ATC090625: Report Budget Vote 32

Trade and Industry

Report of the Portfolio Committee on Trade and Industry on Budget Vote 32: Trade and Industry, dated 25 June 2009.

 

The Portfolio Committee having considered Budget Vote 32: Trade and Industry, reports as follows:

 

1. Introduction

 

The Portfolio Committee on Trade and Industry fully supports the framework agreement that outlines South Africa’s response to the global crisis as we shift focus to stop de-industrialisation, create employment opportunities, and avoid any measures that would dilute regional integration.

 

The strategic objectives of the Department of Trade and Industry (the DTI) are underpinned by the President’s June 2009 State of the Nation Address, which raised a number of issues, namely:

 

·         Industrial development focusing on the automobile, chemicals, metal fabrication, tourism, and clothing and textiles sectors, as well as forestry. Furthermore, additional attention will also be paid to services, light manufacturing and construction amongst others, in the quest to create decent jobs.

·         Broadening participation of historically disadvantaged groups and rural areas in the economy through for instance co-operatives.

·         Increasing trade, investments and exports through regional integration with the Southern African Development Community (SADC) and the Southern African Customs Union (SACU).

 

Portfolio committees exercise oversight over their respective departments and agencies in line with their Constitutional mandate set out in section 55(2) of the Constitution (No. 108 of 1996) and section 27 (4) of the Public Finance Management Act (No. 1 of 1999). Due to the re-structuring of ministries and departments, budgets have yet to be realigned. The establishment of the Ministry of Economic Development impacts on the Trade and Industry budget. Funds will be allocated to the Department of Economic Development once the functions have been clearly outlined.

 

The new Department’s focus, according to Minister Patel, “would be the promotion of economic policy development, co-ordination and alignment in government”. Despite the existence of these two separate departments, the current vote has to be passed before the realigned budgets can be developed. Therefore, Budget Vote 32 would be approved and debated by Parliament as a single vote for this financial year.

 

2. Process

 

The Committees of Economic Development and of Trade and Industry held separate meetings with their respective Ministers regarding the envisaged departmental policy frameworks. The Portfolio Committee on Trade and Industry met on 17 June 2009 to consider the Medium Term Strategic Framework 2009 – 2012 of the DTI, Khula Enterprise Finance Ltd (Khula) and the Industrial Development Corporation (IDC). The selection of these two entities was due to the time constraints of the fourth Parliament in having to pass the new budget votes, as well as the uncertainty around the more complex process of restructuring the affected departments and the subsequent process of realigning their strategic plans and budgets accordingly.

 

The Portfolio Committee on Economic Development held its meeting with Minister E. Patel on 19 June 2009. The Minister indicated that the initial phase of the establishment of the Department of Economic Development should be completed by the end of September 2009. National Treasury is expected to table an adjustment budget, which would accommodate the Department of Economic Development.

 

The Minister of Trade and Industry, the Hon Rob Davies, provided the policy context within which the Medium Term Strategic Framework has been developed for the DTI. The Strategic Plan for the DTI was presented by the Director-General of the DTI, while the CEOs of Khula and the IDC briefed the Committee on their respective strategic plans. The position of the Committee after the deliberations is captured in the report.

 

3. Policy context

 

The challenges facing the Department are synthesized against a backdrop of a global economic meltdown. This calls for policies and measures that will address the revitalisation of the critical industrial sectors while ensuring trade negotiations create a responsive trading environment and that both retain and create sustainable employment generation.

 

The National Industrial Policy Framework (NIPF) which outlines urgent interventions to ensure South Africa is protected against the full impact of the international economic crisis is a sound platform on which to develop an action plan. However the Committee agreed with the Minister that the proposed implementation instrument known as the Industrial Policy Action Plan (IPAP) requires radical review if it is going to act as a catalyst to achieve its priority policy objectives. These include a higher growth rate, job creation and poverty eradication.  Initially, the IPAP focused on interventions that would yield quick gains but in the light of the current economic environment the DTI must build on the success of these industrial interventions by further developing the IPAP with stronger structural interventions.

