Minister and Department Economic Development: 2nd and 3rd quarter 2012 expenditure reports

Meeting report

Department of Economic Development: 2^nd and 3^rd quarter 2012 performance reports
Ministerial Introduction
Mr Ebrahim Patel, Minister of Economic Development, and Ms Jennifer Schreiner, Director-General, Department of Economic Development (EDD or the Department), presented the Department’s 2^nd and 3^rd quarterly reports for 2012/13. In his opening remarks, the Minister said that in March 2013, the EDD tabled a Strategic Plan and Annual Performance Plan that set 42 Key Performance Indicators (KPIs), on which the EDD would be working over the following twelve months , and the products that EDD was going to produce.

The Minister outlined the content of the current reports, including the work in planning and coordination of oversight of development financing institutions (DFIs), as well as the reporting line to the economic regulatory bodies, and trade and competition. These reports covered the period 1 July to 31 December 2012.

He noted that during this period there were significant areas of focus, such as the Presidential Infrastructure Coordinating Commission (PICC) that worked to actively implement the infrastructure plan that had been outlined by President Jacob Zuma in the 2012 State of the Nation Address. Many products around that had been developed, following a meeting of the Cabinet and all the premiers and leaders of local government, to report, reflect and consider how best to take the infrastructure plan forward. This culminated into the some of the outcomes that the President announced in the State of the Nation Address in 2013.

The Minister said that the period also saw a significant expansion of investment by the Industrial Development Corporation (IDC) particularly in the green economy. The Small Enterprise Finance Agency (SEFA) began to operate. On the social dialogue side the EDD was faced with a wave of strikes in the mining industry, which led to the October Social Accord announced by the President on behalf of business, trade unions, community and youth organisations and government.

The Minister noted that this took place against the backdrop of a difficult period for the economy, with a slowdown in gross domestic product (GDP) growth, which made the activities of the departments of government more important in ensuring that they laid the basis for a rapid recovery.  

Second quarter report
Ms Schreiner noted that, out of the 42 indicators in the report, 11 targets were achieved, 15 targets were over-achieved and one target was not achieved. In respect of other categories, no quarterly indicators had been set.

Under economic policy development, the first strategic objective was monitoring the New Growth Path (NGP) progress. A document outlining the proposals for the Economic Development Index, including its design and rationale, was completed. The Outcome 4 quarterly Cycle 7 report was submitted, jointly with the National Treasury (NT) and the Department of Trade and Industry (dti), in the form of a Cabinet Memo. Input was also made on sectoral developments for a platform that was held with the dti and the NT, on developments in the productive sector.

The second strategic objective involved developing and implementing inclusive growth strategies. Here, she noted that a number of policy platforms had been held, including a platform on financialisation, together with the United Nations Department of Economic and Social Affairs (UN-DESA) on 5 July 2012, and another (with the International Economics Association and the Planning Branch on Industrial Policy in Africa) which had included high-level international and local guests. In conjunction with the dti and NT and other relevant sectoral departments, EDD had held another platform on developments in the productive sectors. A carbon tax platform was arranged with the NT, Department of Environmental Affairs, the dti and National Economic Development and Labour Council (NEDLAC) constituencies, on carbon tax, which identified critical modifications required to minimise unintended consequences from the proposed tax.

Ms Schreiner described the activities to offer policy advice to support the Cluster. The impact of the Broad-Based Black Economic Empowerment (B-BBEE) policy on the NGP targets was analysed, and modifications proposed. A submission was developed in the 2^nd Quarter and submitted with options and proposals to make the New Codes more employment- and equity-supportive. She added that a debate was held on the B-BBEE Scorecard in July 2012 with a further presentation on “Who Owns Whom”.

The fourth strategic objective was to ensure regular engagement on policy issues. Inputs on Gender and the NGP were developed for the Women’s Parliament, for Women’s day and for the Deputy Minister’s presentation of the Charlotte Maxeke lecture. A memo on the draft Women Empowerment and Gender Equality Bill was also developed. She added that a draft agreement was presented at NEDLAC by the Minister on 2 July 2012, and that terms of reference and business plan for options on establishment of the Economic Development Institute had been developed and approved.

