ATC100225: Report Annual Reports of the DTI & its Entities for the 2008/09 financial year

Trade and Industry

Report of the Portfolio Committee on Trade and Industry on the Annual Reports of the Department of Trade and Industry and its Entities for the 2008/09 financial year, dated 25 February 2010

 

 

Executive Summary

 

1.          Introduction

 

Due to the national elections following the period covered by the Annual Reports under review, the Portfolio Committee on Trade and Industry took into cognisance the decision to reconfigure Cabinet and the changing functions in the respective votes, including the establishment of the new Department of Economic Development. The comments, conclusions and recommendations of the Committee reflect its position within this changing environment.

 

The 2008 State of the Nation Address (SONA) outlined the policy priorities that Government would pursue in the 2008/09 financial year. A number of these related to trade and industry interventions in order to further accelerate sustainable economic growth and development through industrialisation and international trade in order to increase employment and equity.

 

The Portfolio Committee on Trade and Industry elected to strategically oversee a selection of Annual Reports of entities reporting to the Department of Trade and Industry annually to ensure that the selection received adequate interrogation. The Committee had oversight meetings to oversee the Annual Reports of the following entities over the period 7 October to 10 November 2009:

 

§         The Department of Trade and Industry (DTI)

§         Competition Commission

§         Competition Tribunal

§         Industrial Development Corporation (IDC)

§         Khula Enterprise Finance Ltd (Khula)

§         National Empowerment Fund (NEF)

§         South African Micro-finance Apex Fund (SAMAF)

§         Export Credit Insurance Corporation (ECIC)

 

This report provides an overview of these meetings, as well as the key issues and recommendations emerging from the deliberations.

 

 

2.          Highlights noted by the Department of Trade and Industry

 

The Minister of Trade and Industry, Mr Rob Davies, highlighted a number of developments in the Department. The next IPAP would be finalised in the next few months and the release of the paper on Southern African Customs Union (SACU) by the World Trade Organisation (WTO) was imminent. The Deputy Minister Maria Ntuli, with a team from the Empowerment and Economic Development Division, undertook a fact finding visit in the provinces, their findings would be shared with the Committee early in 2010. Ms Jodi Scholtz had also joined as Chief Operating Officer to “incrementally” improve service delivery efficiencies across DTI operations.

 

The Director General, Mr Tshediso Matona briefed the Committee on the implications of the Medium Term Budget Policy Statement (MTBPS) for the DTI during 2008-2009. Against the economic environment’s canvas, he highlighted several points noting the strategic objectives, achievements, challenges, and thematic progress in industrial development, trade, investment and exports, broadening participation, regulation, and administration and co-ordination.

 

§         Manufacturing sector: This has been hit hardest by the negative economic growth due to the global economic crisis with a 3 per cent decline in the second quarter of 2009, which is ‘bottoming out’. Consequently about 484 000 jobs in key sectors had been affected between the last quarter of 2008 and the third quarter of 2009. More than half of these jobs had been in the formal manufacturing and wholesale sectors.

 

§         The MTBPS: Implications for the Department included adjusting the orientation of industrial incentives to more labour-intensive industries; implementing a coherent rural development programme; utilising trade, industrial and competition policy to promote exports and to create jobs through increasing competitiveness, raising productivity and lowering costs for both businesses and households; accessing growth opportunities in Africa; and rationalising public entities and agencies.

 

§         Audit Report: The DTI achieved an unqualified audit report and under spent by 1 per cent of the budget or R69.9 million.

 

 

3.          Key issues identified by the Committee on the DTI in general

 

The Committee identified key issues in the annual reports and during the engagement with DTI and its entities and consequent deliberations. It found that the non-financial performance information provided helpful information for its oversight but suggested that this could be improved by including an impact assessment. In addition, the DTI should ensure that strategic targets for outputs were in line with not only the challenges but with what could be realistically achieved. It noted the reconfiguration of the DTI and its agencies in relation to the Department of Economic Development. It also noted the importance of geographical coverage in the interest of overcoming the imbalances in development.

 

§         Economy: Structural deficiencies in the economy and spatial inequalities needed to be addressed urgently through the provision of industrial development initiatives in all provinces. The pressure on the economy was increased by unfair competition, particularly in textiles and aluminium industries, due to subsidised and illegal imports from China.

 

§         Trade development and regional integration: The dichotomy between the need to generate more foreign revenue through foreign direct investment and value-added exports and the increasing emphasis on South-South strategies was increasingly important.

 

The implementation of the interim EPA posed a direct threat to SACU, the oldest customs union internationally and consequently to SADC relations and therefore regional integration and development.

 

§         Small and medium enterprises (SMEs) and co-operatives: The Committee noted the importance of SMEs and co-operatives in overcoming inequalities and advancing geographic spread. It is of the opinion that the limited developmental financial and other support being provided to co-operatives is an impediment to overcoming poverty and economic development. However, it welcomed the Government’s commitment to observe the 30-day payment cycle for SMMEs.

 

§         Gambling and revenue generation: Earlier legislation in this area had encouraged a situation of increased demand for gambling opportunities before a socio-economic study could be conducted on its nearly fifteen years of activities. At issue is the Government’s position on gambling given the justification from various stakeholders that employment and revenue generation as well as BBBEE benefits were contributing to economic development and community cohesion.

 

§         Impact of vacancies on service delivery: The appointment of a chief operating officer was constructive; however, the core challenges around reducing the 18 per cent vacancy rate remained, including the number of terminations at senior level, and the availability and retention of staff.

 

 

4.          Competition Commission

 

The Committee was briefed by the Commissioner of the Competition Commission, Mr Shan Ramburuth, regarding the activities, achievements and challenges of the Competition Commission for the 2008/09 financial year. Key investigations that had been initiated and completed; the implementation of the amended Corporate Leniency Policy; and the future strategic priorities were highlighted.

 

In its deliberations, the Committee raised the impact of investigations on prices and indicated its interest in pursuing this further. It also raised the issue of independence and accountability of the Competition Commission and the criteria being used to identify priority sectors for investigation; consequent costs of investigations; the use of settlement agreements and the use of money received from fines.

 

 

5.          Competition Tribunal

 

Mr Norman Manoim, the Chairperson, and Mrs Lerato Motaung, the Registrar, briefed the Committee on the Tribunal’s performance for the 2008/09 financial year. The briefing outlined the nature of the Tribunal’s work, performance statistics, important decisions during the year, its participation in international bodies, financial management statistics and information about Tribunal Members and staff.

In its deliberations, the Committee clarified the independence of the Tribunal in relation to the Minister of Trade and Industry and the Competition Commission. Further clarification was sought on the compliance with the conditions set for large mergers. It discussed the measures implemented to ensure that corruption by respondents colluding with staff was prevented and called for rigorous attention to the lack of redress for victims of cartels and the possibility of using private enforcement by individuals to enhance competition.

 

 

 

 

6.          Industrial Development Corporation

 

Mr Nimrod Zalk, the Deputy-Director General of the Industrial Development Division from the DTI, provided a background in terms of the environment within which the IDC was operating in. The Chief Executive Officer, Mr Geoffrey Qhena, briefed the Committee regarding the results of the IDC’s 2008/09 Annual Report. The briefing highlighted the IDC’s role and objectives, its achievements and financial statistics, as well as its activities related to the funding of distressed companies and its prospects for the next five financial years.

 

In its deliberations, the Committee focussed on the IDC’s alignment with the objectives of the Industrial Policy Action Plan and the support provided to companies in distress, as well as the need to increase such support. Related to this was the Committee’s concern at the length of time it took for applications to be processed and the reasons for the rejection of applications. The economic opportunity costs in relation to IDC’s funding for the creation of direct and indirect jobs against job losses.

 

The Committee was impressed by the business performance of the IDC; nevertheless, the increasing trend in impairments, namely client indebtedness risk, notwithstanding the economic climate, was a cause for concern as was the relatively high increase in performance bonuses given the current economic climate. On the governance side, issues around the conflict of interest in terms of assisting companies in which IDC board members have a direct interest do not, in the Committee’s opinion, promote an environment of fair practice.

 

 

7.          Khula Enterprise Finance Ltd

 

Mr Setlakalane Molepo, the Managing Director, briefed the Committee on Khula’s performance for the 2008/09 financial year. The briefing highlighted Khula’s mandate and target market, the achievements for the financial year, its operational and financial results and strategy implementation. In addition, it provided examples of success stories and the progress made in the development of Khula Direct’s business plan. Khula also emphasised its recent focus on rural development. In its deliberations, the Committee raised a number of issues some of which had already been focussed on during the year but were still outstanding. In particular, the implementation plan for Khula Direct and its funding options.

 

Another area was the need to penetrate rural areas, improve industrial areas in rural areas and to support emerging black farmers. The Committee, once again, pointed out that the promotion of small enterprises was not receiving sufficient attention compared to countries such as Tanzania. Finally, the measures Khula used to determine the success of SMEs it supported was robustly interrogated.

 

 

8.          National Empowerment Fund

 

The briefing was made by Ms Philisiwe Buthelezi, the Chief Executive Officer, and Mr Andrew Wright, the Chief Financial Officer. During their briefing to the Committee, they outlined the NEF’s mandate, key strategic objectives, the NEF’s organisational structure and historical background. Furthermore, they reported on the performance of the Financial Management and Asset Management Divisions, as well as the annual financial results. Further, it noted the capacity constraints in reaching out to the various provinces.

 

Serious issues were identified by the Committee during its deliberations including the decline in the BBBEE ownership from about 8 per cent on the Johannesburg Stock Exchange before the financial crisis to around 2 per cent. Once again, the need and availability of business planning toolkits was raised, as well as the budgetary significant allocations to remuneration and the merits and criteria against which performance bonuses had been awarded. In addition, the Committee pointed out its inability to determine whether the NEF had performed well during the 2008/09 financial year given the data provided. It also urged the NEF to establish a stronger presence in outlying areas.

