ATC121024: The Budget Review and Recommendation Report of the Portfolio Committee on Trade and Industry, dated 24 October 2012.
The Budget Review and Recommendation Report of the Portfolio
Committee on Trade and Industry, dated 24 October 2012.
The Portfolio Committee
on Trade and Industry, having assessed the service delivery performance of the
Department of Trade and Industry, against its mandate and targeted priorities
of the Industrial Policy Action Plan, manufacturing and strategic trade to
accelerate employment and productive economic growth, submits its report.
This report consists of
three parts: Part I introduces the Committees Report on the Budgetary Review
and Recommendation Report (BRRR). Part II provides a detailed description and
analysis of the Departments expenditure and the implementation of policy
priorities against identified performance indicators over the last 18 months.
Part III provides an overview of entities engaged with during the 2012/13
financial year. Part IV includes the Committees conclusions and
PART I: INTRODUCTION
The purpose of this
report is to provide an analysis of the performance of the Department of Trade
and Industry (DTI), and identified entities over which the Committee performs
oversight, against predetermined objectives. This report attempts to provide an
assessment of the financial and non-financial performance of the DTI and the
identified entities for the 2011/12 financial years, and the first six months
of the 2012/13 budget allocation within the context of the three-year Medium-Term
Expenditure Framework (MTEF).
The budget is informed by
the national policy priorities as outlined in the State of the Nation Address.
It is driven by the policy commitment to inclusive economic growth to attain
social cohesion and job creation. The Budget Review and Recommendation Report (BRRR)
is a move towards increased parliamentary participation in the budgetary
process. This gives effect to the constitutional powers to amend the budget in
line with the fiscal framework as outlined in the Money Bills Amendment
Procedure and Related Matters Act (No. 9 of 2009).
The DTIs key priorities
are to develop an enabling environment for industrial development that drives
strategic regional and international trade and investment to create sustainable
jobs. The industrial policy calls for an increase in the coherence of micro-
and macro-economic policies. The industrial policy is impacted upon by the
macro-economic fundamentals (i.e. interest rates and the exchange regime) which
should be favourable relative to its key trading partners; while micro-economic
policies contribute to improving economic efficiency and equity for individual
businesses, particularly for small, medium and micro enterprises, to improve
their global competitiveness.
In terms of international
trade and regional integration,
The Department was
responsible for 15 entities and 46 Acts
include the newly-established Companies and Intellectual Property Commission,
Companies Tribunal and National Consumer Commission, which were established
during the 2011/12 financial year. The DTI also informed the Committee that the
Estate Agency Affairs Board has been transferred to the Department of Human
Settlements, which will reduce the number of Acts it implements.
The role of the Committee
Section 5 of the Money
Bills Amendment Procedure and Related Matters Act requires the National
Assembly, through its Committees, as an integral part of its oversight
to annually assess the performance
of each national department. A Committee must submit a report of this
assessment known as a Budgetary Review and Recommendation Report (BRRR). The
overarching purpose of the BRRR is for the Committee to make recommendations on
the forward use of resources to address the implementation of policy priorities
and services as these may require additional, reduced or re-configured
resources for the Department.
The BRRR process enables the
Committee to exercise its legislative responsibility to ensure that the
Department and its entities are adequately funded to fulfil their respective
mandates. However, as the Budget Office has not yet been established, the
Committee was unable to make detailed budgetary recommendations. The Committee
looks forward to when the Budget Office becomes operational to expedite this
The DTIs work is
governed by a broad legislative framework
. The DTIs
vision is to develop A dynamic industrial, globally competitive South African
economy, characterised by inclusive growth and development, decent employment
and equity, built on the full potential of all citizens. The DTIs mission is
to promote structural transformation, towards a dynamic industrial and globally
competitive economy; provide a predictable, competitive, equitable and socially
responsible environment, conducive to investment, trade and enterprise
development; broaden participation to strengthen economic development; and
continually improve the skills and capabilities of the DTI to effectively
deliver on its mandate and respond to the needs of South Africas economic
In terms of the Acts the DTI also administers and is
responsible for the following fifteen agencies:
Companies and Intellectual
Property Commission (CIPC)
Companies Tribunal (CT)
*Estate Agency Affairs Board (EAAB)
Export Credit Insurance
National Credit Regulator (NCR)
National Consumer Commission (NCC)
National Consumer Tribunal (NCT)
National Empowerment Fund (NEF)
National Gambling Board (NGB)
National Lotteries Board (NLB)
National Metrology Institute of
National Regulator for Compulsory
Small Enterprise Development
South African Bureau of Standards
South African National
Accreditation System (SANAS)
The EAAB was transferred to the Department of Human
Settlements in May 2011. The EAB was always self-funded and hence no funds were
transferred from the DTI.
PART II: DTIs FINANCIAL AND NON-FINANCIAL PERFORMANCE
Strategic Priorities and
Measurable Objectives of the Department
Plans of the Department
For the period under
review, the DTI outlined the strategic objectives and key interventions as
outlined in the MTEF for 2012 2015. The five intervention areas or themes are
Trade, Investment and Exports,
Administration and Coordination.
The Department identified
four key strategic outcome-orientated goals to ensure alignment of the DTIs
programmes to government-wide priorities and outcomes. These goals are to
Facilitate transformation of the economy to promote
industrial development, investment, competitiveness and employment creation;
Facilitate broad-based economic participation through
targeted interventions to achieve more inclusive growth;
Build mutually beneficial regional and global relations to
Promote a professional, ethical, dynamic, competitive and
customer-focused working environment that ensures effective and efficient
objectives of the Department
In assessing progress in
this area the Committee reviewed the Auditor Generals (AG) 2010/2011
on performance information and concluded that many of these findings have been
addressed by the DTI and its entities during the 2011/2012 financial year. Hence
the Committee welcomed the seventy five per cent progress achieved. However,
the AG determined that outstanding performance information challenges are due
to targets unsuitably developed at the planning phase
In the Committees
opinion planning issues of measurability, validity, accuracy and completeness
in performance information, assume greater significance when seen as directly
related to outputs and outcomes. A system of regular, realistic reporting
especially in relation to priority areas should be institutionalised so that
underperformance that impacts on service delivery can be addressed at an
interventions for 2012/13 period
The DTI has implemented measures
to address the decline and shedding of jobs as a result of the global financial
crisis. Steps taken by government have stabilised the economy but challenges
within the manufacturing sector remain.
Targeted industrial support has borne fruit with particular successes in
the Automotive; Clothing, Textiles and Leather and Footwear; and Business Process
To build on these successes
and to reverse the de-industrialisation trend, create jobs and stimulate
economic growth, the following targeted interventions will be implemented in
the 2012/13 financial year through the Industrial Policy Action Plan (IPAP):
The announcement of the designation of a further three
subsectors for local procurement under the Preferential Procurement Policy
Support for the technical competencies via the Technology
and Human Resources for Industry Programme will continue in the chemical,
information and communication technology (ICT), metal and minerals,
agriculture, biotechnology and energy sectors.
The support of 20 new projects to the value of R36 million
through the Support Programme for Industrial Innovation (SPII).
The introduction of the Manufacturing Competitiveness and
Enhancement Programme (MCEP), as announced by the Minister of Finance in his
Budget Speech, to provide adequate support for the manufacturing sector.
With respect to trade,
investment and exports, the DTI intends to finalise the negotiation of the
Economic Partnership Agreements during the MTEF period. In addition, the DTI is
committed towards a developmental approach for regional and continental
DTI has set clear targets with respect to small business support with the
establishment of 44 incubators during this financial year. This includes
incubators that will be established in partnership with other major private
sector companies. The Enterprise Investment Programme will provide assistance
to the small business sector with the Tourism Support Programme supporting the
tourism sector with an expected investment of R6.3 billion and R4.2 billion
respectively. The DTI will implement an approved action plan developed as a
result of the SMME (small, medium and micro enterprises) review report.
regard to broadening participation, the DTI is in the process of finalising the
National Strategic Framework on Gender and Women Economic Empowerment. In
addition, it seeks to support 60 new projects linked to women-owned enterprises
through the Isivande Womens Fund.
up-scaling of the Cooperative Inventive Scheme is underway with clear targets
These schemes target the informal
sector or the second economy. The DTI also announced that they would be
finalising the informal sector strategy and developing specific programs to
support the informal sector. The DTI also recognised the importance of
developing a specific programme targeting youth unemployment and intend to
finalise a strategy around youth enterprise development in this financial year.
