Progress report on implementation of SABS & NRCS turnaround strategies

Meeting report

Opening remarks
The Chairperson announced that both the South African Bureau of Standards (SABS) and the National Regulator for Compulsory Specifications (NRCS) would make presentations before he gave the Members the opportunity to pose questions or make comments.

Ms Nontombi Matomela, Acting Chief Operations Officer, Department of Trade, Industry and Competition (dtic), introduced the entities.

Presentation by South African Bureau of Standards (SABS)
Ms Jodi Scholtz, Administrator, SABS, made the presentation on behalf of Bureau. She introduced the senior management team that was online.

Ms Scholz reported on the Labour Relations Act section 189(3) process. On 10 March 2021, SABS had issued a s189(3) notice to employees confirming its contemplation of potential retrenchments and invited employee consultation with the employer regarding contemplated retrenchments to reduce the salary bill to achieve financial sustainability. The Voluntary Severance Package and Early Retirement process attracted 123 applications, 110 of which were approved in a balance between savings and the loss of critical skills. The process was ongoing.

SABS recorded a profit of R6.4 million against an expected net loss of R22.2 million in the first quarter of the financial year ending March 2022. Savings in administrative and operating costs (R30 million when compared to budget) contributed positively towards the profit position. The savings were related to the pandemic and the need for staff to work at home as well as the restrictions on travel. The cash collections for the first quarter of FY2021/22 had increased when compared to the previous financial year, although the previous year had been severely impacted by stringent Covid-19 lockdowns. Operational improvements had been implemented to ensure maximum monthly cash collections.

A key focus area was the African Continental Free Trade Area (AfCFTA) Agreement Annex 5 which addressed intra-continental co-operation in standardisation.

Priorities for Quarter 2 included the continued Implementation of the turnaround plan with a dedicated focus on performance, productivity and profitability. Organisational transitions would be driven by completing the section 189 process and moving to the organisational review process; the phased implementation of a new structure and monitoring cost containment. There would be an emphasis on revenue growth. Other plans included ensuring that the SABS was removed from administration and the launch of the local content scheme.

(See Presentation)

Presentation by the National Regulator of Component Specifications (NRCS)
Mr Edward Mamadise, CEO, NRCS, made the presentation on behalf of the Regulator, although he was suffering negative effects on his eyesight as a result of a Covid-19 vaccination. Mr Oupa Kgasago, the recently appointed Chief Information Officer, appeared before the Portfolio Committee for the first time.

Ms Rebecca Ramcharran, CFO, NRCS, informed the Committee that the 2020/21 Financial Year Audit was still in progress due to the COVID-19 impact on the external auditors. The impact of the audit on the audit opinion was still being evaluated. The audit should be completed by 25 August 2021. However, the NRCS had resolved all 2019/20 audit qualifications except on non-exchange revenue completeness and cut-off.

Ms Abigail Thulare, COO, NRCS, reported on the current operations of the NRCS. Importantly, it had resolved the backlog challenge and there were no applications above 120 days that had not been evaluated. The Electro-technical and Automotive departments accounted for between 92% and 94% of the pre-market approvals processed or received by the NRCS and those departments had been strengthened to address that load.

Mr Oupa Kgasago, CIO, NRCS, presented the initiatives and status of the ICT modernisation status. A Service Provider had been appointed in October 2020 to implement SAGE 300 to optimize Finance, Supply Chain Management (SCM), Human Capital Management (HCM) and Facilities Management business processes. NRCS had gone live with the Pay-Roll module of HCM in June 2021, and the balance of the
functional modules were expected to go live in September 2021.

The NRCS had widened the broadband access to enable all users to have adequate online access to the NRCS Network as it was currently in demand due to COVID-19, and also to ensure the productivity of employees regardless of location.

The CEO concluded by referring to the impact of Covid-19 on the revenue of the NRCS as many of its client companies had either closed or had experienced low productivity. To assist businesses affected by the unrest in July 2021, the NRCS had extended all certificates or letters of authority (LOA) that expired between 1 July 2021 and 31 August 2021 by three months so that the businesses could continue to operate.

(See Presentation)

Discussion
Mr W Thring (ACDP) asked how the SABS Administrator would rate the success of the turnaround strategy at the SABS on a scale of one to ten. He expressed concern about the greening of the economy by capturing CO2 out of the atmosphere because there had to be a fine balance with the needs of trees. SABS was working on improvement with regards to expired permits. How was the entity doing that?

He noted the qualified audit of the NRCS. Was there not sufficient internal audit capacity? What was the benchmark figure for issuing LOAs? Was it above or below 120 days? Was the new ICT programme locally or internationally developed and what were the financial terms and conditions of its use?