 

The lead sectors identified by the President, in his State of the Nation Address, included areas identified by the DTI as requiring urgent attention to arrest the decline and retain the skills and jobs. These sectors were the automotive industry, chemicals, metal fabrication, tourism, and clothing and textile sectors, as well as the forestry sector. Notable achievements were the Automotive Industry Programme (AIP), as well as the design of new programmes for the clothing and textile industry.

 

The DTI’s role is to promote employment and equity through economic growth within a developmental state in line with South Africa’s vision. This, in essence, is the primary role and mandate of the DTI. In his briefing to the Committee, the Minister of Trade and Industry outlined the key challenges and constraints facing the DTI. Broadly, these focused on industrial development, trade policy and relations, as well as regional integration.

The Minister pointed out that the “Framework for South Africa’s Response to the International Economic Crisis”, calls for a coordinated response by government and its social partners to minimize the impact of the downturn on the poor. The Committee agreed that the Framework’s expanding impact of industrial policy could be a vital link in creating jobs and sustainable livelihoods.

 

However, the Committee emphasized the need for the DTI to work closely with institutions that would be able to provide the necessary support for industrial policy so as to achieve the goals set out in the “Framework”.  The Minister agreed and added that the “response to this crisis situation should be guided firstly by how jobs can be defended and secondly by whether existing strategic industrial capacity can be defended”. He further argued that this response should lay the foundation for longer-term sustainable development within some of these industries.

 

The Ministry’s intention is to continue to broaden the AIP, investing in the improvement of transport infrastructure, and ensuring that busses for the “Bus Rapid Transit System” are manufactured locally thereby stimulating local automotive industries. Metal fabrication, capital and transport equipment are critical industries that provide inputs for the infrastructure investment programme and could provide real growth opportunities within the industrial sector.These policy interventions are crucial in stimulating economic growth and creating sustainable jobs.

 

The Minister pointed out that the “Framework for South Africa’s Response to the International Economic Crisis”, calls for a coordinated response by government and its social partners to minimize the impact of the downturn on the poor. He indicated that expanding the impact of industrial policy could be a vital link in creating jobs and sustainable livelihoods.

 

The Minister confirmed the Department’s intention to develop a roll-out of the radically reviewed IPAP over the next three years, which would support sustainable development by:

 

·         Developing and implementing a technical infrastructure strategy (including standards, quality assurance, accreditation and metrology).

·         Addressing the human resource and other organisational constraints that would delay effective service delivery.

·         Developing partnerships with our institutions of higher learning by entering into mentorship and training agreements.

·         Strengthening regional industrial development through proactive engagement with our regional trading partners to ensure that appropriate norms and standards, which are mutually beneficial, are adhered to.

 

The Committee welcomes the Minister’s commitment to trade policy in South Africa. He indicated that South Africa must improve trade agreements with the European Union (EU) and the United States of America (USA) by consolidating trade and investment agreements in a manner that would benefit the country. The assessment of trade agreements must be done within the context of the current global economic climate. Currently, there is an opportunity to chart a new course for trade negotiations, shaping new engagements in trade relations that could potentially be more beneficial to South Africa. South Africa should play a leading role among developing countries during negotiations at the World Trade Organisation (WTO) and should not respond reactively to demands that arise from these negotiations and agreements.

 

Indeed, in the Committee’s opinion, Parliament should exercise its oversight role more substantively in this regard by taking a more active role during the preparation phase of the trade negotiations. This allows Parliament the opportunity to deliberate on the relevant trade issues and give a broad mandate for the Minister to negotiate from and so strengthen South Africa’s position. The Committee agreed that measures should be developed that allows Parliament sufficient time to apply its mind to the proposed trade agreement so that changes may be effected, if necessary, to assist in achieving the country’s strategic objectives.