Significantly in this
International Year of Co-operatives (2012), as declared by the United Nations,
the Committee is currently considering the Co-operatives Amendment Bill.
This sector was recognised as a catalyst for
economic empowerment and job creation and the Committee is of the view that it will
create an enabling environment for the development of co-operatives. It
emphasised the need to differentiate between SMMEs and co-operatives as two
separate types of business entities requiring different forms of support.
made on the 2012/13 key interventions
At the end of September
2012, the DTI made the following progress based on the draft second quarter
report on the abovementioned 2012/13 key interventions:
: The DTI had submitted
sector designation templates to the National Treasury for set top boxes for
digital television, oral dosage tender for pharmaceutical products and school
and office furniture.
: The THRIP had approved
support for 1 257 students (57.2 per cent of the target) and 609
researchers (71.6 per cent of the target).
: Sixteen projects were
approved (80 per cent of the target) and contributed R32.2 million to support
industrial innovation (161 per cent of the target).
: Only 26 enterprises
were approved for the MCEP (18.6 per cent of the target), which was implemented
during this financial year. The reason for this delay was that many clients had
been awaiting the amendment of the guidelines before submitting their
: A second draft report
was produced. The Minister had also updated the Committee on the progress made
with these negotiations. Although significant progress had been made, further
engagements were required on export taxes, agricultural safeguards and customs
cooperation, while complex technical work on rules of origin continued.
Regional and continental
: Tripartite Free Trade Area negotiations were underway and the
negotiating principles had been agreed to. The SACU market access offers and
request had been in the process of being developed.
Framework on Gender and Women Economic Empowerment
The Strategy has been finalised and submitted for the
Deputy Ministers approval. This should have been launched nationally and
provincially, as well as a marketing campaign, by September but the process was
delayed due to consultations and quality improvements related to the Framework.
Isivande Womens Fund
: Only 7 projects were
approved (11.7 per cent of the annual target). The DTI indicated that this was
due to discrepancies
between the target set on projects between the Industrial Development
Corporation (IDC) and the Fund manager and the target between
and the IDC.
Only 69 enterprises of the targeted 490 enterprises were approved (14.1 per
cent). However, a turnaround plan has been developed and contract posts
requested to address the backlog in considering applications as some
applications are incomplete and have been referred back to the co-operative.
Informal Sector Strategy
: A discussion document
has been developed for stakeholder input.
In terms of its MTEF budget
allocation, the Department of Trade and Industry has been allocated a total
budget of R9.1 billion for the 2012/13 financial year, R10.4 billion for the
2013/14 financial year and R11.1 billion for the 2014/15 financial year. The
2012/13 budget represents a nominal increase of R2.2 billion or 32.2 per cent
compared to the 2011/12 financial year (see Table 1). In real terms, this
increase reflects a R1.7 billion or 24.9 per cent increase. Furthermore, the
DTIs budget will increase by 13.9 per cent and 7.4 per cent in nominal terms
during the 2013/14 and 2014/15 financial years respectively. The total share of
the DTIs budget allocation is 0.9 per cent of the total governments budget of
R969.4 billion for the 2012/13 financial year compared to 0.8 per cent in the
2011/12 financial year
Table 1: Budget allocations and percentage changes of the
budget estimates from 2011/12 to 2012/13 (R million)
Budget Share (%) 2011/12
Budget Share (%) 2012/13
Nominal % change in 2012/13
Real % change in 2012/13
International Trade and Economic Development
Industrial Development: Policy Development
Consumer and Corporate Regulation
Industrial Development: Incentive Administration
Trade and Investment
National Treasury (2012a) and own calculations
The 2012/13 allocation increase of
R2.2 billion is primarily due to additional allocations in terms of incentives
linked to industrial development. These include the manufacturing development
(an additional R1.4 billion was allocated), the capital investment incentives
for special economic zones (an additional R500 million was allocated) and the
clothing and textile production incentive (an additional R150 million was
programmes/divisions have been slightly reorganised this financial year.
Firstly, the Communications and Marketing Division was merged with the
Industrial Development Division (IDD) and The Enterprise Organisation have been
reorganised and renamed as the Industrial Development: Policy Development and
Industrial Development: Incentive Administration Divisions respectively.
Thirdly, the Empowerment and Economic
Development Division was renamed as the Broadening Participation Division.
In terms of allocations to various
divisions, the Industrial Development: Incentive Administration
Programme/Division is allocated the largest share of the budget (R5.4 billion
or 59.8 per cent of the total budget allocation). The second largest share is
allocated to the Industrial Development: Policy Development Programme/Division
(R1.5 billion or 16.3 per cent of the total budget allocation) followed by the
Broadening Participation Programme/Division with a share of R879.9 million or
9.3 per cent of the total budget allocation. These three programmes combined
constitute 85.8 per cent of the total budget allocation while the remaining
four programmes share 14.2 per cent of the total budget allocation.
The spending focus over the medium
term period is aligned to the broader government priority outcomes of decent
job creation and economic development through industrial development as
included in the New Growth Path. Other national priorities which the Department
contributes towards include inter alia: development of productive
infrastructure; investment priorities; developmental trade strategies;
inclusive economic growth; promotion of alternative (energy) technologies and
increased competitiveness. The above issues will be discussed below within the
context of the respective divisions responsible for these.
In terms of the economic
classification, the Department has allocated 85.5 per cent (R7.8 billion) of
the R9.1 billion to transfers and subsidies, a nominal increase of 40.5 per
cent since 2011/12. The current payments allocated share of the total budget
allocation has declined from 18.8 per cent (R1.3 billion) of the 2011/12 budget
allocation to 14.3 per cent (R1.3 billion) of the 2012/13 total budget of R9.1
billion, while payments for capital assets only received 0.2 per cent (R14.1
million) of the budget allocation compared to 0.48 per cent of the budget
allocation (R32.9 million) in 2011/12.
Consultants are appointed
to provide specialist legal services, actuarial and econometric research related
in particular to IPAP and incentives. Spending on consultants for business and
advisory services, as well as professional services, is expected to increase over
the MTEF from R102.2 million in 2011/12 to R107.9 million in 2014/15, at an
average annual rate of 1.8 per cent. However, this allocation declines in the
2012/13 and 2013/14 financial years to R95.2 million and R95.1 million
Analysis of Section 32
Expenditure Reports (Financial Expenditure for First Half of 2012/13)
of the PFMA requires that National Treasury publishes a statement of actual
revenue and expenditure with regard to the National Revenue Fund.
Committees are required to analyse the Section
32 reports in order to determine and examine spending trends and patterns of
the Department to identify under-spending and/or over-spending (if any).
This data is published at
departmental level and only gives a breakdown of expenditure in terms of
economic classification, i.e. current payments, transfers and subsidies and
capital expenditure. Therefore, the Section 32 reports offer limited
information to analyse the DTIs financial and non-financial performance for
the current year. The Committee has thus requested the DTI to submit its
quarterly management accounts to provide a more detailed record of expenditure.
for the period from 1 April to 30 September 2012 is
considered below. This consists of the
appropriated budget for 2012/13, the projected budget for the first six months
and the actual expenditure in terms of the programme and economic
classification for this period.
4.1 Expenditure by programme
Table 2 provides the year
to date expenditure by programme. The Department spent R4.1 billion or 45.6 per
cent of the total available budget by the end of the first half. Planned
expenditure by this point in the year was R4.2 billion equivalent to 46.5 per
cent of the total available budget. The Department has therefore underspent by
R77.7 million or 1.8 per cent.