Mr S Mbuyane (ANC) asked how sustainable the new NRCS structure was and whether there had been any allegations of fraud or corruption. What kind of collaboration did the NRCS have with other Departments? What had the impact of Eskom disruptions, including load shedding, been on SABS? How financially stable was the SABS and what cost cutting measures were in place? How had the NRCS backlog been addressed?

Ms Y Yako (EFF) commended the amazing presentation by the SABS. The SABS target was 30% women in employment. That was inadequate; the minimum should be 50% women. The NRCS worried her because there was an element of defeat. It should aim for a clean audit. The Committee should prioritise oversight over the NRCS to bring it back to order.
 
Mr Z Burns-Ncamashe (ANC) expressed interest in AfCFTA. He said Africa had been exploited by the West and Africa should encourage intra-continental cooperation. Africa should never need aid, given its rich natural resources. It was time for Africa to stop using the kind of standards used for African products but imposed on the continent. Africa had to invest in human capital in ways that would assist the continent to develop uniquely African standards that would enable Africa to be competitive in the global sphere. SABS had to position itself as a torchbearer that could be used as a model by the entire continent. SABS should not adopt a condescending posture but should up the game with an African standardisation system.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
The nub of the functionality of the NRCS was the specifications, so there was a symbiotic relationship between SABS and NRCS. Discussing the issues was one thing but how did those people who were directly affected by the operations, but located in rural areas, get the information from NRCS and SABS? Their work was important, so how was the information disseminated? They should use ward committees, etc. to disseminate information. Their outreach had to be more impactful.

Ms Scholtz told Mr Thring she would give SABS a seven out ten as the revenue-generating income had been severely impacted by the Covid pandemic and more could be done, including moving into new spaces, but building technical, equipment and people capacity took time: between 6 to 12 months. Section 189 had been instituted and some hard conversations would be following. There was a draft Green Economy paper which was the bedrock of SA’s climate change proposals and which was out for public comment. That paper informed the position adopted by SABS.

She admitted that the matter of expired permits was an own goal as SABS had not been as robust as was needed in its planning. SABS had to send out a notice six months before an LOA expired, but it was a manual process on Excel sheets and was not always completed on time. The new IT system was 70% complete and that would help, but management had strengthened the planning process and the capabilities of the team.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
She informed Mr Mbuyane than it was not so much loadshedding, but more about cable theft and SABS had engaged with Tshwane City Council on the matter. When cables were stolen, the plants shut down and tests had to be restarted. The campus, and especially the laboratories, needed to be more sustainable and so SABS was looking at putting solar panels on all the roofs of the campus, but needed more funds from the fiscus. Procuring generators was the interim solution.

Responding to Ms Yako, Ms Scholtz explained that the target of 30% women was intended to get more women in the technical committees of SABS. For example, zip up boots had been changed to lace-up boots to accommodate women since women had joined the mining-related committee. 30% women was an initial goal for women on technical committees. In the organisation, the target was 47% women. She asked MPs to nominate technical women in their constituencies to sit on the technical committees, which could be incredible vehicles of transformation. There was a massive awareness programme for getting more women involved. She agreed that the target for the organisation should be 50% and not 47% but few new appointments were being made as SABS was over-staffed. Even though appointments were limited, the policy was currently to appoint women first.

Ms Scholtz indicted to Mr Burns-Ncamashe that she would attempt to explain the way in which standards were developed. There was an international standard-setting body and the key was to be represented on that body. Dr Sadhvir Bissoon represented SABS and SA on the highest decision-making body of the International Organization for Standardization (ISO), the ISO Council. It was critical to be at the table in the room where decisions on standards were being taken. Dr Bisson would provide details. SABS was also involved in developing standards in SA for indigenous industrialisation and expanding that into regional integration of standard-setting.

Mr Katima Temba, Head of Certification Services, SABS, was not proud of the expired permits. The interventions put into place included the periodic interventions but the emphasis had been place on more proactive planning. It was a manual system, but the tracking was now robust and every Monday at 7am a cross-functional team of all role players met to ensure that the week was well planned and that anything lagging behind would be addressed. 97% of the ISO9000 certificates were current and 95% of SABS mark permits were current. The numbers were low because they were getting a lot of traction in that area and hoped to eradicate expiries in the coming months.

Ms Tina Maharaj, CFO, SABS, explained that power disruptions did have a significant impact on the ability of the entity to do business, especially in the laboratories. Many laboratories were dependent on humidity and temperature for their testing processes. A slight dip in temperature meant the test had to be redone and that created time delays and the report to the customer was delayed which impacted revenue. Many areas had generators and SABS was looking at installing generators in the remaining areas, including the block occupied by the NRCS, in the short term, i.e. the next two months,  but was looking at solar panels in the longer term. Ultimately, SABS wanted to go off-grid.

