industrial Policy Strategies, as well as the Intsimbi Future Production Technologies Initiatives.
  • R29,6 million for South Africa’s membership to the World Trade Organisation, the World Intellectual Property Organisation, the Organisation for the Prohibition of Chemical Weapons, and the UNIDO, as well as Treaty organisations for metrology.

 

6.19   Audit findings with the respect to entities: During the presentation of the EDD, it highlighted that all entities reporting to it had received a clean audit for the 2019/20 financial year. The Committee enquired what the audit outcomes of entities reporting to the DTI were. The DTI informed the Committee that of the 13 entities reporting to it,ten entities had received an unqualified audit report with no findings. The SABS and the South African National Accreditation System had received unqualified audit reports with findings. At the time, the DTIC had not been in receipt of the audit reportfor the NRCS.

 

 

PART D: CONCLUDING REMARKS AND RECOMMENDATIONS

 

  1. Conclusions

Based on its deliberations, the Committee drew the following conclusions:

 

  1. Notwithstanding the impact of the Covid-19 pandemic, the Committee welcomed the fact that the DTI and the EDD and the majority of its entities had achieved clean audits, which according to the Office of the Auditor-General was an indication of effective leadership. The Committee also welcomed the progress made by the South African Bureau of Standards in addressing its previous audit findings.

 

  1. The Committee welcomed the merger of the two departments into the new DTIC. The Committee also applauds the DTIC on the progress made in the reconfiguration process.

 

  1. The Committee welcomed the decisive measures implemented by the Government to stem the spread of the COVID-19 virus and welcomed the initial support measures implemented by the DTIC to mitigate against the negative impact on the economy. However, there is a need to ramp up industrial policy strategies to accelerate the recovery of the economy.

 

  1. The Committee welcomed the development and implementation of four of the Master Plans and was encouraged by the DTIC’s progress in developing the outstanding Master Plans. However, there may be a need to reconfigure certain aspects to accommodate the effects of the pandemic.

 

  1. According to the DTIC, the launch of the Bizportal in 2019 alleviated the regulatory burden for the registration of companies, as was evident with the increased number of company registrations since the 2018/19 financial year. The Bizportal could be modified to also facilitate the registration and certification of companies manufacturing and/or offering essential goods and services during the COVID-19 lockdown.

 

  1. A concern for the Committee was the slow progress in tabling its legislative programme, noting that the Liquor Amendment Bill and the Companies Amendment Bill, among others, had been outstanding since the fifth Parliament.

 

  1. The Committee welcomed the fact that the Industrial Development Corporation still retains a strong balance sheet and would continue to implement its industrial development mandate, notwithstanding Moody’s Investors Service recent downgrading of the Industrial Development Corporation’s long-term foreign currency ratings.

 

  1. The Committee welcomed the continued support by the DTIC of the economy through incentives and other non-financial measures thereby attracting investment and creating jobs.

 

  1. The Committee welcomed the DTIC’s response regarding the plan to address the current impasse regarding the Broad-based Black Economic Empowerment Commission’s independence. It was however concerned that there were no specific timeframes set for the process to amend the Broad-based Black Economic EmpowermentAct.

 

  1. The Committee welcomes the active role the DTIC plays to secure investment commitments garnered at the Presidential Investment Conferences and to facilitate their implementation.

 

  1. The Committee welcomed the current support offered by the DTIC to its entities. However, there should be a closer oversight relationship and an early warning mechanism to detect and intervene in regard to possible challenges.

 

  1. The Committee encourages the DTIC to continue providing support to the National Regulator for Compulsory Specifications and the South African Bureau of Standards to ensure the implementation of their turnaround strategies.

 

  1. Appreciation

The Committee would like to thank the Minister of Trade and Industry, Mr E Patel, and the Director-General, Mr L October, for their cooperation and transparency during this process. The Committee also wished to thank its support staff, in particular the Committee Secretary, Mr A Hermans, the Content Advisor, Ms M Sheldon, and the Researcher, Ms Z Madalane, for their professional support and assistance in drafting this report. In addition, the Committee thanked the Committee Assistant, Ms Y Manakaza, for assisting it during this process.  The Chairperson wished 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.

 

  1. Recommendations

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

 

  1. Engaging the relevant Ministers to ensure compliance and adherence with localisation, beneficiation and local content prescripts across government in line with the Economic Reconstruction and Recovery Plan of government.

 

  1. Fast-tracking the tabling of legislation.

 

  1. Expediting the necessary legislative changes to the Broad-based Black Economic Empowerment Act that would enable the listing of the Broad-based Black Economic Empowerment Commission as an independent entity.

 

Report to be considered.

 

 

REFERENCES

Department of Trade and Industry (2019a)Annual Performance Plan 2019/20.Government Printers: Pretoria.

 

Department of Trade and Industry (2019b) Annual Performance Report 2018/19 Financial Year.Government Printers: Pretoria.

 

Department of Trade and Industry (2020)Annual Report 2019/20.Government Printers: Pretoria.

 

Department of Trade, Industry, and Competition (2020a)RevisedAnnual Performance Plan 2020/21. Government Printers: Pretoria.

 

Department of Trade, Industry, and Competition (2020b) Verified First Quarter Report for the 2020/21Financial Year.

 

Economic Development Department (2019) Annual Performance Plan 2019/20. Government Printers: Pretoria.

 

Economic Development Department (2020) Annual Report 2019/2020.Government Printers: Pretoria.

 

Portfolio Committee on Trade and Industry (2019) Budgetary Review and Recommendation Report of the Portfolio Committee on Trade and Industry, dated 17October 2019. Announcements, Tablings and Committee Reports, 22 October: 81-153.

 

Ramaphosa, M.C. (2019) State of the Nation Address by President of the Republic of South Africa, Mr Cyril Ramaphosa. Cape Town, 20 June.

 


[1]Ramaphosa (2019)

[2]Portfolio Committee on Trade and Industry (2019: 152)

[3]DTI (2019a)

[4] DTI (2019a)

[5] National Economic Development and Labour Council

[6]DTI (2020: 64)

[7]DTI (2020: 189)

[8]DTI (2020: 123)

[9] EDD (2019)

[10] EDD (2019)

[11]EDD (2020)

[12]EDD (2020: 101)

[13]DTIC (2020a: 20)

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