In terms of the
programmes, the Administration
Consumer and Corporate Regulation programmes under-spent by
6.3 per cent and 13.9 per cent respectively; while the
International Trade and Economic Development and Trade and Investment South
Africa programmes over-spent by 0.7 per cent and 4 per cent respectively.
Table 2: 2012/13 Year to Date Expenditure by programme (R
Revised budget 2012/13
30 Sept 2012
Actual Expenditure 30
% Budget available
International Trade and
Consumer and Corporate
Trade and Investment
Source: DTI (2012)
The reasons for these variances are:
: The under-spending is largely made up of research
consultants costs, which cover 89.5 per cent (R17 million) of the R19 million under-spent.
These consultants were either in the process of being appointed or invoices
have not yet been submitted for payment.
International Trade and Economic
The over-spending was largely due to increased activity in international
engagements and this amount was only 0.3 per cent in relation to the total
Consumer and Corporate Regulation Division
: The under-spending was mainly due to transfers
to the NCC and the Consumer Tribunal, which total R12 million of the R20
million, not being paid. The transfer of R6 million to the Consumer Tribunal
had not been made as the institution was being established. With respect to the
NCC, the DTI had taken a decision to transfer funds based on expenditure
incurred until it was satisfied that the relevant financial controls were in
place. Furthermore, there division had under-spent on compensation of employees
by R6 million. This was due to recent restructuring, which is awaiting approval
from the Department of Public Service Administration.
Trade and Investment South Africa
: The over-expenditure was incurred due to
the DTI's foreign mission offices, which the Department of International
Relations initially pays and then claims the expenditure from the DTI.
Historically, DIRCO claims were 5 months in arrears and the DTI based its cash
flow requirements on this trend. As at 30 September 2012, the claims have been
reduced to 3 months in arrears. It should be noted that despite the
over-spending, the expenditure to date is only 39.6 per cent of its allocated
by economic classification
The overall variation
from the financial plans
relates to over-spending of 0.3 per cent and 19.7 per cent on compensation of
employees and payments for capital assets respectively, due to the annual
general increase paid in August 2012 and the replacement of old computer
equipment. Table 3 provides the year to date expenditure by economic
Furthermore, there was
slight under-spending of 2.5 per cent and 2.1 per cent related to goods and
services and transfers and subsidies respectively. The main reason for the
under-spending for goods and services was due to delays related to business and
advisory consultants. These payments are expected to occur later in the year
than planned upon completing agreed milestones. In terms of transfers and
subsidies, there were some shifts between under- and over-spending between
different incentives. However, the following areas were significantly
under-spent (DTI 2012d):
Automotive Production and Development Programme (R30.7
million): Claims had not yet been processed and first required verification and
approval by the division.
Critical Infrastructure Programme (R30.1 million): There
were outstanding compliance issues before the projected amount could be paid.
National Foundry Technology Network Metals (R10.5
million): There are outstanding financial statements from the CSIR, which are
required before the transfer can be made.
Table 3: 2012/13 Year to Date Expenditure by economic classification
Revised budget 2012/13
Projected Expenditure 30 Sept 2012
Actual Expenditure 30 Sept 2012
% Budget available
Goods and services
Interest and Rent on
Payments for Financial
Payment for capital
Source: DTI (2012d)
Analysis of the
Department of Trade and Industrys Annual Report and Financial Statements
5.1 Economic Context
period under review took place against a backdrop of a fragile global recovery
under threat by the sovereign debt crisis in
5.2 Policy context for the period under review
The DTIs 2011/12 budget
was informed by the governments commitment to the implementation of a labour
absorbing economy through the re-industrialisation of
In his 2011 State of the
Nation Address (SONA), President J Zuma emphasised the creation of decent work
as the centre of our economic policies, and called on all sectors, especially
government, to increase their efforts to achieve this goal. The New Growth Path
(NGP) is the overarching policy framework within which to achieve decent
employment. The 2011 SONA highlighted strategic priority areas to unlock the
countrys employment potential, with manufacturing being the relevant priority
area given the Department of Trade and Industrys (DTI) mandate
Other strategic policy priorities
articulated by President J.G. Zuma were:
Manufacturing and Job
One of the six priority areas identified by President Zuma in the 2011 SONA was
job creation. The DTI, through its flagship programme, the revised Industrial
Policy Action Plan (IPAP2), will primarily contribute to the achievement of
employment creation as set out in the NGP
President Zuma reiterated that R20 billion in tax allowances or tax breaks will
be granted to promote investment, expansions and upgrades in the manufacturing
were identified as a
critical component of employment creation. The DTI confirmed its continued commitment
to financial and non-financial support to SMMEs The DTIs Empowerment and
Economic Development Division is specifically focused on ensuring that equity
prevails while developing and empowering SMMEs and cooperatives, particularly
through SEDA. Some of the other initiatives that support SMMEs include
technical consulting support by the SABS, and incentives administered by The Enterprise
Organisation Division, such as the Small and Medium Enterprise Development
Programme incentives scheme. The Committee also agreed with the Minister that
small businesses have benefited significantly from working closely with big
business in most countries, including
were also identified as
a critical component of overcoming poverty and creating employment. However
unlike SMMEs they are a collective business structure. Coops would also be an
instrument for youth employment which would draw them into the mainstream
economy and stimulate entrepreneurship and economic growth. The Committee
welcomed the support in the form of administration of government incentives,
provision of training and improvement of working condition in the cooperatives
The African agenda remains a key strategic priority in pursuing
5.3 Engagement with the DTI on its 2011-12 Annual Report
During the briefing on
the DTIs 2011-12 Annual Report, the Minister of Trade and Industry, Dr R
Davies, informed the Committee that the overarching responsibility of the DTI,
through its implementation of its IPAP, is to contribute to the NGP. This is
through placing emphasis on the productive sectors of the economy such as
manufacturing and value-added production. The Minister highlighted the improved
performance of key programmes within the automotive, clothing, business
processing and film industries.
Through the Automotive
Investment Scheme (AIS) R15 billion worth of commitments had been secured, as
well as the undertaking by the Foschini Group, Truworths Ltd and Woolworths to
procure from South African SMMEs
Minister informed the Committee that Government procurement was realigned to
ensure that government spending supports domestic industries in the following
sectors: rail rolling stock such as locomotives, wagons and carriages, power
pylons, busses, clothing, textiles, leather, and footwear, canned vegetables,
and set-top boxes for lower income households. These designations were made in
terms of the regulations of the Preferential Public Procurement Framework Act
(PPPFA) that requires organs of state to procure from local sources using
The Minister further
emphasised the need for localisation and welcomed recent commitments by the
private sector and other social partners on a framework for a new accord on
Over the medium term, the
Minister emphasised the need for
The Director-General, Mr
L October, briefed the Committee on the 2011/12 Annual Report based on its five
strategic objectives listed in Section 2.1.
5.3.1 Industrial Development
informed the Committee that the implementation of the Automotive Production
Development Programme (APDP) contributed to the stabilisation of the sector by
focusing on domestic production, localisation and downstream manufacturing.
This resulted in significant commitments of R15 Billion from the original
equipment and component manufacturers.
The Committee welcomed the announcement of a new player in the
automotive sector, namely
during the period under review were Governments commitment to use government
procurement to leverage localisation. The first round of designations has seen
a significant increase of local content that would contribute to revival of the
local manufacturing sector. The Director-General informed the Committee that
work to designate pharmaceutical products was approved by the Minister and
awaits the Department of Healths endorsement. This has resulted in the
expansion of the local pharmaceutical manufacturing facilities by R2 to R3
The Business Processing
Services sector saw significant investments in customer call centres which
contributes to jobs being created in the short-term with further investment
projected to create 11 000 additional job
Monyetla training programme contributed toward the training of 3 400 youth
of whom 70 per cent were placed in employment by the Business Process
Outsourcing (BPO) consortium.
The Clothing and Textile
Competitive Incentive Programme (CTCIP) resulted in the local retailers
undertaking to procure locally. Through the incentive programme, the DTI
assisted just under 3 000 companies with 48 000 jobs being created in
the process. The Committee welcomed this positive turn around in a high labour
absorption industry that had been under threat of decline.