 

 

9.          South African Micro-finance Apex Fund

 

SAMAF’s mandate is to focus on providing financial and non-financial support to the micro-finance sector in order to promote equity, particularly in rural areas and among the most vulnerable. Mr Sithembele Mase, the Chief Executive Officer, briefed the Committee on SAMAF’s performance for the 2008/09 financial year. His briefing included information about the rationale for SAMAF; its mandate and alignment with government objectives; its strategic goals and objectives; highlights of its national footprint and network disbursements; challenges and binding constraints it faced; its employee competency profile; and action plans and risk mitigation.

 

A number of issues which were raised by the Committee during its deliberations are related to poor systems and lack of alignment between objectives and actual performance. The sharp rise in impairment provisions or what is commonly understood as indebted clients reveal limited monitoring and a flawed early warning system to detect defaulters and no systematic legal recovery measures. SAMAF’s continuous qualified audit reports due to the structure of some of the agreements between SAMAF and the institutions that it had funded simply underlines this state of affairs. The current lack of risk taking cover for co-operatives with a capital asset base of less than R1 million and a membership of 200 individuals deepens the vulnerability of individuals with no recourse if funds disappeared.

 

 

10.        Export Credit Insurance Corporation

 

The ECIC helps secure export transactions involving South African contractors bidding to provide capital goods and service contracts abroad. Thereby, the ECIC supports the Government’s strategic priorities of accelerating economic growth, creating and maintaining employment opportunities and reducing economic equalities domestically, by assisting medium- to long-term export projects. The ECIC trains its employees in-house to develop the specialised, scarce skills it requires, unfortunately many leave. 

 

Dr Patrick Kohlo, the Chief Executive Officer, and Ms Sedzani Mudau, the Chief Financial Officer, briefed the Committee on the ECIC’s performance for the 2008/09 financial year. The ECIC underlined the impact of US dollar financing and insurance on its financial accounts; its financial performance and the associated risks it faced. The three key risks were identified as succession risks, concentration risks and matching interest rates to enhance competitiveness relative to international competitors.

 

Furthermore, the ECIC had to achieve a balance between excessive portfolio exposure, in Zimbabwe and other African countries while supporting development. According to the ECIC, approved export projects to the value of $500 million had been threatened due to the initial delay in the National Treasury approval of the Interest Make-Up Agreement.

 

During its deliberations, the Committee supported the ECIC’s relationship with the bilateral investment treaty policy framework. Given the ECIC developmental mission the Committee suggested that the ECIC’s continued concentration in Africa would assist in supporting development and stimulating regional trade and integration. However the Committee noted the limited impact of national and provincial awareness workshops conducted by the ECIC and encouraged the ECIC to review their approach.

 

The ECIC received an initial cash injection from the DTI of R2 billion in 2000 thereafter it has been funding its activities from the returns on its investments and premiums received. These premiums are charged relative to the client’s risk profile. The recent restructuring of the ECIC has led to more efficient service delivery but had not resulted in any job losses.

 

 

11.        Conclusions

 

11.1         The Committee welcomes the DTI’s recognition that urgent measures must be developed and implemented to arrest the decline in South Africa’s Industrial base and invigorate the manufacturing sector. It believes that the Industrial Development Corporation can effectively use its sound, robust and resilient financial base to strengthen South Africa’s industrial resurgence.

 

11.2         The Committee also supports the Executive’s refusal to sign the interim EPA, which threatens regional integration in particular through undermining the terms and spirit of the SACU Agreement. It also agrees with the Government on the need to broaden and strengthen trade relations in the South while retaining strategic trading agreements with traditional partners in the Europe.

 

11.3         The Committee recognizes the relationship between employment, industrial development, trade and economic growth and the need to harness positive performance in this relationship to eradicate poverty and enhance community cohesion. Given the inequalities in South Africa, all initiatives should strive to address these, particularly in terms of the geographical spread. Hence, the Committee’s continuing concern at the slow performance in Khula, the National Empowerment Fund, and the South African Micro-Finance Apex Fund. It welcomes the support from the National Treasury for the Export Credit Insurance Corporation, despite the earlier delays. However, it noted that the current legislation did not resonate with the ECIC’s abilities to actively support the participation of SMEs in the export sector and other situations where the national interest may be served. Furthermore, the ECIC’s retention of trained staff should be addressed creatively.

 

11.4         Acknowledging the independent operations of the Competition Commission and the Competition Tribunal, the Committee believes these two entities have a critical role to play in protecting consumers from unfair and unrealistic prices but also through robust business operations developing South Africa’s competitive advantage.

 

11.5         Annual Reports underline the complexities in the concurrent character of gambling operations and its socio-economic impact. The Committee continues to deliberate on these issues to arrive at the optimum operation in a developmental state. The distributive model in the National Lotteries Board remains a concern for the Committee.

 

11.6         Robust oversight by the Portfolio Committee on Trade and Industry was facilitated by the transparent engagement of the Minister and his two deputy Ministers as well as the Director General and senior staff in the Department of Trade and Industry. We extend our appreciation to DTI and look forward to continuing with this constructive working relationship.

 

11.7         The Committee also wishes to thank its Committee support staff in particular the Committee Secretary, Content Advisor and Researcher for their conscientious commitment to their work.  The Chairperson thanks all Members of the Committee for their active participatory oversight, deliberations and constructive recommendations to the House.

 

 

12.        Recommendations

 

The DTI and the relevant entities are required within three months following the adoption of this report to provide a written report on the measures they have implemented to address the following recommendations.

 

12.1         As the IDC will be playing a critical role in the acceleration of the industrial base, it will require significant recapitalisation. The last time IDC was capitalised was in the 1940s and only its judicious investments have enabled it to provide certain finance. However, the current financial demands on it are unsustainable without recapitalisation. The earlier legislation passed in 1940 should be reviewed and aligned with its expected role in a developmental state. The DTI should provide the Committee with a report on the measures that can be developed to underpin the processes of recapitalisation and the review of the existing legislation.

 

12.2         The Development Finance Institutions should submit bi-annual reports on their non-financial performance indicators. Information should include:

 

§         Number and percentage of previously disadvantaged beneficiaries receiving funding and other support, particularly in rural areas and in designated groups including women, youth and people with disabilities.

§         Value of funding received by these beneficiaries.

§         Outputs that are being generated by these beneficiaries.

§         Impact of the funding and support provided, such as job creation and SMME development.

§         Cost of the funds to lenders i.e. applied rates.

§         Percentage of individuals and enterprises able to repay their loans and the assistance given to these.

 

12.3         The DTI must submit a comprehensive qualitative and quantitative report on incentive schemes. The report should include:

 

§        Details of each project and/or beneficiary receiving an incentive.

§        The returns on these investments in terms of the creation of additional long-term sustainable jobs, the number of jobs retained, the downstream effect on new sustainable jobs and the stimulation/injection into the South African economy in terms of projected and actual economic growth.

 

12.4         The ECIC should submit bi-annual reports on the implementation of the Interest Mark-Up Agreement approved by the National Treasury. Information should include:

§         Number of export projects being approved.

§         Companies benefitting, as well as a breakdown of their representivity in terms of designated groups.

§         Value of these projects.

§         Geographical spread of its portfolio.

 

12.5      The National Lotteries Board, in conjunction with the DTI, should submit a review of the distributive model for the National Lotteries Distribution Trust Fund, as well as the amendment of the legislation including issues pertaining to the accountability of the Distributing Agencies.

 

The Report of the Portfolio Committee on Trade and Industry on the Annual Reports of the Department of Trade and Industry and its Entities for the 2008/09 financial year.

 

1.       Introduction

 

The Annual Reports, which address the period 1 April 2008 to 31 March 2009, dealt with the period only a month prior to the national elections. A number of significant programmatic changes within the new term made it clear that all of the programmes referred to in these Annual Reports would undergo changes in line with the fresh configuration in the Cabinet and priority functions including the establishment of the new Department of Economic Development.

 

The purpose of an annual report is to reflect policy implementation and the efficient use of resources for effective service delivery, as well as outputs in line with the organisation’s strategic plan and outcomes in line with its policies.

 

Oversight on Annual Reports takes into account significant changes in policy direction and any valid impediments to implementing targeted outputs as stated in the Strategic Plan. Thus, the Portfolio Committee on Trade and Industry took into account the decision to reconfigure Cabinet and the changing functions in the respective votes. The comments, conclusions and recommendations of the Committee reflect its position within this changing environment.

 

 

2.       State of the Nation Address

 

The 2008 State of the Nation Address (SONA) outlined the policy priorities that Government would pursue in the 2008/09 financial year. These are noted below with a focus on the issues affecting trade and industry, namely to:

 

§         Further accelerate sustainable economic growth and development through industrialisation and international trade in order to increase employment.

§         Implement the Industrial Policy Action Plan (IPAP) in order to accelerate economic growth and development, as well as supporting industrial policy development through tax incentives and industrial policy initiatives. Furthermore, an action plan was to be developed for mineral beneficiation, consumer durables, retail, construction, creative industries, agriculture and agro-processing.

§         Support the automotive sector through the Motor Industry Development Plan (MIDP).

§         Improve the effectiveness of Second Economy and poverty eradication interventions.

§         Intensify efforts to scale up assistance to co-operatives and small enterprises by providing training and improving access to markets.

§         Introduce the system of preferential procurement for specific products to Government from small, medium and micro enterprises (SMMEs). Government would also work towards meeting the 30 day payment period.

§         Finalise the Economic Partnership Agreements (EPAs) through ongoing negotiations with the European Union.

§         Further consolidate the Southern African Development Community (SADC) free trade area (FTA).

§         Establish a one-stop investor call centre to assist investors with land acquisition, infrastructure and environmental impact assessment.

 

 

3.       Process

 

The Portfolio Committee on Trade and Industry elected to strategically oversee a selection of annual reports of entities reporting to the Department of Trade and Industry annually to ensure that the selection received adequate interrogation. This year it focused on overseeing the annual reports of:

 

§         The Department of Trade and Industry (DTI)

§         Competition Commission

§         Competition Tribunal

§         Industrial Development Corporation (IDC)

§         Khula Enterprise Finance Ltd (Khula)

§         National Empowerment Fund (NEF)

§         South African Micro-finance Apex Fund (SAMAF)

§         Export Credit Insurance Corporation (ECIC)

 

The briefings for these entities were over the period 7 October to 10 November 2009. This report provides an overview of these meetings, as well as the key issues and recommendations emerging from the deliberations.