Ms Schreiner said that, with regard to the Economic Planning and Co-ordination and the strategic objective of developing and reviewing of infrastructure, sector, spatial and national economic plans, there had been engagements with provincial and local governments. For instance, there was engagement with Sisonke District Municipality on high impact projects in September 2012, engagement with the Northern Cape Province regarding the Wildeawer Bridge, as well as participation during the Local Government Turnaround Strategy visits across all provinces, between July and August 2012. Nine infrastructure plans covering the different sectors reviewed, and progress updates on construction, funding, localisation and implementation challenges were done. She added that there was a review of the Cape Agulhas Local Municipality Spatial Development Framework.  

In relation to the strategic objective of promoting investment for economic dialogues, she said that a number of strategic engagements had been held with development finance institutions, particularly the interaction with the IDC Annual Report and Quarterly Oversight meeting.

Another strategic objective related to promoting competitiveness and trade for decent work. Here, she noted the reappointment of four existing Commissioners as well as appointment of six new Commissioners for the International Trade Administration Commission (ITAC). Meetings were also held with ITAC to discuss intervention on the scrap metal sector.  She added that a number of engagement forums were held to foster alignment of state-owned enterprises (SOEs) and the Presidential Infrastructure Coordinating Commission (PICC) investment decisions. There was an engagement with the Forum of South African Director Generals (FOSAD), bilateral meetings with the Departments of Water Affairs and Finance; and technical meetings with Rand Water and Mfuleni Municipality. In general, the second quarter work entailed aligning costing and medium-term budgeting work for the Strategic Integrated Projects (SIPs) with the NT.

The leveraging of finance and procurement processes focused on the value of special financing facilitated for small businesses, targeting the growth sectors and companies in distress. SEFA made a commitment of R71.6 million for small business funding. IDC committed R2.1 billion for growth sectors. In the second quarter of 2012/13, the IDC Distress Fund committed funds to the value of R64.3 million to five companies.

A number of interventions had been made to grow the green economy. Two meetings were held with the South African Insurance Industry Association on the replacement of electric water heaters with solar heaters. The Department assisted the Comprehensive Rural Development Programme project by applying to the Development Bank of Southern Africa for funding under the Green Fund. She added that there was ongoing collaboration with the NT, dti and the Department of Environmental Affairs to develop the Green Growth Strategy.

One of the objectives of the Economic Development and Social Dialogue budget programme was social dialogue and strategic frameworks. The Department had met with Proudly South African to discuss and monitor the progress of its Local Procurement Project Plan. The Polokwane Business Forum in Limpopo on 26 July 2012 aimed to create awareness of the Local Procurement Accord and spread the ‘buy local’ message. An African Farmers Expo was held, where exhibitors showcased their products. Discussions were also held between the Department and the National Business Institute on the implementation of the Basic Education Accord.

In pursuit of the strategic objective of sectoral and workplace dialogue, Ms Schreiner said that three Memoranda of Understanding (MOUs) on the Local Procurement Accord were finalised and signed by three trade unions (Chemical Energy Paper Printing Wood and Allied Workers Union, Food and Allied Workers' Union, and the South African Chemical Workers Union). In a bid to create and save jobs, there was a jobs saving intervention at SCAW Metals, together with the Commission for Conciliation, Mediation and Arbitration (CCMA) and the dti. The EDD had also finalised a MOU with SMB, to conduct a feasibility study at Dimbaza Foundries. In addition, reports were compiled on the implementation of each of the accords that had been signed in 2011.

With regard to the strategic objective of capacity building for economic development, Ms Schreiner said that the one knowledge network sessions focused on Regional and Local Economic Development. The Department partnered with the Department of Rural Development and Land Reform (DRDLR)  and the Council for Scientific Industrial Research (CSIR) on a new initiative to address rural economic development through a functional region spatial development response.

She further noted a meeting held with the International Labour Organisation to ensure collaboration on capacity building for social partners particularly around labour policies, social and solidarity economies and enterprise development. A meeting was held with the Executive Director of the Manufacturing Circle to gauge implementation and assess the progress on the local procurement accord. The Department participated in the NEDLAC Trade and Industry Chamber Strategic Session where the Business Leadership South Africa Study on local procurement was tabled and discussed.