5.3.2 Trade, Investment and Exports
informed the Committee that the DTI through its efforts to promote productive
The Committee welcomed
the progress made with regard to regional industrial development within the
Southern African Customs Unions (SACU) as indicated last year with eight
sectors identified for cross-border complementarities and value-chains. The
Director-General further highlighted the development of a common position
within SACU on rules of origins in relation to clothing and textiles to the
Southern African Development Community (SADC).
On the bilateral front,
co-operation memoranda of understanding were signed with partner countries in
5.3.3 Broadening participation
The DTI informed the
Committee that it has, through the Technology Incubation Programme, created
295 new SMMEs and supported 1089 SMMEs
Women-owned enterprises have received significant support through the
Programme. In respect of the incubation programme, the DTI received 44
proposals from the private sector with additional funds allocated for the
2012/13 financial year for the Incubation Support Programme.
With respect to
broad-based black economic empowerment, the DTI informed the Committee that
significant progress has been made to ensure the transformation and the
creation of productive entrepreneurs. The DTI also informed the Committee that
in conjunction with the
The Intellectual Property
Laws Amendment Bill had been adopted by Parliament but has not yet been assented
to by the President. Other Acts adopted and assented to are: The Companies
Amendment Act, 2008 which was hailed by the financial and economic community
broadly both nationally and internationally as a significant step into the
Twenty First Century. The Consumer Protection Act came into effect in 2011 to
champion the rights of consumers while retaining the integrity of the business
and industrial sectors. These two Acts led to the establishment of the
Companies and Intellectual Property Commission, the National Consumer
Commission, the Companies Tribunal, the Take-over Regulation Panel and the
Financial Report Standards Council.
The DTI also informed the
Committee that it had established the necessary business rescue mechanism that
would assist companies to turnaround instead of heading for liquidation. So far,
652 applications for business rescue had been received and 104 practitioners
The DTI informed the
Committee that it had commenced a work programme with regard to the transfer of
the Estate Agency Affairs Board (EAAB) to the Department of Human Settlements.
5.4 Financial Statements
The actual expenditure
for the year under review was R6.8 billion against the total voted budget of
R6.9 billion, or 1.1 per cent against the total appropriated budget as shown in
Table 4: Expenditure per
programme for the financial year 2011/12 (R million)
Total Appropriated budget 2011/12
International Trade and Economic
Consumer and Corporate Regulation
Trade and Investment
Communication And Marketing
Source: DTI (2012: 93-95)
5.5 Auditor Generals Report
The Department received
an unqualified Audit report with emphasis on matters and additional matters.
These pertained to (DTI 2012: 90-92):
Significant uncertainties related to the disclosed
contingency liabilities for lawsuits and incentive grants, which have not been
provided for in the financial statements.
Restatement of corresponding figures for contingent
liabilities, accruals and key management personnel due to errors discovered
during 2012 for the previous years financial statements.
Material impairments and losses of R35.5 million, which the
Auditor-General noted for public information. This largely related to
incentives debtors that were incurred pre-1994 and were written off in 2011/12.
Non-compliance with procurement and contract management
requirements existed for goods and services below the value of R500 000 and for
employees performing remunerative work without the permission from the relevant
Proper asset management control systems were not implemented.
Reasonable steps were not taken to prevent irregular and
fruitless and wasteful expenditure. There had been R59.5 million irregular
expenditure of which R0.28 million was condoned and R0.162 million fruitless
and wasteful expenditure during the financial year, of which R0.16 million had
There is no written overtime policy.
5.6 HR Related Information
DTI has 1 338 posts, of which 1 225 posts had been filled at the end
of March 2012, i.e. a vacancy of 8.4 per cent. It also employed an additional
98 contractors, who fall outside of the establishment. The following employment
equity statistics prevailed within the DTI on 31 March 2012:
Table 5: Employment equity
statistics at end of March 2012
management - total
DTI (2012: 214-215) Annual Report
The DTI had taken
disciplinary action against 56 of its employees during the 2011/12 financial
year. This was mainly related to failure to obey lawful instruction (30.4 per
cent of cases) and non-compliance (26.8 per cent of cases).
5.7 Key issues raised by the Committee
The following issues were
highlighted during the Committee engagement with the DTIs 2011-12 Annual
Status on Gambling
: In response to the inquiry about the status of gambling legislation,
the Minister informed the Committee that the DTI was in the process of
reviewing the report submitted by Parliament and that the DTI will submit the
revised Lottery Policy for Cabinets consideration.
The Committee raised
concern regarding continuous increases in the price of electricity by local
authorities, as well as supply outages, as the current situation could have an
adverse effect on current and future investment. The Minister informed the
Committee that the DTI is actively involved in ensuring that the cost of
electricity does not curtail investment. A continuous rise would have a
negative impact on the manufacturing sector and it could lead to an outflow of
productive activity from small towns. The DTI is engaging with Eskom on the
matter and it should develop other mechanisms to become more energy efficient
through the provision of an incentive to encourage energy saving.
The impact of the global
economic slowdown on local economic recovery:
Committee acknowledged that the current global economic conditions impact on
the local economic recovery specifically in relation to job creation. It
welcomed the slogan continuous improvement as this is reflected in the
continual progress made by the DTI in delivering on its mandate given the
current conditions. A concern for the Committee was the measures put in place
to address the negative growth currently experienced locally and whether this
will see the start of the recovery or the flight of the flamingoes.
Minister informed the Committee that continuous improvement was one of the
observations of the National Planning Commission that small improvements sought
from inputs of the relevant stakeholders can contribute to the increased
performance of the department. The job creation target of the NGP for the first
year reflects this modest approach. An acceleration of the structural changes
to address the slow economic growth is required but, according to the Minister,
is not only in the realm of the DTI. The DTI is creating an enabling
environment for public and private stakeholders to encourage investment in the
local economy through incentives.
of the contraction of growth especially in
Committee welcomed the DTIs ability to rapidly adjust to a changing global
environment and how it has positioned
Designation of local
Committee welcomed the designation of local products which has led to an
increase in local content of products. A concern for the Committee is the
perceived lack of urgency among some quarters of the economy and how it could
be addressed. The Minister is of the view that one cannot compel private sector
to buy-in to the localization programme but through the establishment of an
accord could ensure an increase in the local content of products.
Investment in the Green
took a decision to upscale its effort in green energy production to support the
manufacturing sector. Currently, the construction phase for wind and solar
energy has started. The DTI also informed the Committee that the Blending
Regulations have been promulgated with National Treasury finalizing the
incentive. This could potentially create 70 000 direct and indirect jobs.
Foreign Direct Investment
the figures presented are encouraging, it does not indicate the jobs created as
a result of this investment. The DTI informed the Committee that currently 42
000 jobs are linked to investment with a bias toward providing incentives for
more labour-intensive projects.
Approach to regional
The Minister informed the Committee that due to prevailing conditions,
high level of complementarity of economies is needed, which does not currently
PART III: OVERSIGHT OF ENTITIES
As the Committee deals
with a large number of entities, it has decided to deal with a selection of
entities annual reports on a rotational basis. This selection is driven by
prioritised issues. For the current financial year, the Committee decided to
analyse the service delivery performance of the NEF, the NCC and the NRCS for
the period under review, and assess the efficiency and the effectiveness of the
Departments use and forward allocation of available resources. It also
performed oversight over the CIPC, and the NCR during the current financial
The critical issues identified are
National Empowerment Fund
6.1 Overview of the NEF
purpose of the NEF is to promote and facilitate black economic participation in
the economy through financial and non-financial support to black empowered
businesses. This includes job creation and supporting business ventures owned
and/or run by black individuals. In addition, it is meant to promote wealth
creation among black individuals through the development of a culture of
savings and investment.
achieves this by offering a range of products and services. These include
financial support offered to businesses to assist with start-ups, acquisitions
and expansions and non-financial support to ensure sustainability.