 

 

4.      Department of Trade and Industry

 

4.1. Overview

 

The Minister of Trade and Industry, Mr Rob Davies, highlighted a number of developments in the Department, namely that:

 

§         The next IPAP was to be finalised shortly and would be presented at the Cabinet Lekgotla.

§         The release of the World Trade Organisation’s (WTO) paper on the Southern African Customs Union (SACU) Trade Policy for public comment was imminent.

§         In terms of small business and cooperatives development, the Deputy Minister, Ms Maria Ntuli, and a team from the Empowerment and Economic Development Division had been visiting the provinces and would be presenting their findings.

§         The Chief Operating Officer, Ms Jodi Scholtz, had been appointed recently to incrementally improve efficiencies across the DTI regarding service delivery.

 

The Director General, Mr Tshediso Matona, briefed the Committee on the 2008/09 Annual Report, and made a reference to the implications of the Medium Term Budget Policy Statement (MTBPS) on the DTI. During his briefing, he covered the economic context within which the DTI had been operating, its strategic objectives, achievements, thematic progress and challenges, as well as the implications of the MTBPS.

 

Mr Matona pointed out that economically, the country had experienced negative economic growth due to the global economic crisis (a 3 per cent decline in the second quarter of 2009), but the downturn appeared to be bottoming out. Mainly the manufacturing sector was affected with the key affected groups being metal and metal products, the automotive industry, capital equipment and clothing and textiles. Trade performance had worsened as exports declined by 6 per cent between January and February 2009, which had led to an increase in the balance of payments deficit. There had been a shedding of jobs in key affected sectors between the last quarter of 2008 and the third quarter of 2009 resulting in the loss of about 484 000 jobs. More than half of these jobs had been in the formal manufacturing and wholesale sectors. The Government’s infrastructure development programme had, however, provided a demand pull for certain sectors.

 

The DTI’s strategic objectives were outlined and these related to the five themes within which the DTI’s seven programmes/divisions are divided into. The themes are industrial development; trade, investment and exports; broadening participation; regulation; and administration and coordination.

 

§         Industrial development: The DTI highlighted several achievements during the 2008/09 financial year. These included references to interventions under the National Industrial Policy Framework (NIPF) and its Action Plan; Technology and Innovation initiatives and the performance of the National Industrial Participation Programme (NIPP).

 

§         Trade, investment and exports: The DTI reported on the trade agreements that it had finalised and those that it was in the process of negotiating, as well as its regional and continental integration activities.

 

§         Broadening participation: The Director General outlined achievements relating to Broad-based Black Economic Empowerment (BBBEE); gender and women’s economic empowerment; and communication and marketing. He noted that sector transformation charters for forestry, tourism, construction and transport had been gazetted and that work was underway in terms of assessing the alignment of the BBBEE and Preferential Procurement Policy Framework Acts and the establishment of the Black Economic Empowerment Advisory Council.

 

§         Regulation: The Director General mentioned the various bills that had been enacted and that would be introduced in Parliament, as well as the regulations that were being reviewed by the Department. In addition, he outlined the progress that had been made in terms of consumer redress and awareness and educational campaigns.

 

§         Administration and co-ordination: The Department had focused on strengthening its own institutional capacity during the 2008/09 financial year. This included reducing its vacancy rate and developing its employees through a number of initiatives. The Department had also strengthened its key corporate governance structures. Finally, it had achieved an unqualified audit report and under spent by 1 per cent of the budget (namely R69.9 million) at the end of the 2008/09 financial review.

 

The implications of the MTBPS for the Department included adjusting the orientation of industrial incentives to more labour-intensive industries; implementing a coherent rural development programme; utilising trade, industrial and competition policy to promote exports and to create jobs through increasing competitiveness, raising productivity and lowering costs for both businesses and households; accessing growth opportunities in Africa; and rationalising public entities and agencies.

 

4.2. Key issues raised by the Committee

 

The following issues emerged during the Committee’s study of the Annual Reports, its engagement with the entities and consequent deliberations:

 

4.2.1. General

 

§         Performance Information: The Committee commented that the non-financial performance information provided was helpful, and suggested that this could be improved by including an impact assessment and ensuring that strategic targets for outputs were in line with not only the challenges but with what could be realistically achieved.

 

§         Impact of the Department of Economic Development: The Committee enquired whether the DTI had considered the structuring of its agencies in relation to the Department of Economic Development. The DTI reported that there was a process to transfer some of the agencies to the new Department but it wanted to do that while breaking down silos and thus COTII meetings will continue and the functional relationships between entities will not change.

 

§         Effectiveness of programmes: The Committee asked the DTI how it ensured that critical mass was reached in its various programmes and what the challenges were in this regard.

 

§         Policy Statements: The Committee encouraged the DTI to produce documents on major policy issues facing the country beyond those related to trade negotiations and industrial development. The DTI informed the Committee that the next IPAP would be released soon. It also indicated that a competitive exchange rate would be required in order to meet its objectives. Other policies that were being reviewed included the SMME and co-operative programmes.

 

§         Structural deficiencies in the economy: The Committee commented that the DTI kept speaking of further adjustments and improvements in the way it conducted its task, which implied that they were maintaining and improving what had already been established. However, in the Committee’s view, there is a need to refocus efforts in certain areas. The DTI agreed that unemployment had not reduced in spite of ongoing economic growth prior to the economic recession, and that structural changes were necessary. This had been the reason why the DTI had been targeting labour-intensive parts of the economy and manufacturing was an important catalyst in this regard.

 

§         Electricity supply: The Committee enquired whether a study had been conducted on the impact of the irregular supply of electricity by Eskom. The DTI replied that it was developing a response to the electricity cuts and that the worst impact would be no electricity to firms. In the Committee’s opinion this is an area that needs to take full advantage of the “no silo syndrome” that now prevails and to tackle the challenges posed by an irregular energy supply.

 

 

 

 

4.2.2. Industrial Development

 

§         Spatial distribution of activities: The Committee commented that not all provinces were included in the industrial development initiatives and enquired about the strategies that the DTI would implement to correct this disparity. It also enquired why there had been no representation of the Free State within the NIPP. The DTI indicated that it would be providing the Committee with an update of NIPP projects in the following year. It also alerted the Committee that the numbers provided in the presentation only indicated the projects currently active and not the real spread of projects since 1999. Hence projects in the Free State, such as the gold beneficiation projects, were not reflected in the graph, as these had been terminated due to mismanagement of the funds.

 

§         Automotive industry: The Committee noted that the MIDP primarily benefitted vehicle and component manufacturers and that most of these manufacturers were foreign-owned. It thus appeared that taxpayers were funding the flow of dividends and profits out of South Africa and it enquired how the DTI balanced the programme in terms of the benefits accrued within South Africa and the outflow of income.

 

The Minister responded that all developing countries that were industrialising had an automotive sector otherwise they faced deindustrialisation. South Africa was focusing on supporting component manufacturing, the manufacturing of buses, and medium and heavy commercial fleet using the platform established by original equipment manufacturers (OEMs). In order to ensure balance, the Department would need to consider the impact on direct and indirect jobs, other sectors and the additional benefits and costs of the programme. The DTI was therefore encouraging investment by OEMs that ensured that new generation products would be manufactured locally. The DTI also reported that a modelling exercise showed that continued support to this industry would deliver significant benefits in comparison to the cost.

 

§         Business Process Outsourcing and Off-shoring (BPO&O): In response to the Committee’s enquiry on projections for the 17 BPO&O applications, the DTI stated the BPO&Os would be created over the following three years. The jobs created would be monitored and incentive benefits would be disbursed on the basis of job creation.

 

§         Imports of subsidised products: The Committee enquired about the challenges that textile and aluminium industries were experiencing regarding imports of subsidised products from China and how the DTI intended to assist these industries.

 

The Minister responded that there were challenges with China importing illegal goods, under-invoicing and incorrectly labelling goods. He emphasised that the domestic industry required the ability to respond to fast fashion and new textiles, sports wear and camping gear sectors, where it could have an advantage over foreign companies. One of the domestic industry’s biggest challenges was that companies were not investing in capital and skills development.

 

The DTI was proposing the revamping of their credit system to promote investment in the clothing industry by providing credits for companies that produce value added products rather than only those involved in exporting. Another solution could be countervailing duties to address subsidised products. This could be a problem as it would damage foreign relationships. The DTI has however increased tariff rates and were cracking down on illegal imports. The DTI also reported that in September 2009 SARS (South African Revenue Services) seized R60 million worth of illegal clothing and textile imports and raided 47 stores that did not have proper proof of import documentation.

 

§         Incentives: The Committee noted that incentives were an important part of the DTI’s work, especially since 54 per cent of the DTI’s budget was allocated to incentives and requested a breakdown of the types of incentives. The DTI indicated that both new and existing firms that were expanding their capacity benefitted from its incentive schemes. It also indicated that a large number of incentives were supplied by the DFIs, namely off budget support. These schemes included the MIDP, which was one of the DTI’s largest off budget incentive schemes; the SMEDP (Small Medium Enterprise Development Programme, now the Enterprise Investment Programme), which was the largest incentive scheme that was included in the DTI’s budget; other sector focused programmes, such as those within the BPO&O and the film and TV industries; and on co-operatives and black business supplier development programmes.

 

Further, in response to the Committee’s enquiry on how incentives for polymers benefitted the country apart from developing skills and providing training, given that the raw materials were being imported. The DTI stated that incentives for polymers allowed for a shift in emphasis and increased value addition in downstream sectors, as polymers were the building blocks of plastics fabrication. Polymers were also found to increase employment. Polymers were mainly produced by SASOL and the pricing of imported raw materials was important. ITAC had recently decided to lower the tariffs on polymers; however, areas of demand were required.