Ms Schreiner then set out the financial performance. The EDD was allocated a total budget of R672.7 million for the 2012/13 financial year, and that the expenditure for the 2^nd quarter of 2012/13 was R165.4 million, representing 25 per cent of the total budget. Expenditure, excluding transfers, amounted to R 24.2 million, and this represented 16% of the main appropriation of R149.3 million. She added that the commitments as at 30 September 2012 amounted to R2.8 million.

Revenue collection for the 2^nd quarter of 2012/13 was R123 million, representing 19% of budget revenue of R631.5 million. She added that revenue was mainly generated from fines from penalties from the Competition Commission and dividends from the IDC.

3^rd Quarterly Report
Ms Schreiner then moved on to the 3^rd quarterly report, and noted that out of the 42 targets, eight were achieved, 14 were over-achieved, seven were not achieved and there were 13 for which no quarterly targets had been set,

Under the Economic Policy Development budget programme and the strategic objective of coordinating and monitoring the implementation of the New Growth Path, a survey was conducted, and inputs received were used in the report to the Cabinet Lekgotla. The Outcome 4 quarterly report,  completed with the NT and dti, was also submitted to Cabinet. She added that a document on the annual in-depth analysis of trends in employment, inequality and growth was submitted to the Cabinet Lekgotla as background information.

In pursuance of the strategic objective of developing and implementing inclusive growth strategies, a draft document on sector methodologies was in progress. Other policy interventions were identified and appropriate amendments were proposed, such as a draft document on productive sectors, equality and scrap metal. There was input into and finalisation of a Cabinet Memo dealing with the recommendations of the inter-departmental Task Team on Iron and Steel, which was aimed at supporting downstream sectors in the iron and steel value chain. She added that there was a meeting held with foreign investors in relation to the Cisco Steel Mill in the Western Cape.

Ms Schreiner said that SIP 15 was launched, a platform on workplace restructuring, socio-economic impact assessment system workshop, and another on alignment on NGP with Human Resource Development (HRD) strategy was held.

Proposed amendments to the B-BBEE Code were submitted to the Minister. A platform was held on B-BBEE with Who Owns Whom and selected departments and employers within the private sector to engage and explore specific components of the B-BBEE scorecard, such as preferential procurement, skills development, enterprise development and social economic development, to explore how the private sector could support employment and socio-economic development objectives.

In relation to the Economic Planning and Co-ordination budget programme and in particular the strategic objective of developing and reviewing infrastructure, sector and spatial and national plans, a number of engagements with provincial and local government had been held, such as the engagement with the Free State Premier’s Office on provincial growth and development strategy, and another with  the Northern Cape on provincial projects in relation to high impact projects and Strategic Infrastructure Plans (SIP) initiatives. The Department had conducted a review of the nine sectoral SIPS in relation to construction progress, funding, localisation and implementation challenges and this applied to spatial and infrastructure plans.

In relation to promotion of investment for economic development strategic objective, Ms Schreiner said that there were a number of strategic engagements with DFIs, such as a meeting between the Minister, SEFA chairman and the new SEFA Chief Executive Officer. There were also quarterly oversight meetings with entities, both in relation to this, and in regard to promoting competitiveness and trade for decent work. Three additional members were also appointed to the Competition Tribunal. An ITC policy directive was prepared on exporting of scrap metal.

There were a number of engagement forums to foster alignment of SOEs and PICC’s investment decisions with State policies, such as the Presidential Infrastructure Investment Conference held in October, and a MOU was signed between Transnet, IDC and Eskom where parties agreed to collaborate to support the implementation of PICC infrastructure projects. PICC bilaterals were held with the Ministry of Finance, Ministry of Communications and FOSAD.