6.2 Investment performance
NEFs performance is based on the participation by black women, level of job
creation and investment in priority growth sectors as outlined in the NGP and
The value of the NEFs
approved deals has exceeded the targeted value of approvals for the first time
by March 2012. Since inception, only 3.2 per cent of applications were approved
to the value of R3.7 billion, of which 330 approvals are available for disbursement
to the value of R2.7 billion and R2.25 billion have been drawn.
main sectors being invested in are services (14 per cent), construction and
materials (13 per cent), media (9 per cent) and transportation (8 per cent).
Manufacturing, as a sector, received 7 per cent of all investment since
inception; however, there were further investments in agro-processing,
chemicals and pharmaceuticals, textiles and the motor industry with a
cumulative investment of 13 per cent. Although the NEF reports that investment
in Mpumalanga and Limpopo had increased since the opening of the regional offices,
the main provincial investments had still been concentrated in Gauteng (51 per
cent), KwaZulu-Natal (20 per cent) and the Western Cape (11 per cent), with the
least investment value in Free State (0.2 per cent), Northern Cape (1 per cent)
and North West (1 per cent).
NEF also indicated that they are expected to be financially sustainable but
risks reducing the current capital under management, if the key performance
indicators set for the medium term expenditure framework are not met. This will
undermine its financial sustainability in the long run and impede its ability
to increase financial support offered to black-owned enterprises.
Results against the Annual Performance Plan
on a comparison with the performance indicators initially set in the NEFs
2011/12 2014 Strategic Plan, some of the NEFs indicators and targets had
been adjusted during the financial year. NEF (2011: 67 and 2012: 30-34)
NEF reported on 30 targets in the Annual Report of which ten were not achieved.
NEF (2012: 30-34)
NEF received an unqualified audit opinion from its independent auditors with no
matters of emphasis and/or additional matters. The independent auditors also
established that there were no material findings in terms of the usefulness and
reliability of the NEFs performance reporting against its Annual Performance
The NEF currently has net assets of R5.3 billion, a
slight decline of 0.41 per cent since 2010/11. The total current liabilities
are R44.2 million for the current financial year. These are more than
adequately covered by the cash and cash equivalents with current liabilities
being equivalent to 2 per cent of cash available. Note 27 highlights potential
cash outflows that were not reflected in the 2011/12 balance sheet but would
impact on the 2012/13 financial year. This includes undrawn investments of
R300.9 million and investments approved and committed but not yet contracted
for of R879.9 million. The abovementioned payments of over R1 billion would be
made from cash reserves.
concern is the long term sustainability of the NEFs capital given the
financial support that it must provide in future. The capital available for
future disbursements is based on the cash and cash equivalents and the
investments available for sale, which equates to R3.7 billion.
the NEF has increased its equity in associates by 96.1 per cent since 2010/11
to R201.9 million. Net originated loans have also increased by 30.4 per cent
since 2010/11 to R1.1 billion. About R109.3 million was written off during
2011/12 compared to R93.9 million in 2010/11.
NEFs revenue declined by 6.7 per cent from R359.5 million in 2010/11 to R335.5
million in 2011/12. This was primarily due to reduced interest received from
cash, originated loans and other investments. It, however, recovered an
additional R1.1 million in bad debts since 2010/11 and received R3.3 million
from enterprise development funding.
administrative expenses amounted to R191.9 million, an increase of 24.7 per
cent since 2010/11. The administrative expenditure was mainly due to staff
costs of R108.6 million, which increased by 25.4 per cent since 2010/11, as the
staff complement increased by 25.6 per cent from 125 employees in 2010/11 to
157 in 2011/12. This was followed by professional fees of R26.8 million, a
growth of 68.7 per cent since 2010/11.
had been an increased net loss on the disposal of investments from R0.6 million
in 2010/11 to R15.1 million in 2011/12. Furthermore, there was an impairment
charge of R105.1 million in 2011/12 compared to R102.7 million in 2010/11.
Before fair value adjustments, the net income had declined by 72.4 per cent
The following issues
emerged during the Committees deliberations:
The impact of investment
on actual economic activity and its multiplier effect
: At present the NEF does
not have the necessary information which indicates the impact of investment
vis a vis
employment and general impact
on economic development within a particular area.
The role of the NEF in
identifying areas for investment
: The NEF does play a role in identifying the
relevant role-players depending on the type of project it wants to invest in.
Currently, it was supporting a dairy co-operative in
The cost associated with
beneficiation of rare metals as opposed to export without value-addition:
The NEF expressed a view
that it could not comment on merits and demerits of beneficiation, as the NEF are
merely an implementer of policy.
The role of the state in
the market place and the identification of winners:
With regard to government being an
active participant in the market, the NEF was of the view that market failures
occur; the market therefore requires state intervention to address these
failures. The market cannot resolve all problems and where opportunities for
partnerships exist within the private sector the NEF becomes involved.
The criteria used by the
NEF in the allocation of funds
: The NEF funds business across the racial divide as
per its mandate. The Committee must also note that investment is based on the
application received. The NEF is not in a position to provide the necessary
answer on the number of transactions in the coloured community, but the
investment portfolio in the
The number of business
still operating and the profit margins associated with these businesses:
The NEF informed the
Committee that of the 384 transactions approved approximately 300 were still in
existence and operating successfully. The NEF has a post-investment unit that
monitors businesses on an ongoing basis. If challenges are identified the NEF
provides the necessary mentorship to ensure the sustainability of the
businesses. Most of the businesses that did not succeed were in the SMME sector
which, according to the NEF, could not withstand the impact of the global
The status of the 100
young managers that received training in
: The NEF informed the Committee that it seeks further
partnerships, such as the MOU with the Ministry of Trade in Investment in the
reclassification and recapitalisation
: The CEO informed the Committee
that although the NEF accounts reflect R4.4 billion, this represents committed
funds. Hence, capitalisation is a concern for the NEF and it could either
request additional funds from Government or raise funds on the market.
Committee focussed at some length on the NEF because of the strategic role it
plays both financially and in terms of its partnership development and value-add
and welcomed their vigorous approach to transforming the economic landscape.
National Consumer Commission (NCC)
7.1 Overview of the NCC
National Consumer Commission (NCC) was established by the Consumer Protection
Act (No. 68 of 2008) and became operational on 1 April 2011. According to the
Act, the NCCs functions include the:
Development of codes of good
practice relating to the provisions of the Act.
Promotion of legislative reform
through consultation with provincial consumer protection authorities, national
organs of state and consumer protection groups, alternative dispute resolution
agents and suppliers.
Promotion of consumer protection
within organs of state.
Enforcement of the Act including the
investigation and evaluation of any prohibited conduct and offences, issuing
and enforcing compliance notices.
Research to increase knowledge of
the nature and dynamics of the consumer market.
Promotion of public awareness of
consumer protection matters.
Liaison with other regulatory
authorities on matters of common interest.
Advice and recommendations to the
NCC set eleven priority initiatives for the 2011/12 2013/14 periods. Overall,
there was a tendency to not clearly report on actual performance against the
set targets and measures. The priority initiatives where there were challenges are
outlined below (NCC 2012: 113-135):
education and awareness:
The consumer protection awareness
rate (Measure 1.1) was meant to establish a baseline of consumer awareness but
measures the number of consumers reached.
The number of targeted public
engagements was not met due to budget constraints and lack of provincial
support and political and traditional tensions.
The target for the percentage of
complaints timely and successfully resolved has increased from 60 per cent as
set out in the Strategic Plan to 90-95 per cent of complaints received. The
reporting on this measure was unclear to whether the new target was actually
The actual performance outlined for
Measure 2.3, number of accredited alternative dispute resolution practitioners,
did not appear to relate to one another.
The reporting regarding Measure 3.2,
percentage of investigated complaints (filed cases by the NCC) successfully
settled through litigation, did not relate to the target or the measure. This
measure was also altered in the Annual Report.
In terms of Measure 3.3, the NCC
only reflected on three investigated complaints but did not relate these to the
time taken to finalise them, as the measure related to the timeliness of
It appeared that Measure 3.4 had not
been achieved given the reported actual performance, as the target referred to
achieving approved guidelines. The NCC did not appear to have any procedure
regarding the provision of clarifications and advisory opinions.