 

4.2.3. Trade, investment and exports

 

§         South-South relationships: The Committee commented that there was a dichotomy between the need to generate more foreign revenue through foreign direct investment and value-added exports and the increasing emphasis on South-South strategies, as the existing South-South relationships have led to an increasing trade deficit, while the North-South relations provided South Africa with a surplus on its trade account but appeared to have a lower priority. Given this dichotomy, the Committee enquired what the DTI was doing in terms of exports to China and other South countries.

 

The Minister acknowledged that trade with China, India and Brazil was too dominated by exports of primary products and not sufficiently by value-added products. However, the intention was to increase the mix of products being exported to these countries. Furthermore, he alluded that there was a structural deficit in terms of trade with China, this was being discussed with China and so far a Partnership for Growth and Development had been put in place to address issues such as their procurement systems. Regarding Brazil, the DTI has been identifying industrial market complementarities rather than pushing for market dominance. However, the Minister emphasised that the DTI was not neglecting North-South relationships.

 

§         Economic Partnership Agreements: The Committee averred that the implementation of the interim EPA could damage SACU and SADC relations and requested more information in terms of the impact of the Interim EPAs onSouth Africa. Furthermore, the Committee enquired what measures were in place to curb the flow of imports via signatory countries. The DTI indicated that trade related obligations curtail policy space and does not improve regional integration,. It also indicated that Namibia could have its benefits withdrawn if it does not sign the interim EPA. The EPAs presented a border issue, as the tariffs would not change but there would be a difference in terms of the rules of origin between the Trade Development Cooperation Agreements and the EPAs. The DTI emphasized the need to deepen regional integration. However, to facilitate regional integration three issues had to be resolved. These were the relative importance and priority of industrial development and tariff setting, trade negotiations and agreement on the direction of trade.

 

§         Illegal imports: The Committee enquired what the risk of illegal goods was and the nature of the DTI’s relationship with SARS in this regard. The DTI responded that it formed part of the joint Illegal Imports Task Team along with the SARS, which was a major player in curbing illegal imports. The Minister also stated that there was a 60 per cent difference between the declared value of imports from China and the actual value.

 

4.2.4. Broadening participation

 

§         Co-operatives: In response to the Committee’s enquiry on the percentage of support for co-operatives and the mechanisms to properly measure the outcomes, the DTI confirmed that only a small percentage of the DTI budget was allocated to co-operatives and this was for specific processes such as start-ups. However, the DFIs also supported the movement separately. The DTI added that it had initiated an incentive programme for co-operatives, which had disbursed R9 million within the first year, mainly in rural areas. This was intended for small co-operatives which received about R300 000 as working capital. The Minister reported that there has been a policy change that would consider co-operatives as separate entities that are different from other enterprises and that there were discussions under way at NEDLAC regarding a policy framework for co-operatives.

 

§         Development Finance Institutions: The Committee asked whether additional investment or cash injections would be received by the DFIs and what the DTI’s position was on this. The Minister mentioned that in other countries regular injections are provided to DFIs to enhance their ability to meet their development objectives. A few proposals would be made as part of the reviewed IPAP.

 

§         South African Women Entrepreneurs’ Network (SAWEN): The Committee noted that the DTI had worked on stabilising the network and reviewing the strategy, and enquired whether there were any challenges and when the process would be finalised. The DTI explained that SAWEN was being rearranged institutionally. In the past, it was led as a Section 21 company that was not registered at the DTI but was being assisted by the DTI. However, the DTI wanted to rearrange this network as there had not been an optimal working relationship with the provincial legs of SAWEN.

 

§         Small, Medium and Micro Enterprises: The Committee asked whether the 30 day payment cycle had been observed for SMMEs. The DTI reported that through SEDA, the DTI had launched a call centre where SMMEs could call to enquire about payments. In addition, the DTI had been working with National Treasury to make the 30 day payment policy part of all Departments’ performance contracts.

 

4.2.5. Regulation

 

§         Consumer protection: in response to the Committee’s enquiry about the functioning of consumer protection, the DTI indicated that the new Consumer Protection Act would increase consumer protection once implemented in 2010. This would protect consumers in terms of product quality, product recalls, and labelling, as well as unfair contract terms.

 

§         Gambling: The Committee enquired what the Government’s position on gambling was; given that various stakeholders were advocating increased gambling and justifying this on the basis of its employment and revenue generation, as well as its BBBEE benefits. The DTI assured the Committee that gambling was not being viewed as a revenue stream but its intention was to curb the surge of illegal gambling. However, there were loopholes for the introduction of some gambling activities.

 

The DTI was currently conducting an impact assessment and would not be signing any new legislation for additional gambling activities until the assessment has been considered. In addition, the DTI acknowledged that it did need to make a clear policy statement regarding Government’s position on gambling and that Parliament’s voice was important in this regard. The Committee informed the Minister that it had already completed the first phase of its oversight on gambling legislation and its socio-economic impact, but were continuing with the second phase in January 2010 and would complete its final phase which included a report to the House at the end of the first quarter in 2010.

 

4.2.6. Administration and co-ordination

 

§         People with disabilities: The Committee noted that only one per cent of employees represent people with disabilities. The Minister responded that the disability representation was low. However, this percentage largely represents the Soweto call centre facility, which was a learning curve for the DTI. This facility has had a low turn over and was located in the Cheshire Home where the staff received the necessary support. Furthermore, the target of two per cent had been met during the current financial year.

 

§         Staff turnover: The Committee questioned the Department on the core challenges around reducing the 18 per cent vacancy rate including the number of terminations at senior level.  The DTI assured the Committee that it was committed to reducing the vacancy rate. It explained that it could not compete with the private sector in terms of salary but needed to improve the quality of the work and prioritise the industrial sector. It also reported that it was recruiting from the same skills pool as the Department of Economic Development; therefore there was a need to grow the skills pool for industrial policy development using an internship programme and to provide observations about economic education to the Department of Higher Education.

 

§         Staff intimidation: The Committee expressed its concern about allegations of staff intimidation within the DTI Group, specifically related to CIPRO. The Minister reported that he had become aware of serious allegations against CIPRO and that the DTI would be launching a full forensic investigation in this regard.

 

§         Training: The Committee suggested that the DTI’s Centre for Entrepreneurship could be open to all, including non-graduates. The DTI confirmed that the Centre was open to all entrepreneurs for assistance.

 

§         Audit reports: The Committee noted that the DTI had consistently received unqualified reports. However, the Auditor General (AG) mentioned issues for attention such as inconsistent leave records, the lack of a human resource plan for a major part of the financial year and inadequate systems for the safe keeping of documentation. In addition, there was non-compliance in terms of the preparation and approval of the strategic plan for the 2008/09 financial year.

 

The DTI responded that the AG had only highlighted technical compliance issues and that the DTI would respond to these appropriately. The leave records were problematic as the PERSAL system was still a manual one. The first Human Resource Plan had been submitted in September 2008; therefore, the compliance issues have since been met. In terms of record keeping, there was a centralised record management function but the number of staff was inadequate. The DTI was now in the process of scanning records so that these could be available electronically. The Committee welcomed the tightened and improved controls for the withdrawal of documents.

 

§         Fruitless and wasteful expenditure: The DTI reported that the fruitless and wasteful expenditure of R86 000 had been incurred in situations where the DTI had paid for staff or international delegates to attend conferences or meetings and then these individuals were not able to attend. This was monitored and recorded meticulously by the Department.

 

§         Performance agreements of Senior Management Service posts: The Committee noted that the majority of the performance contracts seem to have been completed already, but asked what the expected deadline was for the outstanding contracts. The DTI reported that the outstanding contracts were due to terminations or new appointments, as new employees are allowed a period of 3 months before they signed the contracts.

 

§         Relationship of government to business: The Committee asked the DTI to outline how it relates to organised business and those businesses outside of formal business associations. DTI explained that it related to organised business and labour through NEDLAC and its sector strategies, conferences and trade missions. The Department continued to highlight that organised business was facing huge challenges such as limited ability to service international arrangements. The DTI had been attempting to assist them with trade missions.

 

 

5. Competition Commission

 

5.1. Overview

 

The Competition Commission is responsible for promoting and maintaining competitive practices in South Africa. Primarily, it does this by investigating and evaluating alleged anti-competitive practices; by granting or refusing applications for exemptions from the application of the Competition Act; and by authorising, prohibiting or referring mergers of which it receives notice. Cases are investigated on the basis of either public complaints or initiation by the Commission.

 

The Committee was briefed by the Commissioner of the Competition Commission, Shan Ramburuth, regarding the activities and achievements of the Competition Commission for the 2008/09 financial year. The Commissioner highlighted some of the key investigations initiated and completed; the implementation of the amended Corporate Leniency Policy; and the future strategic priorities.

 

The amended Corporate Leniency Policy was significant as it would allow the instigator of a cartel to apply for corporate leniency; provide more legal certainty; instate a marker procedure for potential applicants; allow for oral submissions by applicants; and shift responsibility to the Enforcement and Exemptions Division. These changes have resulted in a significant increase in the leniency applications since July 2008.

 

One of the concerns raised by the Commission was that the litigation process was being unnecessarily delayed where members of cartels prevented matters from being heard on its merits by arguing on legal technical points. There also appeared to be some public confusion on the role of the Competition Commission in relation to other consumer rights institutions and what constituted misconduct in terms of the Competition Act resulting in a number of complaints being received and not referred for investigation by the Commission.

 

5.2. Key issues raised by the Committee

 

§         Independence and accountability: The Committee noted that the Commission had been established as an independent institution but enquired who it was accountable to. The Commission responded that it was ultimately responsible to Parliament through the Minister of Trade and Industry. It explained that it was independent; as its decisions and stances had to be justified on a public platform before the Competition Tribunal and that this could be appealed at the Competition Appeal Court.

 

§         Cost of investigation: In response to the cost of cases the Commission said that it considered the cost of investigating and litigating a case against the probability of successfully winning the case. Therefore it would not embark on a case that involved a high cost and a low probability of success.