Mr Nils Flatten, General Manager: Strategy, Reporting and Media Relations, SABS, said that the SABS carbon work was part of a broader carbon strategy. The Minister of Forestry, Fisheries and the Environment, Ms Barbara Creecy, had tabled the Nationally Determined Contribution (NDC) for stakeholder consultations, which was South Africa’s climate change response cornerstone. The updated draft NDC had been approved by Cabinet for public consultation on 24 March 2021. The UN Framework Convention on Climate Change required an update every five years and the current document was the update of the NDC deposited in 2015. The public participation process was currently being engaged in. The process that SABS was engaging in was separate from that process and set standards for anyone or any organisation that wished to engage in the process of saving CO2.

Dr Sadhvir Bisson, Executive: Standards, SABS, said that standards 27914 and 27915 relating to capturing CO2 went beyond the scope of setting standards and were trying to comprehensively quantify and examine the environmental impact of the capturing of CO2.  A wealth of impact studies had been undertaken that had contributed to SA’s commitments to climate change. SA had committed, for the years 2025 to 2050, to keep the greenhouse gas emission within the range of 389 metric tons CO2 equivalent thereof. Various government departments would be committed to supporting those targets, together with various technical institutes.

He referred to the AfCFTA, stating that it was a strategic issue for SABS, which was why the SABS had put forward a strategic framework for SABS to work within the AfCFTA. Article 5 in the Annex to the AfCFTA Agreement articulated what the parties were mandated to do in terms of standardisation. It articulated what the co-operation should be. The wording was: “The parties shall…” It was mandatory. Seven items spoke to it being mandatory to adapt international standards. There were only two recognised international standards bodies: ISO and IEC (The International Electrotechnical Commission). 154 countries were members of ISO and IEC and those countries were all involved in developing those standards, including a number of countries from Africa. ISO had 450 committees. SA participated in the relevant committees and had 250 key members plus another 130 members. Once an ISO standard was published, it was adopted as a SA national standard. That was a membership obligation. To drive intra-continental standards, SA took the standards that it had adopted and submitted them towards a harmonisation process. Other countries came forward with their peculiarities in respect of the standard and then agreement was reached on the approach to a particular standard. That was how standards were reached that served the needs of the African continent.

The African Organisation for Standardisation (ARSO) had published more than 1 200 standards and the majority of those standards were not peculiar to Western countries or Europe. They were standards that were homegrown. Only 10% to 15% were ISO or IEC standards adopted through a notification process.
As much as SA wanted to mature the process and advance industrialisation on the continent, it had to use best practice and the necessary guidelines, but nothing was stopping SA from developing tailor-made standards for the continent, either nationally or African Regional (ARO) standards and submitting them to a process at ISO or IEC and making those international standards as well. The intention of standards was to allow the movement of goods and services between countries and to create access to markets, regionally and internationally.

Dr Bisson pointed out that standard development across the African continent was very diverse from SABS with 800 members to two-person national standard-setting bodies. Often it took a very long time to reach consensus on the standards.

Ms Scholtz added that SABS was launching a women-in-leadership programme on Friday 27 August 2021, as part of its Women’s Month activities, to build up leadership skills in women already employed by SABS so that women acquired the tools in terms of management and leadership capacity to step into the leadership space.

Mr Edward Mamadise, CEO, NRCS, responded to questions relating to the NRCS. He informed Mr Thring that the audit failure was a technical, legal issue and had nothing to do with governance failures. It was related to the legislation. The ICT modernisation would assist in trying to resolve the qualification. SA entities had underestimated the complexity of the Generally Recognised Accounting Practice (GRAP) accounting system when it had been introduced. He added that the SA Revenue Service (SARS) had requested an extension of its implementation of GRAP because it would be faced with the same problems that the NRCS was facing.

The NRCS qualification was on revenue. The qualification had been reduced, but it would require a number of interventions. It was not the same qualification as in previous years. The errors in the current year related to a cut-off and, although it was the only qualification, it had not been picked up. The NRCS had a fully functional audit team that was assisting in working towards a clean audit.

He stated that the LOA did not have an international benchmark. It was difficult to compare such things internationally as the NRCS had been constituted in a unique manner. Each and every country followed a particular regulatory model; some only used self-regulation, etc. so there was no entity against which the NRCS could benchmark.

He explained the ICT modernisation was partially built on the SAGE 300 system used in other entities and in government departments. The other part of the ICT modernisation involved regulation and there was no off-the-shelf system that would be suitable, so it would have to be developed specific for purpose.

Mr Mamadise told Mr Mbuyane that the sustainability of the organisational structure would be largely dependent on the job evaluation and job profiles. That would indicate what was required to implement the organisational structure. It was too soon to say anything about its sustainability. There was an ongoing dedicated process in which stakeholders and employees had been consulted. Evaluation and costing of jobs had to be undertaken to determine what would be affordable. The outcome was a collective outcome and so there were no allegations of fraud or corruption.