 

With respect to South-South trade relations, the Minister expressed his belief that the possibility exists to shape a new pattern of trade-related cooperation agreements with the countries of the South.  However, a coherent agenda on trade negotiations is lacking with the developed world. As a country, South Africa should set an agenda with greater priority on diversifying trade patterns toward greater engagement on trade agreements with developing economies. The Committee supported this position of the Minister.

 

In response to the Committee’s enquiries around the interim Economic Partnership Agreement (EPA) signed between the EU and three of the SACU members (Botswana, Lesotho and Swaziland), and how this affected South Africa and regional integration. The Minister pointed out that the interim EPA could undermine the SACU. The Minister emphasised that South Africa is in favour of deeper economic integration within SACU and this situation provided an opportunity to re-evaluate the structure of SACU.

 

He added that South Africa was convinced that the interim EPA, if implemented in its current form, could create some incoherence as all members of the custom union would be obliged to honour the conditions of the interim EPA even though they may not have agreed to these. South Africa and other members of the customs union were of the view that fundamental matters needed to be resolved before the agreement was signed. Minister Davies’ view was strongly supported by the Committee which emphasised the importance of resolving this matter to ensure that regional integration is consolidated and not fragmented.

 

4. Department of Trade and Industry’s Strategic Plan and Budget

 

The Medium Term Strategic Framework of the DTI was presented to the Committee within the context of the current global economic slowdown and its impact on the South African economy. The briefing provided an overview of the Department’s strategic objectives and key interventions, a brief overview of the allocated resources, monitoring, evaluation and reporting systems and key challenges to effective implementation of its strategic plan. One of the challenges expressed by the Department was the clarification of the role of the new Department of Economic Development and how this would affect the Department and its strategic plan.

The DTI’s budget vote allocation of R6.3 billion has increased by 25% from 2008/09 to 2009/10. This increase has been primarily in two programmes, namely the Enterprise Organisation and Consumer and Corporate Regulation. The largest proportions of the budget were allocated to The Enterprise Organisation (54.2%) and the Empowerment and Enterprise Development (20.6%) programmes in 2009/10. These allocations indicate a continued focus in terms of industrial development, supporting small, micro and medium enterprises and broadening participation in line with the State of the Nation Address objectives. There would also be additional support for efficient regulation of practices that affect consumers, particularly through monitoring, enforcement and compliance of consumer and corporate legislation.

 

In terms of trade, investment and export support, the International Trade and Development programme received an increase of 14.7% and this constituted 2.7% of the budget in 2009/10. This indicates additional resource allocation for the building of links for international trade development. However, the Trade and Investment South Africa programme’s budget decreased by 4.9% and this constituted 4.5% of the budget in 2009/10, which indicates a decrease in the support for increasing export capacity and for direct investment flows to South Africa. This budget reallocation may have a negative impact on the State of the Nation Address objective to improve the capacity to export.

 

The Committee raised a number of issues related to industrial development, the alignment of Broad-Based Black Economic Empowerment (BBBEE) with other policies such as the Preferential Procurement Policy, and the Department’s co-ordinating role within government’s economic cluster. These issues are briefly outlined below.

 

4.1. Industrial Development

 

The Committee enquired about the proposed revision of the IPAP. In response, the Department confirmed that the IPAP would be refined. The Minister reiterated this and explained that the focus would be on implementing the necessary interventions to affect key structural changes along with additional interventions that would produce quick gains.

 

4.2. Broad-Based Black Economic Empowerment

 

In the Committee’s opinion, BBBEE has not effectively been implemented as intended, in particular, in its current form, as it lacks the essential component of being broad-based. Hence the Committee welcomed the decision of the Minister to review the system and streamline its current complex form so that it could achieve its targeted mission. The Department concurred that the outcomes of BEE have not been consistent and that there was a need to collect its own empirical data to analyse the impact of the policy. It also stated that there was a need to establish the Black Economic Empowerment Advisory Council, as provided for in Section 4 of the Broad-based Black Economic Empowerment Act (No. 53 of 2003), which would be responsible for such a review.