 

§         Priority sectors: The Committee queried what the criteria had been for identifying the Commission’s four priority sectors. The Commission responded that the sectors were identified on the basis of whether they involved markets that affect the majority of the population, particularly the poor; whether enforcement activities were aligned with government strategy and policy; and/or whether it affected the cost of doing business.

 

§         Fines: The Committee enquired how money received from fines was applied. The Commission responded that fines received were transferred directly into the National Revenue Fund and did not benefit the Commission.

 

§         Settlements: The Committee enquired about the principle that informed settlements and the perceptions around it. The Commission responded that settlements were not necessarily the cheapest way out for transgressors. The principle applied in the decision on whether or not to reach a settlement was to compare the settlement with what the Commission would have fined the company had it pursued the case and obtained a judgement. If the settlement was far less, the Commission would not settle.

 

§         Impact of cartel investigations on prices: The Committee further enquired whether the actions taken prohibit similar conduct in future. The Commission responded that there was anecdotal evidence that indicated that prices had been reduced when cartels were broken up. “For instance, prices had dropped in the mining sector in the North-West and Mpumalanga provinces.” It added that cartels were disrupted shortly after the announcement of an investigation. Furthermore, “over a period of time markets tended to adjust to a new equilibrium but that it took time for results to be evident as prices do not fall immediately”.

 

The Commission gave the example of the case against the pharmaceutical company, Glaxo-Welcome, concerning the cost of anti-retrovirals (ARVs), Glaxo-Welcome had patent rights on the treatment and the initial monthly cost of ARVs was R4 000. The settlement and agreement allowed for the manufacture of a generic equivalent, resulting in a reduction in the monthly cost of ARVs to R400.

 

§         Banking inquiry: The Committee had not yet received the 28 recommendations made for the Banking Sector. The Commission responded that the report was available on its website and that it could make this available to Parliament. Initially the delay in releasing the report was due to time lags where the lawyers of the various banks were blanking out confidential information from the report. Given the impact of the international financial crisis and its economic consequences the Commission was persuaded by National Treasury to withhold the report until December 2008.

 

§         Statutory deadlines: The Committee requested that the Commission provide it with the statutory deadlines for the finalisation of merger cases. The Commission indicated that the deadlines after all notification requirements were fulfilled were as follows: for small and intermediate mergers – 20 business days (and an extension of not more than 40 business days), and for large mergers – 40 business days (and extensions may be granted by the Tribunal for not more than 15 business days at a time).

 

§         Mergers: The Committee requested a breakdown of the 414 merger notifications received in terms of the size of these mergers. The Commission reported that 8 were small mergers, 303 intermediate mergers and 103 were large mergers.  Further whether any of the merger cases received in the 2008/09 financial year had not been completed and how many had not been completed. The Commission responded that 41 merger cases were not completed during the 2008/09 financial year but had been completed since.

 

§         LegislationThe Committee enquired whether the Commission was aware of any laws that allowed anti-competitive practices. The Commission replied that it was aware of specific legislation including petroleum, certain health care products and the tariffs set by Independent Communications Authority of South Africa (ICASA). It also alluded to previously regulated industries and sectors that were involved in anti-competitive practices such as milk production,

 

§         Empowerment of the public: with reference to community outreach programmes the Commission responded that it targeted consumer organisations and trade unions rather than communities. However it concurred that there was a need for consumers to become more discerning to ensure that firms took competition matters seriously. The Commission considered itself to be a public policy agency that fixed markets in “an holistic manner rather than fought individuals’ battles”.

 

§         Human resources: The Commission gave a division and level breakdown of its 14 newly employed staff members had been employed as shown in the following matrix:

 

MONTH

DIVISION

LEVEL/ PEROMNES GRADE

POSITION

NUMBER

Apr ’08

Enforcement & Exemptions

7

Analyst

1

Jul ’08

Enforcement & Exemptions

7

Analyst

1

 

Corporate Services

10

Financial Assistant

1

Sep ’08

Enforcement & Exemptions

8

Junior Analyst

1

 

Policy & Research

8

Junior Analyst

1

Oct ’08

Legal Services

5

Senior Legal Counsel

1

 

Legal Services

7

Legal Counsel

1

 

Policy & Research

7

Analyst

1

 

Corporate Services

18

Catering assistant

3

Dec ’08

Corporate Services

11

Temp Receptionist

1

Jan ’09

Corporate Services

18

Temp Catering Assistant

1

 

Enforcement & Exemptions

5

Technical Consultant

1

TOTAL 

14

 

However the Committee also requested a statistical breakdown of the representivity, gender and people with disabilities for the entire staff complement. The Commission indicated that the institution was well represented in terms of gender and race. There had been a high turnover due to high levels of young, upwardly mobile staff but also a tendency of staff to return to the organisation recently including three senior managers.

 

§         Financial statements: The Committee required clarification around the misstatements referred to by the Auditor-General; the reason for the operating deficit; and the intention for the accumulated balance sheet surplus. The Commission reported that the misstatements were due to allowed adjustments after 31 May 2009 in terms of the Public Finance Management Act. This adjustment entry was due to the transfer of the Corporate Services Division to other premises; rental income of approximately R400 000 that had not been received for four months. The Commission had had operating deficits over the last two years as it had been able to rely on accumulated surpluses brought forward from previous years, which was expected to be exhausted in 2009/10. The Commission was liaising with the DTI with regards to the shortfalls it was experiencing and its additional funding requirements. The Commission had also submitted, to the DTI, its bid for additional funding for the Medium Term Expenditure Framework period. The final allocations were not yet available.

 

 

6. Competition Tribunal

 

6.1. Overview

 

The Competition Tribunal’s core mandate was to regulate corporate mergers and adjudicate cases of anti-competitive behaviour in accordance with the Competition Act.

 

Mr Norman Manoim, the Chairperson, and Mrs Lerato Motaung, the Registrar, briefed the Committee on the Tribunal’s performance for the 2008/09 financial year. The briefing outlined the type of work the Tribunal had been involved in, performance statistics, important new decisions it had taken during the year, its participation in international bodies, some of its financial management statistics and information about Tribunal Members and staff.

 

6.2. Key issues

 

The following issues emerged during the Committee’s deliberations:

 

§         Independence: The Tribunal stated that it had very little contact with the Minister and that this relationship was limited to discussions around its budget and vacancies.

 

The Committee noted that there appeared to be a close partnership between the Commission and the Tribunal. This relationship could create a perception of a lack of independence, as the Tribunal judges the findings and work of the Commission but also collaborates with it. In addition, in terms of the Commission and Tribunal’s findings, there appeared to be a tendency of agreeing with one another.  The Tribunal responded that the two institutions functioned independently and that it had differed with the Commission on a number of occasions. Recently, there have been opposing opinions on about four merger cases.

 

§         Collusion: In response to the Committee’s query on Tribunal’s role in terms of dealing with alleged collusion between domestic importers and foreign companies in terms of practices, such as under-invoicing. The Tribunal responded that it had jurisdiction over foreign cartels that have a direct economic impact on South Africa.

 

§         Corruption: Regarding the measures to ensure that corruption by respondents colluding with staff was prevented. The Tribunal responded that its system was designed to curb corruption. Some of the measures that were being implemented included the opportunity for private individuals to bring cases directly to the Tribunal, the Commission was required to publicly exhibit its evidence and the Tribunal members heard cases in groups of three and had to reach consensus on its decisions.

 

§         Impact of fines: In response to a question posed to the Commission, the Tribunal indicated that there was no evidence that companies, previously found guilty, were found to be involved in the same type of misconduct later. It could therefore be assumed that fines levied have been successful.

 

The Committee enquired about the impact of the Tribunal’s activities on the public. The Tribunal responded that it publicised its outcomes, including consent orders and that the public had been allowed to make submissions during the processes. Furthermore, its opinions have led to some prices being lowered, the improvement of the perception that the system had teeth and had negatively impacted on firms’ reputations that have been found guilty.

 

§         Victims of cartels: The Committee noted that the lack of redress for victims of cartels gave the impression that nothing could be done by consumers. The Tribunal indicated that the possibility of ring-fencing fines for dedicated uses, such as funding private litigation of guilty cartels by victimized individuals, could be considered instead of submitting these fines into the National Revenue Fund for general use.

 

The Committee commented that the Legal Aid Board should be sensitized about private litigation. The Tribunal responded that there had been indirect redress for individuals. In addition, private litigation was a possibility provided that the Legal Aid Board was given funding for this purpose.

 

§         Private Enforcement: A member of the Committee suggested that the system could be improved by adding an element of private enforcement with the option of receiving treble damages regardless of the Commission’s activity, as the possibility of suing for costs would widen the ability to litigate. The Tribunal expressed the opinion that the efficacy of competition law may be dampened if litigation options are liberalized, as the civil courts may reduce damages awarded as the number of claims increase.

 

§         Compliance: The Committee enquired whether companies failed to meet the conditions set out for them in terms of mergers. The Tribunal indicated that in most cases the conditions were adhered to. In one case, the divestiture of a firm’s dominant position was not effected on time but had been complied with since then.

 

§         Qualifications of Tribunal members: The Committee enquired what qualifications were required for one to serve on the Tribunal. The Tribunal explained that the President is responsible for the appointment of Tribunal members on the advice of the Minister. The main qualifications required were law, commerce and/or public administration.

 

 

7. Industrial Development Corporation

 

7.1. Overview

 

The IDC’s primary role was to support industrial capacity development and promote entrepreneurship in Africa. It performed this role on a self-financing basis.

 

Mr Nimrod Zalk, the Deputy-Director General of the Industrial Development Division, the DTI, provided a background in terms of the environment within which the IDC was operating in. The Chief Executive Officer, Mr Geoffrey Qhena, briefed the Committee regarding the results of the IDC’s 2008/09 Annual Report. The briefing highlighted the IDC’s role and objectives, its achievements and financial statistics, as well as its activity related to the funding of distressed companies and its prospects for the next five financial years.

 

The IDC indicated that they were widening their geographical spread and addressing regional equity issues by opening eight regional offices and providing support to projects in rural areas and townships and diversifying sectors which it funded.