In respect of the leveraging of financing and procurement processes, she noted that SEFA committed R105 million, and IDC committed R7.1 billion to growth sectors, whilst the IDC Distress Fund committed R260,2 million to eight companies, mostly in the Textile and Clothing industry. She added that a number of interventions were made to promote economic development through leveraging state expenditure and procurement.  Examples included support of the footwear industry in finalising footwear orders from the South African Police Service (SAPS) and the Department of Rural Development, for 97 774 pairs of shoes, an initiative that had prevented retrenchments; and the launch of a database of locally manufactured products funded by the Department during the Proudly SA Buy Local Summit.

A number of reports on the implementation of the green economy strategy had been finalised, including one on the role of the Department in the green economy so far. A number of interventions to grow the green economy were also made. A report on the progress of departments in the implementation of the Green Economy Accord was done, and a report on deliberations of the Conference of the Parties (COP) 18 and participation in Climate Change Technical Working Group was drawn. There was also participation in the Eastern Cape-EU Renewable Energy Conference.

Ms Schreiner reported that a number of social dialogue and capacity building engagements had been carried out. These included a quarterly meeting held on the National Skills Accord and two business forums held in George and Cape Town, which were aimed at creating awareness on the importance of buying local and showcasing local businesses in the area.

A number of economic development agreements were developed including the Presidential Special Package that was developed in October 2012, a memorandum of understanding on an infrastructure partnership that was signed by government, business, labour and community constituencies at the PICC conference, as well as the development of memorandum of understanding on infrastructure partnerships.

EDD made a number of interventions to create or save jobs.  Following complaints to the Department regarding illegal practices at trade fairs, especially in KwaZulu-Natal (KZN), with the consequent negative impact on small traders and local manufacturers, a second wave of inspections were held at a trade fair in Clairwood in KZN.  The Department also intervened in the impasse between Sappi and Department of Home Affairs regarding about 70 work permits for specialised welding skills for the expansion and modernisation of the mill at Ngodwana, Mpumalanga.

For the sectoral and work place strategic objective, a number of reports on implementation of framework agreements and social pacts were made. A consolidated report on Four Accords, crafted on inputs from social partners and government departments, was submitted. Another was compiled on the Training Layoff Scheme and the IDC Distress Fund, setting out the monies disbursed to companies annually since 2009, and the terms and conditions under which assistance was provided. The EDD and the Manufacturing Circle participated in a consultative meeting held at dti on measures to support key sectors in manufacturing and discussion on the Buy SA campaign. She added that there was an engagement with the South African Bureau of Standards and the dti on development of technical standard on local content.

In relation to the capacity building for economic development, a decision was taken to change the format of the knowledge network session to focus on broad themes that related to the SIPs and to unpack the content, implementation and operational challenges of each selected SIP. There was a presentation at the International Labour Organisation/National Council of Trade Unions (Nactu) workshop on the role of labour in social dialogue and economic development.

Productivity Milestone Workshops targeting SMMEs were conducted, in collaboration with Productivity SA, during the October productivity month in order to create awareness on productivity and to promote information sharing and networking.

Ms Schreiner set out the financial performance in this quarter. She noted that there was a total adjusted budget of R696.5 million for the 2012/13 financial year. Expenditure for the 3^rd quarter of 2012 was R165.5 million, representing 24% of the adjusted appropriation of R696.5 million. Expenditure, excluding transfers, for the 3^rd quarter, was R24 million or 14% of the adjusted appropriation of R166.9 million. She added that commitments as at 31 December 2012 amounted to R5.2 million.

Revenue collection for the 3^rd quarter of 2012/13 was R382.4 million, representing 66% of the adjusted budget revenue of R580.4 million, and this was mainly generated from fines and penalties from the Competition Commission, and dividends from IDC.

Discussion
The Chairperson said that there were many acronyms used in the reports which made it difficult to follow.  She proposed that these should be set out on a separate page in future.

Mr X Mabasa (ANC) said that the EDD was a delivery department, although with a coordinating role. There seemed to be more emphasis on plans, perhaps at the expense of reporting on the outcomes.

Mr M Hlengwa (IFP) asked for the progress of the youth employment strategy, saying that initially this was supposed to be signed on 28 February 2013.  He also wanted to know the linkages between the social accord and basic education, in terms of job creation. He wondered if the education system was responding to the needs of the market, to enable the economy to grow.  He also asked if there were any other accords in the pipeline.