NRCS engaged with other entities, such as the key stakeholders in government, consumer organisations, consumers themselves and industry which enabled the entity to identify stakeholders such as SABS, government departments and develop relationships. The NRCS entered into memoranda of understanding with relevant stakeholders to cement the relationship and to jointly agree on a way forward.

He informed Members that the backlog, that had since been addressed, had affected the electro-technical and the automotive departments which were the departments that accounted for 70% of the LOAs. An analysis of the unit and the workload was undertaken and it was determined that the department was under-resourced. NRCS had appointed additional inspectors and had removed the 30-day cancellation period given to industry to rectify errors picked up in the assessment because often the industry took over a year to re-test and resolve problems and, during that time, the assessment formed part of a backlog because it could not be resolved. The change to the cancellation policy had eliminated a large portion of the backlog of LOAs. The methodology of processing applications had been amended and low and medium risk applications were currently processed in a shorter time.

In terms of accessibility of the NRCS services, Mr Mamadise stated that the NRCS had developed several intervention mechanisms to reach the market, especially in the light of the pandemic, and had taken an aggressive approach in the past year, including television, media and billboard messaging and had used the SABC, local radio stations and local media. The NRCS had worked with municipalities as well as other government departments, especially when going to deep rural areas. More could be done to market and educate the consumer who would then highlight issues of non-compliance and, in that way, support the NRCS.

Ms Ramcharran said that the CEO had responded adequately. She added that the stability of management in the financial department had helped the organisation. The ultimate goal was a clean audit and the NRCS was working towards that.

Ms Thulare augmented the CEO’s response on collaboration with other entities and government departments. A partnership had been developed with the Department of Energy and its entity, the South African Energy Institute, which had led to the successful implementation of the energy data base. Even the cost of the database had been jointly financed by the NRCS and the Department of Energy as the NRCS had been doing work that the Department had needed to do. The partnerships had enabled the Regulator to leverage resources to do its work.

The Chairperson asked if the turnaround strategies at SABS and NRCS were on track and comfortable, and whether there would be stability, growth and development so that the Committee could see the progress.

Mr Burns-Ncamashe noted that Ms Scholtz had responded to a point about employing more women at SABS by saying that people wanting more information should contact SABS. That was a reactive approach and he cautioned Ms Scholtz to pursue a more proactive approach because the majority of people in the country were in the rural areas and had a constitutional right to have access to information and it was the obligation of those working in public entities to take that information to people in all parts of the country. He appealed for people to be proactive.

Mr Burns-Ncamashe noted that the CEO of NRCS had mentioned institutions and organisations that were strategic partners but he expected the CEO to visit the national, provincial and local houses of traditional leaders as well as the SA Local Government Association as those institutions were in contact with rural people and it was the CEO’s obligation to engage with institutions that commanded huge geographic areas. He wanted to hear at the next meeting that the CEO had made that connection.

In her concluding remarks, Ms Scholtz took heed of Mr Burns-Ncamashe’s remarks and would look to ramp up partnerships. Her sense of the turnaround strategy and following discussions with her co-administrator, Dr Tshenge Demana, was that the turnaround strategy had to be nimbler and to move with a little more speed and agility but there had to be a balance as people had to be empowered to do the work. They needed both technical and soft skills and the feedback on those efforts was very positive. There could not be a quick fix. Revenue generation had to be ramped up; there had to be more growth. However, the SABS was stable. The section 189 process would be a bit rough but she believed that excellent preparations had been made, although people were more unsettled by the ongoing pandemic.

Ms Scholtz believed that seven out of ten was a fair assessment with areas for improvement being in the laboratory space and there being an overall need to ramp up the process.

In his concluding remarks, Mr Mamadise acknowledged Mr Burns-Ncamashe’s remarks but he also stated that perhaps the Committee was not aware that, in terms of the NRCS Act, the entity was obliged to, and did, collaborate fully with municipalities. He noted that his presentation had focused on the turnaround plans but he would present a broader briefing in the next meeting. The NRCS would also approach National Treasury for assistance. He agreed that it was critical to get out of the audit qualifications.

Ms Matomela concluded that the Department noted the progress at both SABS and NRCS, but agreed with some of the points made by Members and would incorporate some of their comments in ongoing plans. She assured the Committee that the ultimate goal was a clean audit for each of the entities and the dtic was assisting in that regard.

Concluding remarks

The Secretary announced that the next Committee meeting would be on Tuesday 31 August 2021 on the response of the dtic and Adv van der Merwe to public submissions on the two remitted Bills.

The Chairperson concluded the meeting.

The meeting was adjourned.