 

In terms of funding distressed firms, the IDC intended to invest R6.1 billion over two years. However, it indicated that this type of investment would not be sustainable over the long term.

 

The IDC said that there needed to be better packaging around interventions and indicated that it was working on packages for the textile industry along with the DTI and other incentives available.

 

7.2. Key issues

 

The following issues emerged during the Committee’s deliberations:

 

§         Employment creation: The Committee noted the statistics provided in terms of the direct jobs to be created through the IDC’s funding. However, it enquired whether the IDC had conducted a study to reconcile the jobs lost versus those created, as employment retention was critical. The Committee commented that the IDC’s defensive and offensive thrust of job creation was appreciated. The IDC responded that it was consciously making an effort to create new jobs and retain existing jobs; it indicated that it would only be able to reconcile jobs lost versus those created at the IDC client level but the DTI might be able to do this at a national level.

 

§         Distressed companies: Given the uncertainty of the length of the international economic crisis, the Committee enquired about the IDC’s ability to assist distressed companies. The IDC responded that it had planned to provide funding of R6.1 billion over the next two years, but was willing to invest more, if required. However, stress testing on what the IDC could still absorb before the taxpayer had to cover costs had been conducted and showed that it could absorb up to R12 million. The funds would be funded off its balance sheet and not government finance for recapitalisation. However, it was taking into account the increased risk and adjusting its lending rate accordingly.

 

In response to the perception that it bailed out companies at the expense of the taxpayer the IDC stressed that as a policy-based development institution, it allocated funds where there were possibilities of maximising impact, such as green sectors. Therefore it did not see its role as bailing out uncompetitive firms, but rather funding firms on the basis of viability.

 

The Committee commented that industrial development presupposed planning and this should be given urgent attention during the crisis, as there was a social impact of investing additional money when previous investments had not provided any returns. The IDC should consider the viability of the sectors it was assisting after the crisis. The Committee also acknowledged that the current crisis would have a material impact on South Africa’s employment and risk damaging its industrial base.

 

§         Disability fund: The Committee noted that the IDC had provided R50 million for the disability fund. The Committee enquired whether the R50 million was allocated for this fund or had this actually been distributed, and who adjudicated the disability fund. The IDC responded that the R50 million had been approved for the Disability Fund. The return expectation on this fund was a much lower rate (i.e. prime minus one). The IDC emphasised that even though funds were available, there was not necessarily uptake of the fund.

 

§         Shares in companies: The Committee enquired if there was a differing approach in financing companies that IDC had shares in versus those that it did not own shares in. It requested percentages in this regard. It also enquired whether there were maturity dates for shares held as security or would these be held indefinitely. In response the IDC said it financed companies regardless of whether or not it held shares in the company, as it had many instruments that it used to fund companies, including guarantees, equity, quasi-equity and straight loan mechanisms. For instance, an equity stake could be used to limit the debt burden on start-up firms. These types of investments would be sold after a period of time and the funds would be reinvested elsewhere. Some of these investments were earmarked on the basis of the IDC’s strategic objectives. The IDC indicated that it did not buy shares except as part of its mandate to provide development finance.

 

§         Conflict of Interest: The Committee commented that some board members could have direct interest in some of the companies being assisted and access would thus be easier for these firms. It asked what the IDC’s policy was in this regard and how frequently had companies linked to board members accessed funds. The IDC responded that non-executive directors with interest in companies were required to disclose this. It had a process where a separate committee considered applications to ensure that directors with interest were not involved in granting funds to such companies. However, it would raise this issue with the chairperson of the board in terms of strengthening measures in this regard.

 

§         Regional development: The Committee enquired whether the IDC had considered supporting industrial parks within townships. The DTI responded that the IDC worked with other DFIs, such as the Development Bank of South Africa, and the DTI in this regard.

 

§         Alignment with the Industrial Policy Action Plan: The Committee asked whether the IDC was aligned with the IPAP. The IDC indicated that it worked closely with the DTI to assist in achieving the objectives of IPAP. However, it did not place any preference on particular sectors but assessed the level of impact of different sectors and determined how these could benefit from support. The IDC also mentioned that it was hard to predict where demand would come from; it therefore approached funding on a company to company basis, so as not to exclude any companies.

 

§         Applications: The Committee enquired what the process was for the approval of an application and the length of time involved from the point of receipt to actual disbursement, as the Committee had received a letter of complaint from one of the IDC’s clients in the Eastern Cape about 6-8 months delays for approval and disbursement. The IDC replied that the turnaround time differed depending on the size and type of applications received. The process consisted of a basic assessment; interaction with the potential client; a due diligence exercise; submission of a report; approval, development and signature of agreements; and distribution of funds. The IDC was working on a system for applicants to track the progress of their applications online.

 

The Committee enquired whether the IDC had learnt any lessons from the applications that have been rejected. The IDC indicated that usually rejected applications were due to companies having unreasonable expectations of the IDC. For instance, where a company was no longer viable, it might approach the IDC for funds to repay bank loans or to buy out shareholders.

 

§         Purpose of funds: The Committee enquired about the primary purpose of the funds given. The IDC responded that it provided both bridging and medium to long term financing to firms.

 

§         Municipal development agencies: The Committee requested data on the development agencies that have been established. The IDC indicated that it had established and supported 32 agencies that were at different development stages, primarily in areas where the local government was not strong.

 

§         Defaults: The Committee noted an increasing trend in the movements in impairments from 2007/08 to 2008/09; an approximate 200 per cent increase. The Committee asked the IDC to clarify this and contextualise the increase in terms of its objectives and the way forward. The IDC pointed out that impairments have been rising in the economy, and were not necessarily higher in the IDC. It noted that its ability to raise additional external funds would be brought into question, if this trend continued.

 

§         Agriculture: The Committee asked whether the IDC had any interest in agricultural projects related to restitution. The IDC indicated that it had a dedicated agricultural section that cooperates with the Land Bank and other existing players.

 

§         Remuneration: The Committee commented that there was only a 5.7 per cent increase in remuneration packages while performance bonuses increased by 55.9 per cent, which did not correlate with the current economic climate. It requested clarification from the IDC in terms of the criteria and merits upon which the bonuses were given. The DTI responded that the IDC competes with the financial sector for its human resources and its remuneration packages were lower than these. The criteria for performance bonuses were based on sound performance and governance principles, and were linked to the IDC’s financial performance. The DTI explained that an appropriate comparison had to be made with the private sector when assessing the IDC’s expenditure on personnel.

 

§         Investment: The Committee questioned the decline in capital gains. The IDC indicated that the reduction in capital gains had been erratic, as the IDC only sold its investments in order to reinvest elsewhere. The figure thus depended on the timing of large investment projects.

 

 

8. Khula Enterprise Finance Ltd

 

8.1. Overview

 

Khula currently operated as a financial facilitator for the development of the rapidly growing SME sector of the South African economy. It achieves this by providing finance, mentorship services and small business premises to SMEs through a network of partnerships. Its current model is that of a wholesaler but it is developing a direct model that will be implemented once the business plan has been completed and approved by Cabinet.

 

Mr Setlakalane Molepo, the Managing Director, briefed the Committee on Khula’s performance for the 2008/09 financial year. The briefing highlighted Khula’s mandate and target market, the achievements for the financial year, its operational and financial results and strategy implementation. In addition, it provided examples of success stories and the progress made in the development of Khula Direct’s business plan.

 

During the briefing, Khula highlighted the need for the recapitalization of its wholesale model in order to support the country’s growth strategy and effectively deliver on its mandate. Other concerns were decreased approvals (from R605 million in 2007/08 to R315 million in 2008/09) due to the international economic crisis and the stricter requirements of the National Credit Act and the bad debts provision rose from 9.7 per cent in 2007/08 to 17.4 per cent in 2008/09.

 

8.2. Key issues

 

The following issues emerged during the Committee’s deliberations:

 

§         Khula Direct: The Committee referred to the request that had been made to Khula, as part of the its budget report, to provide the Committee with the funding options to finance Khula Direct before the recapitalisation option was considered. The Committee also commented that Khula Direct, as a concept, had the potential to provide a fantastic service but this would only become viable once a good implementation plan has been developed. Khula responded that it was committed to having the Committee interrogate its proposed business plan at a later stage of its development. Khula explained that the request for recapitalisation was related to the operation of the wholesale model. Since June, a strong, dedicated team has been working on the business plan for Khula Direct.

 

§         Impairment provisions: The Committee enquired why there had been an increase in bad debt provisions and why the debt to equity ratio has occurred and how it would be corrected. In addition, it questioned whether the 17 per cent provision of bad debts was a realistic figure. Khula responded that it believed the provisions were adequate. The increase in impairment provisions was due to the economic slump and Khula had stepped up its monitoring systems. It also indicated that its customers would suffer for longer due to their relative size.

 

§         Rural development: The Committee noted that rural areas need to be penetrated and industrial areas in rural areas needed to be improved. In particular, Khula should be supporting emerging black farmers. Khula indicated that it had been assisting emerging farmers with the acquisition of land and production inputs through its Land Reform Empowerment Facility. In addition, it was involved in rural areas through its Khula Institutional Support Service, which was responsible for mentorship. This service also had a strong agricultural focus.

 

§         SMEs: The Committee commented that comparing peri-urban areas in Tanzania to those in South Africa, one found a lot more business and small enterprises development in Tanzania. There was an emerging international recognition that small businesses were crucial in developing countries to ensure sustainable livelihoods. The Committee stressed that South Africa needed to take the promotion of small enterprises much more seriously.

 

Given the inequality that exists in the country, the Committee asked how Khula measured its success and what the cost of delivery was. Khula replied that the success of SMEs was measured by the number created and the distribution thereof in terms of equity principles. Khula indicated that a study had been conducted in 2007 looking at the impact of Khula’s interventions and a new one was currently due. In Gauteng, Khula created about 8 000 jobs, assisted in terms of growth in revenue and profitability of those SMEs. The cost of delivery was approximately R100 000 per job. Khula highlighted that it had been contributing to some big names that have moved on to qualify for bigger funds elsewhere e.g. Stoned Cherrie.