 

The Committee noted that information was required on the Preferential Procurement Policy and that there was a need to interrogate the procurement and tender policies. In the Committee’s opinion, the procurement policy was not considered to be aligned with BBBEE policies, which was causing problems, at especially local government levels. The Department responded that BEE should be stimulated by the State in terms of procurement and licensing, which has not occurred. In terms of the transparency of tender and procurement policies, the Department indicated that the rigorous audit processes that it endures annually has confirmed that transparency exists in this respect.The Department also indicated that it would be willing to share information on the alignment of the BBBEE and Preferential Procurement policies with the Committee. The Committee indicated that it would initiate its own review of the BBBEE process and its alignment with the Preferential Procurement Policy.

 

4.3. Southern African Customs Union

 

The Committee expressed their concerns regarding the interim EPA that has been signed by Botswana, Lesotho and Swaziland with the EU and its impact on the entry of illegal or undervalued imports into South Africa. The Department concurred that the integrity of SACU has been undermined by the signing of the interim EPA. The Minister explained that this was due to the inclusion of clauses that allow for more favourable rules of origin for the importation of clothing and textiles into SACU. The Director-General mentioned that the matter could be escalated to the respective Heads of State and the EU could also be engaged, if the matter could not be resolved in another manner. The Department warned that if the matter could not be resolved, it may lead to the disintegration of the region.

 

4.4. Trade policy

 

The Committee expressed a need for the Department to adopt a development model to guide trade policy in conjunction with a flexible and pragmatic approach to trade policy. The Department indicated that the trade policy of opening the economy has not been effectively aligned with the support provided to industry. This has resulted in industries not being able to cope with the effects of the global market, as they were exposed but had not become adequately competitive.

 

About 18 months ago, the Department had indicated to the Committee that a refined trade policy would be provided but this has not yet been received by the Committee. The Department reported that the trade review should be concluded shortly and would be presented to the Minister for his input before it would be published, thereafter it would be presented to the Committee. The review covers trade performance over the last 15 years, a review of changes of trade tariffs, recommendations for future tariff reform, new issues on the international trade agenda and South Africa’s trade strategy.

 

4.5. Consumer and Corporate Regulation

 

Members of the Committee commended the work conducted by the competition authorities in respect of its work in investigating prohibited practices and leading to the prosecution of offending companies. Furthermore, the Department indicated that there was a drive to enhance the competition authorities’ capacity in order to continue the good results that they have achieved. The Committee highlighted the need to provide adequate resources for more effectiveness of these authorities.

 

However, the Committee remarked that there was a need to continuously monitor the regulatory component of the DTI, to ensure that the economy is kept ‘clean’ of fraud, price-fixing and other distortions. In the Committee’s opinion, in line with international developments, a far stronger emphasis should be placed on tightening the regulatory environment within South Africa. 

 

The Committee felt that there was a need to interrogate other regulatory institutions, such as the National Lotteries Board, in terms of their capacity to fulfil their mandates and progress made. The Committee will also interrogate the impact of the National Credit Act and the work of the National Credit Regulator on a continuous basis. In the Committee’s view, these institutions could play a critical role in minimising unfair practices that disproportionately disadvantage the poor and could positively impact on poverty alleviation efforts.

 

4.6. Co-ordination

 

The Committee expressed the need for continuous updates on the co-ordinating role of the DTI in the economic cluster. It was suggested that this become a standing item on the Committee’s agenda, in order to determine how other departments are reinforcing or complementing the Department’s work. The Department noted that in future it would be playing a co-ordinating role together with the Department of Economic Development in the economic cluster.