Mr Z Ntuli (ANC) asked how the Department was co-ordinating horizontally with the other departments. He further asked how many jobs had been created, and if this could be determined.

Mr Ntuli asked, in relation to the textile and clothing industry, for clarification if the numbers cited were jobs created or jobs saved. He further asked if there was any tangible result in the area of local procurement and local production.

Mr Ntuli asked for the criteria to qualify for the IDC Distress Fund relief. With regard to the recruitment strategy, he asked as to how long it would take the Department to fill up the vacant posts, and whether there was any monitoring, following the signing of social accords.

Mr K Mubu (DA) asked for the relationship between the NDP and the NGP and the Department’s submission on the amendment of the B-BBEE Codes. He further asked how the Department was handling the many activities in which it was engaged.

The Chairperson asked as to who else was engaged in the Economic Development Institute, and asked for more details on its business plans and its intended objectives, as well as the role of the Portfolio Committee in the process prior to, and after development.

The Chairperson asked how the expenditures for the municipalities on infrastructure was covered, and whether there would be any compensation for work concluded, particularly in view of the low revenue base of some of the municipalities.

The Minister gave a general response that he hoped would cover many of the questions. He noted that the role of the EDD was one of co-ordination, and it was outcome-directed. The administration of the Department in 2009 had emphasised the importance of infrastructure, and this led to the development of the New Growth Path. In the New Growth Path, infrastructure was identified as the first jobs driver, and localisation was identified as one of the important policy drivers.

The Department then supported the Integrated Public Transport System, aimed at connecting bus, taxi and rail in a more seamless way that would make it cheaper and quicker for workers to get to and from work. The Department was rolling out this programme in six cities and it would be further extended to six more. However, in the implementation stages, it was discovered that South Africa was importing buses from Brazil. A meeting was held between the EDD and social partners, which led to the conclusion of the Social Accord.  

A further meeting between the EDD, dti and NT led to amendment of regulations in the B-BBEE Codes that governed procurement. There was also a further meeting with the IDC on market opportunities for public transport. As a result Johannesburg introduced a new condition in the tender, last year, that required the bulk of each bus bought to be made locally, with Marco Polo’s premises in Johannesburg being used to assemble. Cape Town had also introduced the same regulations in partnership with the City of Cape Town. The reason for the move was that government had set a national standard requiring a specific local content. The Cape Town advertisements contained a component of local content. The net result would be that the 200 buses bought by Cape Town and Johannesburg would be made locally.

The Minister said that the IDC had co-ordinated the setting up of a factory in Cape Town making that two local assembly points in South Africa instead of importing from Brazil. The result of all this would be a creation of more jobs and deepening of industrialisation in the country. This would also create a locally competitive market that would be able to provide buses to the rest of the Continent and other emerging markets.

The Minister used another example of taxis in the transformation of public transport. In 2009, South Africa did not assemble a single taxi. The EDD had since met with Toyota and this, together with the efforts of dti, led to Toyota’s expansion of its factory in eThekweni. He added that there was a joint venture between IDC and Beijing Automotive Works, in which the latter started assembling taxis in Gauteng in January 2013. The anticipation was that 50% of localisation would be achieved.

In terms of the Youth Employment Accord, the Minister said that the government had reached with social partners, and that a launch was to be made, at a date to be confirmed.  

The Minister noted that education needed to be supported with hard and soft infrastructure, which would include school governing bodies, teachers, textbooks, and classes. He said that the education challenges were part of history, but that this could be changed through businesses working with schools to improve them. Some businesses had adopted schools and upgraded their resources, such as computers, in addition to improving the skills of teachers through a partnership with the University of Cape Town.

The Minister said that the National Accord strove to improve the skills of young people. While other countries were also focusing on the technical aspects of education, South Africa was solely looking at the academic part. Apprenticeship programmes were a viable option, together with internships.

The Minister said that the accords implemented were working, and that they were also being monitored by the EDD which was looking at deepening existing accords on infrastructure.