It was unclear whether the NCC had
developed three codes of practice according to Section 93(1) (Measure 3.5),
only one seemed to have been completed but this had been reported as an
infrastructure and network:
It was unclear whether the targets
were actually met.
7.3 Financial management
Auditor-Generals opinion was unqualified in terms of the financial statements,
namely that the statements fairly represented the financial position of the
NCC. However, he raised a number of areas of non-compliance with laws and
regulations and internal control matters.
with laws and regulations:
financial statements, performance and annual report
: There had
been material misstatements on the initial financial statements received by the
Auditor-Generals office but these had been subsequently corrected.
: The audit committee had not reviewed the
effectiveness of the NCCs internal control systems and the institutions
compliance with legal and regulatory provisions. In addition, the committee had
not met with the Auditor-General annually, as required.
: There had been no evaluation of the effectiveness
and efficiency of internal controls.
and contract management
: There had been non-compliance with
: Reasonable steps had not been taken to prevent
irregular expenditure of R8.5 million (25.5 per cent of total expenditure).
management and liability management
: No weekly
bank reconciliations were performed.
findings were limited to those resulting in the legal non-compliance issues
raised above. These related to:
The accounting authority had not ensured sufficient oversight over financial
reporting, legal compliance and related controls.
and performance management
: Management had not exercised
adequate monitoring to prevent legal non-compliance, and had not implemented
proper record keeping.
Governance structures were established late so could not adequately perform
their functions. For example, the audit and risk committee only met on 16 and
30 March 2012.
investigations had been on-going. The first was by the Department of Trade and
Industry (DTI) on the procurement of the office accommodation lease of the NCC.
The second was by the Public Protector South Africa regarding allegations of
irregular procurement and recruitment.
NCC received a transfer of R35.4 million from the DTI. This consisted of the budgeted
transfer of R32.99 million, another transfer of R1.8 million and transferred
assets of R0.5 million. However, the NCC spent R33.5 million, leaving a surplus
of R2.1 million (6 per cent of total revenue).
was mainly related to employee related costs of R19.9 million (59.3 per cent of
total expenditure), followed by other operating costs of R10.1 million (30 per
cent of total expenditure) and administration expenditure of R2.97 million (8.9
per cent of total expenditure). The other 0.8 per cent of the total expenditure
related to amortisation and depreciation and finance costs.
related costs include employees, the remuneration of the members of the audit
and risk committee and the executive managements remuneration. The executive
managements total remuneration consisted of 23.7 per cent of this budget.
notes on the administration and other operating costs do not provide much
further detail on the actual amounts spent on sub-categories. A further
breakdown was only available for travel and subsistence costs, which was R0.47
million or 4.7 per cent of other operating expenses.
terms of irregular expenditure, the total unrecoverable expenditure was R8.5
million, of which:
R0.5 million (6.1 per cent of
irregular expenditure) was due to non-compliance with procurement processes for
goods and services between R10 000 and R500 000.
R0.1 million (1.5 per cent of
irregular expenditure) was due to two suppliers not having valid tax clearance
R7.5 million (87.6 per cent of
irregular expenditure) was linked to an invitation from competitive bids not
being advertised for 21 days.
R0.4 million (4.8 per cent of
irregular expenditure) was not condoned by the accounting authority.
on the human resource information provided on pages 102-104 of the revised
Annual Report, it is unclear what the status of the NCCs human resources was
at the end of the financial year. These discrepancies include that:
The number of positions filled at
the end of March 2012 was unclear, as the NCCs reported statistics offered a
few possibilities ranging from 26 permanent staff to 33 permanent staff and 42
The number of posts in the NCCs
organisational structure was uncertain. The NCC indicated 120 posts in their
Annual Report; while the 2012 Estimates of National Expenditure
indicates 131 funded posts for the approved establishment at 30 September 2011.
Some of the headings of the tables did
not correspond with the data reported on in these tables. For example, one
heading referred to the annual turnover rate per occupational band while the
table contained data related to the action taken based on misconduct.
human resource concerns were the:
High proportion of contract workers,
56 per cent of 75 staff members
Number of managers (4) that had
disciplinary action taken against them.
Number of employees that were
engaged in misconduct such as being absent without leave and negligence of
was no racial breakdown of staff provided. Furthermore, the NCC had exceeded
its target of gender distribution of 50 per cent of female staff
per cent of staff were disabilities provided.
The following issues
emerged during the Committees deliberations:
The methodology used in
determining the reach of the public awareness programmes:
The NCC acknowledged that
numbers indicated may not accurately reflect the actual reach of the consumer
awareness programme, as they were based on the mediums estimated number of
subscribers. Currently, the NCC did not have an accurate measure to determine
the number of people reached through advertising and radio campaigns.
The issue of counterfeit
The NCC informed the Committee that in terms of the Act it is only required to
ensure compliance related to country of origin labelling and its mandate did
not extend to counterfeit goods.
The exclusion of pregnant
women by medical aid practitioners:
The NCC had completed its report on
the matter and this issue of discrimination has been referred to the
The relationship between
the NCC and the National Consumer Tribunal (NCT):
The NCC recognised the importance
of resolving the difficulties that existed between the NCC and the NCT.
Meetings had been arranged to address these matters
Funding of the standing
The NCC informed the Committee that it was in the process
of reviewing the financial assistance provided to members of the standing
advisory committee. Currently, members were involved voluntarily and do not
receive subsistence and travel allowance nor financial assistance with respect
to transport (ground and air) and accommodation.
Investigation into the
tow truck industry
: No research had been done with regard to the tow truck
industry but a holistic investigation into the motor industry was underway
which would include the tow-truck industry.
The misalignment of
: The NCC assured the Committee that it was in the process
of revisiting its strategic plan in conjunction with the DTI to develop
appropriate indicators and targets to ensure alignment with its core mandate.
The Committee is of the
opinion that co-operative governance principles should be strengthened between
the NCC and its public sector partners and other Commissions, in particular the
National Consumer Tribunal. Systems should be robust and financial management
requirements should be complied with in terms of the PFMA to enhance the
positive work done for consumers to protect their rights.
National Regulator for Compulsory Specifications
Overview of the National Regulator for
The National Regulator for Compulsory Specifications
of South Africa (NRCS) was established by the NRCS Act (No. 5 of 2008). It
forms part of
The NRCS mandate is to administer compulsory
specifications in the interests of public safety and health or for
environmental protection for imported, manufactured, sold and some exported
products. It does this primarily in terms of three Acts, namely:
National Regulator for Compulsory Specifications Act (No. 5 of 2008),
Trade Metrology Act (No. 77 of 1973), and
Building Regulations and Building Standards Act (No. 103 of 1977).
Its core functions are to:
Approve regulated products and issue test reports or certificates of
conformity before these products may enter the market.
Inspect and if required sample products at the premises of the manufacturers,
importers and retailers.
Sample and test products on suspicion or proof of non-compliance and
issue directives to stop sales where compulsory specifications are not met.
Enforce recall, corrective action, destruction and/or notification of the
media and public if non-compliance is proved.
Its main divisions and departments relate to its core functions and/or
regulated industries. These are the:
Research and Development division,
Perishable Products, Food
and Associated Industries division, and
division, which includes the Automotive; Chemicals, Mechanical and Materials;
and Electro-technical departments.
Reasons for the qualified opinion
In the year under review,
the NRCS has obtained a qualified audit opinion as compared to an unqualified
audit opinion achieved during the 2010/11 financial year. The Auditor-General
attributes the qualified opinion to two areas, namely revenue from services
rendered from exchange transactions and asset management.
The NRCS was found to
have contravened the accrual accounting policies (Generally Recognised
9) by not
having an adequate system to identify and recognise all revenue from services
rendered from exchange transactions. Therefore, it cannot be assured that the
revenue from exchange transactions was actually R33.1 million. It should be
noted that the NRCS was operating without a Chief Financial Officer for a
substantial part of the 2011/12 financial year. This position was only filled
in August 2012.