 

4.7. Incentive Schemes

 

The Committee raised a number of questions around incentive payments and schemes, and felt that there would be a need for further engagement with the Department in this regard. The Department responded that the incentive payments referred to the grant programmes for small and medium enterprises (SMEs) mainly in the manufacturing and tourism sectors, as well as for sector specific grant programmes, such as the film industry and business process outsourcing. Access to these funds was dependent on a number of conditionalities, such as employment generation and geographical location. The size of the grant was up to 30% of the capital component invested in the project. In the Committee’s view, incentive payments and schemes addressed a wider spectrum than what the Department has reported on.

 

4.8. Co-operatives

 

The Committee felt that more financial and other support needs to be given to co-operatives, as it is a useful instrument in addressing the challenge of employment creation especially in areas where there are income disparities. Historically, co-operatives have been relegated to sections of the DTI’s sub-programmes. More recently, Khula, Small Enterprise Development Agency (SEDA) and the South African Micro-finance Apex Fund (SAMAF) were given the responsibility of supporting co-operatives. In the Committee’s opinion, co-operatives could be a much more important instrument if more emphasis was placed on its location and dedicated funds were allocated to it.

 

5. Industrial Development Corporation’s Strategic Plan

 

The Industrial Development Corporation (IDC) provided the Committee with an overview of the current economic situation and its strategic plan for 2010 to 2012. During its briefing, the IDC highlighted its alignment with national objectives. In its view, this included:

 

·         Addressing unemployment through job retention initiatives and a continued focus on labour intensive industries.

·         Developing entrepreneurs and SMEs through the provision of funds, business support and training, as well as building partnerships with entrepreneurs and working with Khula to reach SMEs.

·         Developing rural areas and regions through development agencies, regional offices and a sector specific focus.

·         Supporting and facilitating BBBEE through specifically targeted funds, such as the Women Entrepreneurial, the People with Disability and Community Funds.

·         Focusing on renewable energy and cleaner technologies by investing in projects that develop cleaner technologies, supporting companies that sell carbon credits as an income stream and through the Energy Enterprise Efficiency Programme for South Africa.

·         Providing economic planning and industrial policy support to government.

·         Providing funding for infrastructure development.

·         Assisting companies in distress.

 

One of the key focuses of the State of the Nation Address was the role that IDC had to play in terms of providing relief or assistance to companies in distress. However, there was little focus or information provided to the Committee in this regard. In the Committee’s opinion, the IDC is a critical player in the implementation of the country’s industrial mandate. It should be viewed as a catalyst to stimulate industrial development and should play a more active role in job creation. The Committee is of the view that the IDC should be at the forefront of industrial development by providing the necessary financial support but should not operate using the narrow lending criteria of a bank. The business model of self-financing does not lend itself to this mandate and prohibits the IDC’s ability to invest in major industrialisation projects. The Committee therefore needs to introduce the debate on the issue of self-financing versus government funded recapitalisation to ensure that the IDC operates optimally.

 

The Committee raised a number of issues pertaining to the briefing. These related to large projects, the IDC’s response to the international economic crisis, beneficiation, the IDC’s source of funds, collaboration and the bias in terms of spatial development. These are outlined below.

 

5.1. Large projects

 

The Committee remarked that there was a need to grow the economy as a whole, and that large projects play a fundamental role in achieving this. A question arose on how these large projects would affect the growth of employment. Furthermore, the Committee enquired why there were only electricity projects in Botswana and not in South Africa given our challenges with electricity generation. The IDC responded that energy had no boundaries, as power can be imported.

 

5.2. Response to the International Crisis

 

The Committee noted that the prospects of job creation that IDC reported were not promising considering the President’s commitment to create 500 000 jobs by the end of the year. A question arose regarding the sufficiency of the IDC’s contribution in meeting this target. The IDC reported that only direct jobs were being estimated, thus there was scope for additional indirect jobs to be created.

 

The Committee enquired whether the DTI has considered limiting imports on luxury products and instead investing in import substituting industries to address the balance of payments deficit. However, the Director-General pointed out that the deficit was being driven by the government’s infrastructure capital expenditure and not luxury goods. There is also consideration being given to developing local capacity to manufacture these capital intensive goods.