In relation to the question of job impact, the Minister said that this was not measured by government departments, but EDD had introduced a system of IDC job creation for the new Annual Performance Plan. It had introduced a new performance indicator for entities that reported to it on job impacts.

The numbers of jobs listed in the textile and clothing industry mostly represented jobs that were saved but there had also been some job growth.

The Minister said that the IDC Distress Fund was created following the global financial crisis in 2008. It was available to companies that were soundly managed, on condition that their problems had to be related to the crisis, and they also had to have viable business plans that indicated that the problems were short term and temporary.

In terms of the recruitment strategy, the Minister said that the Department had met the targets it set in the 2^nd and 3^rd quarters in terms of staff recruitment. The vacant posts would be filled progressively with achieved growth.

The Minister briefly explained the difference between NDP and NGP, saying that NDP was the overall vision for the government up to 2030, covering numerous areas. The NGP, however, was the government’s economic strategy for sector plans, like the Industrial Policy Action Plan.

The Minister responded to the questions around amendment of the B-BBEE, by noting that they were aimed at boosting enterprise development (support of small business), creation of jobs and localisation (supporting black owners who were entrepreneurs).

The Minister also noted that he coordinated the EDD’s numerous activities and plans, and oversaw them. However, the Director General worked directly on the outcomes of the plans in the Department. The Minister also said that what had been presented in the 2^nd and 3^rd quarter reports was not all that the Department did.

The Minister said that the Economic Development Institute creation was not simply to be seen as an infrastructure, for it would be based on a knowledge network which was part of a virtual economic development institute, drawing on (international experts. That was why the EDD had had engagements with the United Nations Economic and Social Affairs Department. He added that the role of the Portfolio Committee was to provide a forum for a cross section of South Africa to present on various areas, a mandate far wider than the EDD itself.

The Chairperson asked if South Africans were aware of the knowledge network and whether it was only limited to external experts.

The Minister responded that this was going to be co-ordinated in South African but it would include both internal and external experts. The Department was currently putting place requirements for a think tank.

With regard to the Cape Argus Development Framework and the Rural Development and Land Reform, a report had been made but that was also an on-going. A large number of South Africans lived in rural areas and their economic representation had to be addressed.

The Minister also said that the Department would separate out the infrastructure spend and present figures to Parliament. Here too the EDD played an oversight role.

The Chairperson was concerned about duplication in the move towards the localisation strategy.

Mr Hlengwa asked for the status of private citizens engaging in tenders.

The Minister said that tender monitoring, in the sense of localisation conditions, was a legal requirement and that the Auditor General acted as a backstop against any tenders that did not comply.

Mr Mubu wanted to know more about the coordination of the EDD and entities on the quarterly report, and the interaction of the Department and provinces, as nothing much had been said about this.

The Minister responded that it was important to strengthen the co-ordination between the Department and entities. Initially, there were many entities in one department and there was no sense of oversight. That had since changed, with the requirement for detailed quarterly reports, and also the equitable distribution of funding in provincial lending. There was a departmental assessment of jobs created and a drive to identify challenges and positives.

With regard to interaction with provinces, the Minister said that what the Department was doing in terms of infrastructure was positive and there was a proposal to lift the over-all spending rate. He added that workshops had been useful in promoting public awareness but there was a need for assistance.

Mr Mubu asked as to how international/external experts would be controlled in the Institute.

The Minister said that the Department took the point and that there was need for having its own permanent core experts. However, there was also a need to recognise that the Department had a wide mandate and that in certain instances external experts would have to be brought on board as the core was being built. The EDD could not be “the jack-of-all-trade:” and have experts across all the sectors.

Mr Mubu wanted to know the time frame for filling in the vacancies in the Department.

The Minister said that scarce or special skills were always not available when needed, and therefore a focus on an internship programme would help in growing other relevant skills needed in the long run. Full utilisation of staff should be achieved by 2015. 123 people had been recruited in the 3^rd quarter.

The Chairperson said that the problem with the internship programme was that the focus was on interns from the University of Cape Town. Memoranda of Understanding should be signed with other higher institutions of learning.

The meeting was adjourned.