In terms of asset
management, the Auditor-General found that the NRCS:
Was using assets that initially cost R6.3 million, which
appear in the financial statements at a zero net carrying amount. The usual
practice would be to revalue the assets if they are still in use.
Had not indicated the physical/useable conditions of assets
on the asset register; therefore, the Auditor-General could not confirm assets
to the value of R7.7 million. The report highlighted that adequate asset
management controls had not been implemented.
Had a discrepancy of R1.3 million between the values of
assets in the financial statements and asset register.
Auditor-Generals findings on
raised a number of areas where he found the NRCS to be non-compliant. The key
Goods and services above
: In 2010/11, the Auditor-General found that the NRCS had contravened
Treasury Regulations regarding multi-year contracts above R500 000 entered
into in prior years. The correct process would have been to engage in a
competitive bid to source the suppliers. A similar finding was made in 2011/12.
Goods and services below
: The required price quotations (three) were not obtained.
Preference point system
: The system was not
consistently applied to goods and services above R30 000. Quotations were
awarded to bidders without correctly applying the points.
Awarding of quotations
: The NRCS had not
complied with Treasury Regulations by not verifying suppliers tax clearance
certificates and not waiting for the suppliers declaration of past supply
chain practices (regarding fraud, abuse of supply chain management system and
non-performance) before awarding quotations. The NRCS had also awarded
quotations to bidders without receiving their declaration on whether they are
government officials or connected to such a person.
Insufficient audit evidence that all contracts were awarded
according to legislative requirements.
In 2010/11, the
accounting authority was found not to have taken effective and appropriate
steps to prevent irregular expenditure of R2.4 million. However, in 2011/12,
this finding remains for irregular expenditure (R22.9 million) but a similar
finding was made in terms of fruitless and wasteful expenditure of R0.4 million.
Auditor-Generals findings on
There was material
findings regarding the usefulness and reliability of the non-financial
performance information reported.
In terms of the
usefulness of information, 33 per cent of the performance indicators related to
the goal of maximising compliance with specifications and technical regulations
were not clearly defined. In addition, 33 per cent of these performance targets
were not specific.
In terms of the
reliability of information, reported performance was not valid, accurate and
complete. This was due to lack of monitoring and review of the actual recording
of the underlying data by senior management, especially for the abovementioned
The Committee welcomed
the frank and honest account by the NRCS with respect to its current position. The
following issues emerged during the Committees deliberations:
Procedures in place and
action taken against suspended staff
: The Acting CEO informed the
Committee that a number of investigations were currently underway which were
commissioned by the Ministry of Trade and Industry or referred to the Public
Protector. A number of these investigations have been completed. These reports
have been submitted to the NRCS legal representatives to advice on the
appropriate corrective actions. The Board of the NRCS initiated disciplinary
proceedings against the incumbent CEO. The NRCS informed the Committee that one
matter relating to theft had been reported to the police and was currently
Relationship between the
NRCS and the NCC:
The Acting CEO informed the Committee that the two
organisations were working together and were in the process of finalising a MOU
that would govern such a relationship. Although consumer redress fell outside
the NRCS mandate, the organisations worked together to ensure that their
legislative responsibilities of enforcement was achieved.
Ensuring compliance of
The NRCS informed the Committee that it was responsible for
ensuring compliance of products within the manufacturing sector.
Reasons for the high
The NCRS acknowledged that its approach to restructuring and the actions that
led to the transformation of the organisation caused a lot of uncertainty among
staff. This led to staff resignations as well as industrial action.
Concerns with respect to
the perceived delay in addressing the matters which led to the NRCS receiving a
The Group Chief Financial Officer informed the Committee
that normally the DTI would intervene if it became apparent that entities were
experiencing problems. In the case of the NRCS, all the major role-players,
namely the CEO, CFO, procurement manager and the acting chairperson of the
Board, had either resigned or had been suspended, which contributed to the
crisis. When the DTI became aware of the situation, it implemented the
necessary controls. This crisis has led to the Minister appointing DTI
officials to the audit committees of its entities to avert similar crises from
occurring in other entities. A detailed rectification plan has been developed
to address the Auditor-Generals findings with specific milestones and
responsible individuals. This is being implemented and quarterly progress
reports are being submitted to the Audit Committee as well as the Minister. The
NRCS was also in the process of aligning its performance agreements of
executives with the performance targets of the organisations and its strategic
The Committee expressed
its concern that good governance had broken down, in some cases irretrievably,
with senior managers having to be replaced in particular the CEO, the CFO and
the suspension of the acting chairperson. However, the Committee welcomes the appointment
of another acting chairperson as well as the measures taken by the DTI to
address the good governance issues. This was to immediately arrest the deterioration
in the supply chain management process that had compromised tenders, which
impacted negatively on resources available for the NRCS work.
and Intellectual Property Commission (CIPC)
CIPC was established in May 2011 in terms of the
Companies Act of 2008 which merged the Office of Companies and Intellectual
Property Enforcement (OCIPE) and the Companies and Intellectual Property
Registration Office (CIPRO). In the year under review, the CIPC was faced with
the challenge of strategically, structurally and culturally invigorating the
image and reputation of its predecessor. This included building a capable
organisation that is customer centric and highly motivated.
A new strategic framework had to be developed and was
aimed at further designing effective and efficient business processes, a
customer focussed service delivery model, strategically aligned structure, and
Information Technology (IT) enabled systems, appropriate facilities and fit
for purpose common organisational culture
one of the new entities, the Committee took a decision to closely monitor the
establishment of the organisation. During its numerous engagements with the
Committee, it appeared that the CIPC was moving in the right direction in
implementing the necessary financial and performance management and internal
The non-compliance with the National Treasury Framework for
managing programme performance information in terms of the usefulness and
reliability of performance information submitted for auditing purposes. The
Auditor-General was of the opinion that 66 per cent of the indicators used by
the CIPC were not verifiable. No mechanisms were in place to review planned
targets for compliance against prescribed criteria before being approved. A
performance system that could assist management with valid, accurate and
complete reporting was also absent.
With regard to Human Resources, the vacancy rate increased
from 10.3 per cent in 2010/11 to ? in 2011/12. This was due to all posts being
frozen until a new approved organisational structure was in place.
With regard to information technology (IT) controls, the
Auditor-Generals report highlighted the following findings:
Inadequate controls with regard to the IT security policy.
The absence of user access, designed change management, IT
services continuity and IT governance controls.
The financial statements submitted for auditing was not
prepared in accordance with the prescribed financial reporting framework as
required by section 40(1)(b) of the Public Finance Management Act, leading to
misstatements. Corrections required, with regard to the financial statements,
were not effectively implemented which resulted in a qualified audit opinion.
its engagement with the CIPC during the 2011/12 2012/13 financial years, the
Committee highlighted the importance of a fully functioning call centre. The
CIPC highlighted the challenges with regard to the call centre and informed the
Committee that it had decided to outsource part of the call centre function by
creating handling support in business areas. This was done in order to reduce
the level of abandoned calls by the call centre consultants due to heavy
volumes of calls.
However, in spite of the decision that had been made to outsource some of the
functions of the call centre, it proved difficult to implement due to the
limitations of the network and ICT legacy applications.
result, a decision was made to establish focused query teams. The motivation
for this deviation was that call centre agents were unable to cope with high
volumes of calls, which remained high as queries were not resolved immediately.
In this respect, the effectiveness of the decentralised call centre needs to be
assessed, particularly the call resolution rate.
Committee welcomed the stability that the Commissioner had restored and the
steady progress in the CIPC achievement of its goals. However, the Commissioner
pointed out the challenges in the call centre which impacted negatively on the
work of CIPC. The Committee has noted with concern the emphasis placed by the
AGs office on the weaknesses of the IT controls. The DG has assured the
Committee that he has instructed the CIPC to address these weaknesses
immediately and appoint a permanent Chief Information Officer.
He further recommended that the CIPC consider
bringing in a competent firm of IT specialists to assist in this regard.
Nevertheless the Committee wishes to stress the urgency in the acquisition of
an appropriate IT architecture to address this issue.