 

The Committee enquired about the IDC’s criteria for assisting companies in distress, especially the Frame Textile Group and how the funds would be loaned. The IDC responded that they were still in discussion with the Frame Textile Group and have not finalised whether they would be providing assistance. Furthermore, companies were assisted on a case by case basis. However, the IDC did not provide the specific criteria used, apart from the fact that only companies that were normally sustainable and were currently experiencing a cyclical loss due to the economic crisis would be considered. In terms of the IDC’s role in assisting companies in distress, the Committee is of the view that the IDC should not have an ad hoc approach to who it assists but should consider the long term objectives of the country when doing this selection process.

 

5.3. Beneficiation

 

In terms of beneficiation, the Committee mentioned that there are three aspects to beneficiation, namely capital intensity (affecting job creation), resource depletion and downstream activity. The emphasis is usually on capital intensity, but since the IDC invests in minerals beneficiation, the question was raised regarding their views on resource depletion and downstream activity. The IDC responded that it is investing in beneficiation projects that have the capacity to export. The IDC noted that South Africa is a resource rich country but has failed to harness its potential and the increased commodity prices. The IDC has supported private companies in establishing a platinum smelter and other downstream activities, as the country has 25% of the world’s reserves. In terms of gold, the IDC has established a fund on local jewellery manufacturing.

5.4. Source of Funds

 

The Committee enquired about the IDC’s source of funds and the cost of funding. The IDC responded that its income is mainly generated through its investments in South African companies or is borrowed from international agencies mainly from the EU and Asia (particularly China). The cost of funding is subject to fluctuating interest rates from international development finance institutions, which are lower than those in the private sector.

 

The Committee also remarked that the IDC’s capital base was declining mainly due to the impacts of a falling stock exchange. It suggested that the IDC’s model of financial self-sustenance should be reviewed and a debate on whether government should consider providing funds, when necessary, to promote the IDC’s contribution to society should be engaged in. The IDC welcomed this debate but also indicated that it still has room to expand investments.

 

5.5. Collaboration

 

The recognition of the importance of local economic development in contributing to economic growth, employment generation and equity by the IDC underpins its policy to partner with provincial and municipal development agencies. The Committee commends this endeavour. However, it would have liked to learn more about the challenges and success stories in this endeavour. Furthermore, the question arose as to whether the provincial and municipal agencies were not better placed to deal with the lower-end of the market.

 

The IDC responded that it has been involved in training local development agencies in terms of risk management and due diligence, as well as co-investing with these to develop their capacity. The intention behind this has been to improve their service delivery capacity to the local economy and increase financial sustainability of these agencies, thus ensuring sustainable employment and improved access to finance. This would also allow the IDC to focus on larger projects as the other institutions’ capacity grows.

 

5.6. Spatial Development

 

The Committee strongly expressed the need that the IDC break the perpetuation of the spatial development bias and extend financing into less developed areas and away from the currently well-developed urban areas in line with the State of the Nation Address’s focus on development in rural and peri-urban areas.

 

6. Khula Enterprise Finance Ltd on KhulaDirect

 

Khula is a development finance institution, which was established to ensure the availability of finance to SMEs, in areas where commercial financial institutions were wary to lend. During the briefing, Khula provided an overview of its mandate, the wholesale model it has been operating under, constraints and achievements of the current model, as well as the proposed implementation plan for KhulaDirect. The previous Committee had been appealing for the establishment of a retail model to address the bottlenecks of the wholesale model. This has come to fruition in the form of KhulaDirect. As the proposal for KhulaDirect has been approved by Cabinet on 3 December 2008, Khula is currently in the process of developing the implementation plan together with the DTI. Some of the reasons identified for the retail model were that:

 

·         Khula and its commercial partners’ objectives were often divergent, leading to a handicap in terms of driving Khula’s development and destination targets.