 

§         Partnerships: The Committee requested Khula to expound on its existing partnerships and noted that SMEs required non-financial support, particularly technological support. Khula listed a number of partnerships that it was currently involved in, including partnerships with regional DFIs and Small Enterprise Development Agency (SEDA). Khula indicated that they provided the following support to SMEs: business plan development through SEDA and post-investment support through the mentorship programme for credit indemnity depending on length of loan. It also indicated that it would consider technological support and industrial aspects in future.

 

§         Property sector:  The Committee commented that it was important to see businesses thriving in townships but there were challenges in rural areas as businesses could not afford to be in malls. Khula responded that most of the properties in its portfolio fell into areas that were previously disadvantaged urban areas. It intended to assist in removing the perception of squalor and there was work underway in Gugulethu to do so.

 

§         Mentorship programmes: The Committee questioned whether outsourcing the mentorship programme was not negatively impacting on Khula’s ability to provide funding to its recipients. Khula replied that the cost of outsourcing was less than having permanent employees that were only used periodically. The programme is monitored in-house and the mentors received payment gradually up to the point where the business plan was approved by Khula.

 

§         Employment equity: The Committee asked whether employment equity in terms of persons with disabilities was sufficient and what would be done to improve representivity in this regard at a higher employment level. Khula replied that it was committed to increasing this ratio. The person with a disability employed worked in the call centre answering clients’ technical areas, so this was not an administrative position.

 

§         Poor Board attendance: The Committee commented on the bad attendance of certain Board members. It asked who appointed these directors and took responsibility that they fulfilled their duties and whether they received emoluments despite their bad attendance. Khula indicated that the Board had written to directors that had not been attending and these have resigned since. They had also not been remunerated for meetings that were missed.

 

 

9. National Empowerment Fund

 

9.1. Overview

 

The NEF was a facilitator of BBBEE participation through the provision of financial and non-financial support to black empowered businesses. In addition, it was promoting a culture of savings and investment among black individuals.

 

The briefing was made by Ms Philisiwe Buthelezi, the Chief Executive Officer, and Mr Andrew Wright, the Chief Financial Officer. During their briefing to the Committee, they outlined the NEF’s mandate, key strategic objectives, the NEF’s organisational structure and historical background. Furthermore, they reported on the performance of the Financial Management and Asset Management Divisions, as well as the annual financial results.

 

 

9.2. Key issues

 

The following issues emerged during the Committee’s deliberations:

 

§         Loan disbursements and impairment provisions: The Committee enquired what objectives and targets had been set for loan disbursements and commented that loan impairment provisions should be evaluated, as it was too high. The NEF responded that loan impairments had increased from 19 per cent in 2007/08 to 24 per cent in 2008/09. This was determined by considering operational indicators such as loan repayments against instalments, which was a key red flag that contributed to year end impairment provisions. This provision was also benchmarked against other DFIs and the private sector.

 

§         Merging financial intermediaries: A member of the Committee commented that the cost of the operation and administration of DFIs was top heavy in terms of salaries and infrastructure. He suggested that entities dealing with the funding of non-commercial transactions should be merged to lower operational costs. The NEF replied that there were clear differentiators between the various DFIs. The NEF considered the whole BBBEE spectrum and not just SMEs. It was also the only DFI having a BEE facilitator status and it expressed an opinion that if it was lumped together with other DFIs this role may be watered down.

 

§         Black ownership: The NEF had mentioned that before the financial crisis, the BBBEE ownership was about 8 per cent on the Johannesburg Stock Exchange and was now around 2 per cent. The Committee asked the NEF to clarify this statement. The NEF explained that most of the BEE deals that were concluded during the expansionary phase of the economy have shed some value due to the economic crisis. In addition, the value of stocks and shares in which the BEE shareholders had invested in have decreased.

 

§         Performance: The Committee commented that it was unclear whether the NEF had performed well and requested the NEF to outline its successes and failures. The NEF explained that its performance objectives were divided into four key segments, namely: fund management, asset management, the cash portfolio and operational environment. The NEF indicated that it has developed the ability to sustain itself and it was continually monitoring and benchmarking its activities against its peers in the private sector and other DFIs. The NEF noted that the overall impairment provisions were being increased and the 24 per cent provision was too high. In terms of asset management, the Asonge share scheme distributed R1.2 billion to shareholders and R140 million bonus shares. The return on the cash portfolio was also higher than expected in terms of the crisis.

 

§         Business plan toolkit: The Committee, referring to a reference made by the NEF to a new business plan toolkit that it had created, enquired whether there were other toolkits available and, if so, why had the NEF developed a new one. The NEF responded that over 3 000 registered users have accessed its website to use the NEF business plan toolkit. It stated that there was a clear demand and need for tools, such as the business plan toolkit, due to the lack of experience and skills among black people to develop viable businesses. However, the development of similar toolkits would be welcomed.

 

§         Remuneration and performance bonuses: The Committee commented that a significant amount had been spent on remuneration and also questioned the merits and criteria against which performance bonuses were awarded. The NEF responded that it based its performance bonuses on four issues, namely the NEF’s performance against expected objectives and targets; the creation of a credible private equity fund or venture capital black-owned private equity fund; the establishment of systems and infrastructure; and the calibre of employees. The NEF operated and competed for skills with other traditional white-owned private equity funds. It therefore required employees from those types of firms in order to maintain a high calibre of staff; hence relatively high remuneration packages were required. The NEF was of the opinion that it had been prudent with the level of its compensation.

 

 

10. South African Micro-finance Apex Fund

 

10.1. Overview

 

SAMAF was established to provide financial and non-financial services to financial intermediaries serving the micro-finance sector. Mr Sithembele Mase, the Chief Executive Officer, briefed the committee on SAMAF’s performance for the 2008/09 financial year. His briefing included information about the rationale for SAMAF; its mandate and alignment with government objectives; its strategic goals and objectives; highlights of its national footprint and network disbursements; challenges and binding constraints it faced; its employee competency profile; and action plans and risk mitigation. Some of the key challenges it faced included:

 

§         The slow uptake of funds approved for financial intermediaries, as financial intermediaries were unable to adequately report in terms of section 38 (i) (d) (i) of the Public Finance Management Act (PFMA) and as a result were becoming financially distressed and closing down.

§         An ongoing technical audit qualification, due to 27 inherited loan agreements that would be expiring in 2010. These contracts were poorly drafted and have an element of control in terms of AC132 and IAS27 Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) standards.

§         An inadequate legal-policy framework such as board members only having an advisory role and not fiduciary powers.

§         SAMAF was not able to litigate defaulting borrowers, due to unclear powers within the PFMA.

§         SAMAF’s financial systems did not align with government financial systems (BAS), as it operated on an accrual accounting basis while BAS operated on a cash accounting basis. Therefore manual reconciliations had to be done.

§         There was an inadequate policy framework for developmental micro-finance special deposit taking as co-operative and commercial banks with less than R1 million assets and 200 members did not benefit from deposit insurance scheme indemnity cover.

 

 

 

 

 

 

10.2. Key issues

 

The following issues emerged during the Committee’s deliberations:

 

§         Wholesale model: SAMAF informed the Committee that it implemented a wholesale model that provided loan funds and access to credit for micro-finance lenders to access funding.

 

§         Defaulting borrowers: The Committee enquired whether the DFIs shared a common database of defaulters and whether any legal action had been instituted against defaulters. SAMAF replied that they did have a database of defaulters. In terms of legal action against defaulters, they responded that currently they did not have a legal status of their own, as they were a trading entity of the DTI. Therefore, the executive authority had to sue defaulters, which was a major impediment.

 

§         Impairment provisions: SAMAF indicated that 30 per cent of their loans were not being recovered in 2007/08 and at the end of 2008/09 60 per cent was not being recovered. This was mainly due to the global economic crisis; however, the debts have not been written off yet. SAMAF had embarked on a debt collection strategy. They also reported that there had been an improvement in repayments during the current financial year.

 

§         Funding: The Committee enquired about SAMAF’s sources of funding. SAMAF responded that the DTI was its sole funder, as it was not allowed to leverage capital elsewhere. It indicated that in other countries, similar institutions were allowed to gain other funding without these types of restrictions, which limited its ability to expand its reach.

 

§         Audit Opinion: The Committee enquired about the reason for SAMAF’s qualified audit report. SAMAF replied that the audit opinion related to the structure of some of the agreements between SAMAF and institutions that had been funded. These agreements placed SAMAF in control of these institutions. Only 27 out of 42 institutions were currently having this issue. SAMAF was attempting to renegotiate these agreements. So far, 11 institutions had signed, some institutions had closed down while others were in the process of negotiating. The ones that had closed down had to be liquidated in order for SAMAF to write the agreements off their books. This process should be completed by end of December 2009.

 

§         Co-operatives: Co-operatives with a capital asset base of less than R1 million and 200 membership did not have an insurance deposit to cover risk taking. Therefore, there was no recourse for poor people if funds disappeared as no insurance exists. SAMAF responded that it currently served this segment of co-operatives and that there was a policy gap that had to be addressed.

 

§         Performance: The Committee noted that there was a large disparity between the performance targets set and the actual achievements. SAMAF provided a written explanation for these variances.

 

§         Employees: During its presentation, SAMAF outlined three competencies that its employees should have in order to operate effectively in this environment. These competencies were around developmental, financial and social arenas. In response, the Committee enquired how SAMAF secured employees with this combination of competencies. SAMAF reported that there was no specific industry producing this type of employee. Internally, SAMAF performed profile matching and training to fill gaps among staff and develop their knowledge of due diligence, analysis of financial statements (financial skills), developmental aspects, ability to teach issues and people skills/leadership to interact with communities. This type of training was also being performed at the financial intermediary level.

 

 

11. Export Credit Insurance Corporation

 

11.1. Overview

 

The ECIC was established to provide medium to long term insurance on behalf of the government on contracts in connection with export transactions, foreign investments and loans, or similar facilities relating to the capital goods and services market. In so doing, it helps secure export transactions involving South African contractors bidding to provide capital goods and service contracts abroad. Thereby supporting the Government’s strategic priorities of accelerating economic growth, creating and maintaining employment opportunities and reducing economic equalities domestically.