National Credit Regulator
The Committee had two engagements with the NCR during
the 2012/13 financial year regarding the NCRs research report on the increase
of unsecured personal loans in
The Committee is concerned that within the current
economic environment the increase in unsecured loans to consumers earning less
than R15 000 per month is too high. This group of consumers is more likely
to be vulnerable to defaulting on their repayment obligations, as they tend to
be considered high risk and thus are charged higher interest rates.
Furthermore, the percentage of households that are financially unwell
(anchored unwell 4.8 per cent) appears to be relatively low but the
proportion of households that are vulnerable with the risk of becoming
debt-impaired (drifting unwell 48.5 per cent and drifting well 30.5 per
The Committees concern is that credit providers are
not fully conveying the full cost of credit and consumers are not always aware
of the implications of these loans. It therefore wishes to impress upon credit
providers to fully disclose all costs including the hidden costs to consumers
before granting loans. Consumers, before being granted loan, are required to
signed emoluments attachment orders (EMOs) upfront in case of future defaults
on loans. The Committee is concern that credit providers require consumers to
sign blank EMOs which is in contravention of the National Credit Act.
The Committee is of the opinion that the
investigation of specific cases in relation to the EMOs should be included in
the current investigation being done by the NCR
Over-indebtedness of a household will lead to its
inability to meet its basic needs and service its debt. Therefore, unscrupulous
lending practices and high interest rates charged to low income households are
potential catalysts for social unrest and potential destabilisation of the
economy. In the Committees opinion this can lead to both economic and social
PART IV: CONCLUSIONS AND RECOMMENDATIONS
In developing the
recommendations for the BRRR, the Portfolio Committee is informed by the
macro-economic, fiscal and public expenditure considerations proposed in the
Medium-Term Budget Policy Statement as a way forward for the resourcing of
service delivery and policy implementation over the next three years.
welcomed the Auditor-Generals Report which highlighted the key focus areas in
which the DTI and its entities required significant improvement. The areas
below were general areas of concern although they were not all applicable:
The non-compliance with supply chain management procedures
as required by Treasury regulations (TR) 16A6.1 which relates to procurement of
goods and service below R500 000.
The non-compliance with the National Treasury Framework for
managing programme performance information in terms of the usefulness and
reliability of performance information submitted for auditing purposes.
Vacancies not being filled.
The lack of IT management controls.
The financial statements submitted for auditing not being
prepared in accordance with the prescribed financial reporting framework as
required by section 40 (1)(b) of the Public Finance Act, leading to
The Committee expressed its concern, on other matters of
interest, especially the increase in irregular expenditure for DTI, NRCS, the
National Lotteries Board and the National Lottery Distribution Trust Fund.
The Committee was of the view that the terminology used by
the Auditor-Generals office to classify an audit outcome, should be reviewed
so as to overcome the misperceptions that could blur the robustness of an
organisations financial management compliance culture.
For example two organisations could receive
unqualified opinions with the same emphasis of matters, such as financial
management controls related to irregular expenditure. However one may be of a
purely technical nature while the other could possibly entail fraudulent
activities. In the opinion of the Committee there is no clear distinction
between the two organisations.
The Committee considered the Departments Strategic Plan and
Annual Report, as well as its section 32 reports. The Strategic Plan is broadly
in line with national priorities and the Departments strategic priorities.
However, the Committee noted that the first six months financial statements
could not be verified.
The Committee welcomed the progress on the designation of
products to increase the local content of products procured by government. It
emphasised the need for all spheres of government to align planning to enhance
local procurement, which is and will continue to strengthen and anchor the countrys
development in employment led industrial growth.
The Committee urged the CIPC to implement the necessary
mechanisms to address the challenges within its IT system to enhance the ease
of doing business in
The Committee was of the view that
the National Credit Act should be reviewed to determine whether the current
concerns are addressed and for the NCR to strictly enforce the Act to protect
vulnerable consumers against unscrupulous lending practices.
The committee commends the department on the steady
progress it has made towards achieving the key priorities to develop an
enabling environment for individual development that drives strategic regional
and international trade and investment to create sustainable jobs. The
committee wishes to stress the importance of overcoming the weaknesses
identified in this report and takes the necessary steps to build on the work
Committee would like to thank participants from the Ministry of Trade and
Industry, the DTI and its entities at the meeting.
The Committee also wishes to thank
its Committee support staff in particular the Committee Secretary, Mr A
Hermans, the Content Advisor, Ms M Herling, and the Researcher, Mr Z Ngxishe,
for their professional support and conscientious commitment to their work.
The Chairperson thanks all Members of the
Committee for their active participation during the process of engagement and
deliberations and their constructive recommendations made in this report.
Informed by its
deliberations, the Committee recommends that the House request that:
Department should address the weaknesses identified in the Auditor- Generals
report with respect the DTI and its entities, in particular IT challenges with
respect to the CIPC.
National Credit Act should be reviewed to ensure compliance of lending
institutions with the Act, and to ensure the protection of vulnerable consumers
against unscrupulous lending practices.
regrets that it has been unable to provide effective oversight over all the
entities that fall within its mandate. The Committee recommends that in light
of this, the Committee be classified as a Group C Committee (priority committee)
in order to ensure it has sufficient committee time to fulfil its mandate.
Report to be considered.
General (2012) PFMA audit outcome for 2011/12 financial year. Briefing by the
Auditor-Generals office on 17 October 2012.
and Intellectual Property Commission (2012a) Presentation to the Portfolio
Committee on Trade and Industry dated 24/01/2012.
and Intellectual Property Commission (2012b) Annual Report 2011/12.
Department of Trade and Industry (2011) Annual Report
of Trade and Industry (2012b) Annual Performance Plan 2012-2015.
of Trade and Industry (2012b) Annual Report 2011-2012
Department of Trade and Industry
(2012c) Financial Performance
as at 30 September 2012.
Department of Trade and Industry (2012d) Second
Quarter Report for the 2012/13 Financial Year.
National Consumer Commission
(2011) Strategic Plan 2011-2014.
National Consumer Commission
(2012) Annual Report 2011-2012.
Credit Regulator (2012a) presentation to the Portfolio Committee on Trade and
Industry on 3 August 2012
Credit Regulator (2012b)
Research on the
increase of unsecured personal loans in
Empowerment Fund (2011) Strategic Plan for the years 2011/12 - 2014.
Empowerment Fund (2012) 2012 Annual Report: Growing black industrialists
National Regulator for
Compulsory Specifications (2012) Annual Report 2011/2012.
National Treasury (2012a) 2012
National Treasury (2012b) 2012
Estimates of National Expenditure.
Zuma, J.G. (2011) State of the Nation Address at the
Joint Sitting of Parliament.
Tripartite Free Trade Area will be between the Southern African Development
SADC), the East
Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA).
Annual Report that outlined the different Act (2012b)
DTI Annual Report outline the different Acts (DTI 2012b)
 DTI (2012a)
The DTI: Annual Performance Plan 2012-2015
 DTI (2011b) Report of the AG for the period ending 31 March 2011
Treasury (2012a) and own calculations.
Real values are based on an estimated consumer price index (CPI) of
5.9% for 2012/13 (National Treasury 2012b).
manufacturing development incentives consist of a group of incentives focused
on the manufacturing sector. This includes the new Manufacturing
Competitiveness Enhancement Programme, the Automotive Production and
Development Incentive, the Enterprise Investment Programme and other smaller
Treasury (2012a) and own calculations.
National Treasury (2012
 Zuma (2011)
(2011/12) Annual Report
(2011/12) Annual Report
 DTI (2011/12) Annual Report.
103 Table 3)
21) and NCC (2012: 102)
 Reasons for qualified audit captured on pg 55-56 in CIPC Annual report 2010/11
 PFMA audit outcome for 2011/12 financial year Briefing by the AG office on 17 October 2012
 CIPC presentation to the Portfolio Committee on Trade and Industry dated 24/01/2012
NCR presentation to the Portfolio Committee on Trade and Industry
on 3 August 2012 presentation makes reference to Momentum/Unisa household financial
wellness index 2011 (slide 12)
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