·         The wholesale model is too complex and not easily understood by the target market. In addition, in its current form, it increases risk, delivery costs and interest rates charged.

·         The target market is often unaware of the State’s support for SMEs.

 

Khula proposed that KhulaDirect would use existing infrastructure in the form of the Khula regional offices, the acquisition of existing retail finance intermediaries (RFIs), a pilot commercial bank and partnerships with private and state-owned enterprises. In the Committee’s opinion, Khula should focus on improving access to finance for development within rural areas in line with the State of the Nation Address objectives.

 

The Committee raised several issues related to Khula’s source of funding, mentorship programme, geographical spread and collaboration efforts, as well as the implementation plan for KhulaDirect. These are outlined below.

 

6.1.       Source of funding

 

The Committee enquired about Khula’s access to funding in order to increase its loan book and recapitalise itself in order to enter the retail market. Khula informed the Committee that, according to the Public Finance Management Act (No. 1 of 1999), they are unable to borrow funds as they are a Schedule 3 public entity and are dependent on financial support from government. Khula further indicated that it intends to finance some of its recapitalisation by applying for access to some of the additional funds that have been allocated for enterprise and small business development according to the 2009 Budget Speech.

 

6.2.       Mentorship

 

The Committee enquired about the nature and level of support Khula provided towards SMEs. In response, Khula informed the Committee that it provides pre- and post-loan mentorship. It indicated that there are approximately 400 mentors that are provided in conjunction with SEDA. Mentors are trained by the Institute for Business Advisers to ensure the quality of its mentorship programme.

 

6.3.       Implementation of KhulaDirect

 

The Committee enquired why Khula could not disburse funds directly, what the identity of the proposed pilot commercial bank was and why it was selected. Khula informed the Committee that the original wholesale model only allowed that Khula would be a guarantor and leverage commercial banks to finance the poor. However, banks tended to only use these guarantees for the riskiest borrowers. So far, ABSA had been the most co-operative in assisting Khula to achieve this mandate.

 

With regard to commercial banks, the Committee enquired whether the State should “compete” within the banking sector as it appeared that there is the intention to control certain aspects of the banks. Khula assured the Committee that it selects sustainable RFIs, which have a wide reach in rural areas, as partners. The intention is to take equity in RFIs that are progressive, self-sustainable and provide access to finance to people who are historically disadvantaged and would normally not be able to access funds. Khula also assured the Committee that it would not be competing with the private sector but would rather develop partnerships.

 

6.4.       Geographical spread

 

The Committee enquired about Khula’s provincial reach and whether the 290 branches referred to were branches held by the RFIs. Khula informed the Committee that the provincial spread has mainly been developed withinGauteng, Western Cape and KwaZulu Natal. Khula would be realigning its focus to developing the reach in the other six provinces, thereby increasing the accessibility to finance in rural areas. Khula confirmed that the number of branches is measured through the RFIs’ branches. While the Committee welcomed the new focus on other provinces, it raised the issue of how effective the work has been in the Gauteng, Western Cape and KwaZulu-Natalprovinces.

 

6.5.       Collaboration

 

The Committee enquired about the extent of Khula’s involvement with regard to other financing institutions such as the Umsobomvu Youth Fund, Land Bank and the MAFISA Agricultural Development Fund, and the effectiveness of such involvement.  Khula responded that it had been referring entrepreneurs to Umsobomvu Youth Fund or other relevant entities where necessary. The Committee would continue its enquiry on Khula’s collaboration efforts.

 

7. Conclusion

 

Based on the deliberations, the Committee concluded the following:

 

7.1.       That the Ministers of Economic Development and of Trade and Industry brief their respective Committees to provide clarity on the roles of the Departments of Economic Development and of Trade and Industry within four months of tabling of this report.

7.2.       That the Departments of Trade and Industry and of Economic Development brief their respective Committees on how it intends to address human resource capacity of the departments within three months of the adoption of the report by the Assembly.