 

Dr Patrick Kohlo, the Chief Executive Officer, and Ms Sedzani Mudau, the Chief Financial Officer, briefed the Committee on the ECIC’s performance for the 2008/09 financial year. The areas they covered included the ECIC’s vision, mission, mandate and strategic goals; its performance in terms of its strategic goals; the impact of US dollar financing and insurance on its financial accounts; its financial performance and the challenges it faced. The three risks identified were:

 

§         Succession risk in terms of recruiting and retaining scarce, specialised skills. Due to the scarce skills required, the ECIC had to train its employees in-house. This process took approximately three years. However, due to the specialised skills base developed, there was a problem retaining staff as employees were easily poached.

§         Concentration risk where an event in a country or region where the ECIC had excessive exposure might lead to devastating consequences for the ECIC. Zimbabwe was identified as a potential concentration risk and the ECIC’s portfolio in Africa would also be too high.

§         Risk associated with Interest Make-Up affected the international competitiveness of rates offered by the ECIC; lack thereof could seriously impede growth in the insurance portfolio, as the cost of insurance affected the ability of contractors to win project tenders. The ECIC stated that it had the means to pay for the interest make-up but did not have the right to do so.

 

11.2. Key issues

 

The following issues emerged during the Committee’s deliberations:

 

§         Predecessor: The Committee asked for clarity on who had been performing the ECIC’s role before 2001.  The ECIC responded that before 2001, Cape Guarantees Insurance Corporation (CGIC) operated the business on behalf of the ECIC, while the ECIC reinsured them. CGIC was owned by the banks, which were also the ECIC’s clients and were benefitting regardless of the risk that they faced in terms of insurance claims.

 

§         Funding: The Committee enquired where the ECIC was receiving funds from. The ECIC replied that initially it received R2 billion in 2000 from the DTI and it received funds from premiums earned and returns on investments since then.

 

§         Bilateral Investment Treaty Policy Framework: The Committee asked to what degree the ECIC related to the bilateral investment treaty (BIT) policy framework. The ECIC replied that the ECIC’s board had a representative from the National Treasury and the DTI, and the credit insurance committee was attended by representatives from the National Treasury, Departments of International Relations and Co-operation and Trade and Industry, as well as the South African Reserve Bank. The credit insurance committee dealt with BITs and were guided by the experts from these government institutions.

 

§         Delay in Approving the Interest Make-Up Agreement: The ECIC clarified their earlier statement on the potential loss of $500 million due to the delay in the National Treasury approving the interest make-up (IMU) agreement. IMU support assists exporters by allowing them to have a fixed loan with a South African bank at an interest rate that is competitive relative to the interest rates available to their foreign competitors. The previous IMU agreement had expired in March 2008 and the replacement agreement was only approved 15 months later. Initially the Treasury delayed the approval, however at the time of approval the country had entered the international financial crisis and the cost to government of the initial design of the IMU agreement would be too great. As a result, the ECIC had to renegotiate the agreement with banks and the IDC. The new agreement was then signed in June 2009. During this period, projects to the value of $500 million had been approved by the Board for cover subject to the approval of the IMU agreement. However, none of these projects would have been successful if the IMU agreement had not been approved and would thus have led to the loss of these export contracts.

 

§         Concentration in Africa: The Committee commented that South Africa has a large market in Africa and suggested that if the ECIC concentrated its business in Africa, the development situation may be improved. The ECIC explained that the existing high concentration was as a result of Southern African countries having a natural tendency to do business through the ECIC because it was the only export credit agency in Africa. The ECIC mainly worked with domestic businesses that were involved in projects outside of the country.

 

§         Awareness of the ECIC: The Committee asked how aware the national players were of the ECIC. The ECIC responded that it held a number of workshops in provinces to raise awareness about its work; however, this may not be sufficient but it would look into the matter.

 

§         Premiums: The Committee enquired whether the ECIC worked on the basis of higher risk attracts higher premiums. The ECIC replied that it was filling a market gap and did raise premiums based on the risk profile of a client. However, it also only engaged with projects that promoted development unless Government insisted on the ECIC engaging under national interest, in which case Government took the risk.

 

§         Decision-making: The Committee asked what influenced the ECIC’s decision-making process. The ECIC explained that it was a self-sustaining, profit-making company that had to consider developmental issues. Furthermore, the Committee enquired whether the ECIC evaluated financial intelligence in countries where it provided insurance. The ECIC replied that it did thorough research and analysis in risk profiling before insuring a project.

 

§         Financial Crisis: The Committee enquired what impact the financial crisis had had on the ECIC’s activities. The ECIC responded that the crisis had not really affected development in Africa and therefore there had not been a direct impact in terms of its revenue source.

 

§         Legislative gaps: The Committee noted that the ECIC had mentioned that the current legislation might not be resonating with its abilities and was some what restrictive. A more elaborate explanation was requested. The ECIC highlighted that Sections 9.1 and 9.2 stipulated the classes and special conditions under which the ECIC may provide insurance. However, they argued that this restricted their ability to actively support the participation of SMEs in the export sector and other situations where the national interest may be served.

 

§         Restructuring: The Committee asked what the effects of downsizing in the organisation had been. The ECIC replied that no staff had been dismissed. Staff had been redeployed to other areas and salaries remained the same. The ECIC also noted that operational efficiency had improved since the restructuring and that there had been no legal ramifications.

 

 

12. Concluding Remarks

 

12.1            The Committee welcomes the DTI’s recognition that urgent measures must be developed and implemented to arrest the decline in South Africa’s Industrial base and invigorate the manufacturing sector. It believes that the Industrial Development Corporation can effectively use its sound, robust and resilient financial base to strengthen South Africa’s industrial resurgence.

 

12.2            The Committee also supports the Executive’s refusal to sign the interim EPA, which threatens regional integration in particular through undermining the terms and spirit of the SACU Agreement. It also agrees with the Government on the need to broaden and strengthen trade relations in the South while retaining strategic trading agreements with traditional partners in the Europe.

 

12.3            The Committee recognizes the relationship between employment, industrial development, trade and economic growth and the need to harness positive performance in this relationship to eradicate poverty and enhance community cohesion. Given the inequalities in South Africa, all initiatives should strive to address these, particularly in terms of the geographical spread.

 

12.4            Hence, the Committee’s continuing concern at the slow performance in Khula, the National Empowerment Fund, and the South African Micro-Finance Apex Fund.

 

12.5            It welcomes the support from the National Treasury for the Export Credit Insurance Corporation, despite the earlier delays. However, it noted that the current legislation did not resonate with the ECIC’s abilities to actively support the participation of SMEs in the export sector and other situations where the national interest may be served. Furthermore, the ECIC’s retention of trained staff should be addressed creatively.

 

12.6            Acknowledging the independent operations of the Competition Commission and the Competition Tribunal, the Committee believes these two entities have a critical role to play in protecting consumers from unfair and unrealistic prices but also through robust business operations developing South Africa’s competitive advantage.

 

12.7            Annual Reports underline the complexities in the concurrent character of gambling operations and its socio-economic impact. The Committee continues to deliberate on these issues to arrive at the optimum operation in a developmental state.

 

12.8            The distributive model in the National Lotteries Board remains a concern for the Committee.

 

12.9            Robust oversight by the Portfolio Committee on Trade and Industry was facilitated by the transparent engagement of the Minister and his two deputy Ministers as well as the senior staff in the Department of Trade and Industry. We extend our appreciation to DTI and look forward to continuing with this constructive working relationship.

 

12.10        The Committee also wishes to thank its Committee support staff in particular the Committee Secretary, Content Advisor and Researcher for their conscientious commitment to their work. 

 

12.11        The Chairperson thanks all Members of the Committee for their active participatory oversight, deliberations and constructive recommendations to the House.

 

 

13. Recommendations

 

The DTI and the relevant entities are required within three months following the adoption of this report to provide a written report on the measures they have implemented to address the following recommendations.

 

13.1            As the IDC will be playing a critical role in the acceleration of the industrial base, it will require significant recapitalisation. The last time IDC was capitalised was in the 1940s and only its judicious investments have enabled it to provide certain finance. However, the current financial demands on it are unsustainable without recapitalisation. The earlier legislation passed in 1940 should be reviewed and aligned with its expected role in a developmental state. The DTI should provide the Committee with a report on the measures that can be developed to underpin the processes of recapitalisation and the review of the existing legislation.

 

13.2            The Development Finance Institutions should submit bi-annual reports on their non-financial performance indicators. Information should include:

 

§         Number and percentage of previously disadvantaged beneficiaries receiving funding and other support, particularly in rural areas and in designated groups including women, youth and people with disabilities.

§         Value of funding received by these beneficiaries.

§         Outputs that are being generated by these beneficiaries.

§         Impact of the funding and support provided, such as job creation and SMME development.

§         Cost of the funds to lenders i.e. applied rates.

§         Percentage of individuals and enterprises able to repay their loans and the assistance given to these.

 

13.3            The DTI must submit a comprehensive qualitative and quantitative report on incentive schemes. The report should include:

 

§        Details of each project and/or beneficiary receiving an incentive.

§        The returns on these investments in terms of the creation of additional long-term sustainable jobs, the number of jobs retained, the downstream effect on new sustainable jobs and the stimulation/injection into the South African economy in terms of projected and actual economic growth.

 

13.4            The ECIC should submit bi-annual reports on the implementation of the Interest Mark-Up Agreement approved by the National Treasury. Information should include:

§         Number of export projects being approved.

§         Companies benefitting, as well as a breakdown of their representivity in terms of designated groups.

§         Value of these projects.

§         Geographical spread of its portfolio.

 

13.5      The National Lotteries Board, in conjunction with the DTI, should submit a review of the distributive model for the National Lotteries Distribution Trust Fund, as well as the amendment of the legislation including issues pertaining to the accountability of the Distributing Agencies.

 

Report to be considered.

Documents

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