7.3.       That the DTI briefs the Committee on the review and implementation of the Industrial Policy Action Plan within six months of the adoption of the report by the Assembly.

7.4.       That the DTI presents a draft of the trade policy review to the Committee after engaging with the Cabinet.

7.5.       That the department of Trade and Industry briefs the Committee on the refined Incentive Scheme in conjunction with other participating departments. This briefing should involve the relevant portfolio committees.

7.6.       That the DTI places an increased emphasis on the support of co-operatives and provides information on its work on co-operatives. Certain quota of procurement is apportioned to co-operatives by the public and private sectors.

7.7.       That both departments should emphasise the inclusion of the target groups identified in the State of the Nation Address, including people with disabilities, women and youth.

7.8.       That Khula Enterprise Finance Ltd provides the Committee with a full briefing on the implementation plan for KhulaDirect and the financing arrangements including the reporting on the financing options for the implementation of KhulaDirect.

7.9.       That the National Lotteries Board briefs the Committee on the efficiency and capacity of the National Lotteries Distribution Trust Fund (NLDTF) at the start of third quarter of this parliamentary session.

7.10.     That the Department would have to brief the Committee regularly on intra-COTII (Council of Trade and Industry Institutions) collaboration.

7.11.     That the National Small Business Advisory Council will have to brief the Committee on its activities.

7.12.     That the National Gambling Board engages with the Committee on the impact of its objectives on the socio-economic fabric of communities.

7.13.     That the Department of Economic Development should have continuous engagement with the Portfolio Committee on Economic Development to speed up its establishment and improve on its structure.

7.14.     That the Department of Economic Development should as agreed brief the Portfolio Committee on Economic Development on its newly developed strategic plan, proposed budget and short term programme during the third quarter of 2009.

7.15.     That the Committee urges the DTI to establish the BEE Advisory Council as provided in the Broad-based Black Economic Act (No. 53 of 2003).

 

8. Acknowledgements

 

The Committee would like to thank participants from the Ministries of Economic Development and of Trade and Industry, the DTI, IDC, Khula and other entities in the respective meetings. The Committee would also like to thank the Members of the Portfolio Committees on Economic Development and on Trade and Industry and the Committee staff for their contributions in developing this report.

 

9. Recommendations

 

Based on its deliberations, the Committee recommends that the House requests that:

 

9.1.       The DTI submits a detailed report on incentive payments and schemes to the Committee within three months of the adoption of the report by the Assembly.

9.2.       The DTI submits a review of trade policy to the Committee within three months of the adoption of the report by the Assembly.

9.3.       The DTI tables a progress report to the Committee on the development of the SACU/EU interim EPA and the implications thereof for South Africa within six months of the adoption of the report by the Assembly.

9.4.       That the DTI submits to the Committee a report on the status, funding and development of the nanotechnology and biotechnology research and/or product industry in South Africa, and of any assistance, incentives and facilitation provided by the DTI thereto, and that it does so within three months of the approval of this report by the Assembly.

9.5.       The IDC reports to the Committee on its plan to alleviate the plight of companies in distress and its involvement in large projects within six months of the adoption of the report by the Assembly.

9.6.       The NLDTF tables a report to the Committee on how it intends to establish the capacity and ability to effectively and efficiently distribute the available funds to the beneficiary sector, and provide the strategies on how the backlogs can be corrected and distribution be improved within three months of the adoption of the report by the Assembly.

9.7.       Khula Enterprise Finance Ltd provides the Committee with feedback regarding the implementation plan of KhulaDirect, and that it tables a report to the Committee on:

·         The profile of the retail finance intermediaries in provinces within three months of the adoption of the report by the Assembly.

·         How it improved access to finance within the Western Cape, Gauteng, and Kwazulu-Natal within three months of the adoption of the report by the Assembly.

 

 

Report to be considered.

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