Western Cape Appropriation Bill: Economic Development and Tourism

Meeting report

Opening Remarks by the Chairperson
The Chairperson welcomed everyone present and acknowledged the presence of the Minister of Finance, Economic Development and Tourism, Mr David Maynier. He recognised the contribution to the development of the Western Cape economy by the late Mr David Spicer, Chairperson of Wesgro. The Committee sent its heartfelt wishes to his family, friends and colleagues for his contribution to the overall development of the province. The Chairperson added further that Mr Spicer was a towering figure in the business world and his presence will be sorely missed.

He said that the Committee would be deliberating on Vote 12 of the Department of Economic Development and Tourism.

Minister’s remarks
Minister Maynier told Members that he was pleased to present the budget of the Department of Economic Development and Tourism. The budget sat at R514 million which is a 2.8% increase in nominal terms. This budget would be directed towards landing the five key priorities during the financial year. He said that these included the ease of doing business; boosting investments and exports; enterprise development; skills development and energy resilience.

Briefing by the Department of Economic Development and Tourism on Vote 12
Mr Solly Fourie, Head of the Department (HOD), introduced the Chief Financial Officer (CFO), Ms Mymoena Abrahams; the Budget Manager, Mr Robert Le Breton; the Deputy Director-General (DDG): Economic Coordination and Stakeholder Engagement, Ms Jo-Ann Johnston; the DDG: Economic Operations, Mr Rashid Toefy and additional members of his team. He then introduced Dr Pierre Voges, the Acting CEO of the Special Economic Zone (SEZ) Atlantis; and Ms Kaashifah Beukes, CEO of the Saldanha Bay Industrial Development Zone (IDZ).

Mr Fourie commenced with some context of the economic trajectory of the province. He said that the Western Cape economy has grown by 4.3 % during 2021 and this was projected to slow down to 2% during 2022. The Q3: 2021 Quarterly Labour Force Survey showed that the Western Cape demonstrated an increase in employment by 46 000 jobs. Nationally, however, unemployment stood at 46.6%. He was pleased to report that the Western Cape has the lowest estimates for an expanded unemployment rate at 30.3%. A key focus area for the province is youth unemployment which recorded a rate of 36.8% in the Western Cape.

The presentation outlined the five strategic priorities of the Department as it responded to the challenges in the province. These strategic priorities are ease of doing business; investment and exports; enterprise development; skills development and energy resilience. The presentation also touched on earmarked allocations and how the budget and annual performance plan responded to priorities.

[See presentation for details]

The Chairperson tabled Vote 12 for discussion.

Discussion
Ms M Wenger (DA) said that in the outer years (2023, 2024 and 2025), the budget will be significantly less than what is appropriated for the current financial year. She asked what the driver of the expenditure is for this current financial year; it seems like a one-off because the budget reduces significantly after this financial year? On page 610, under organisational environment, there is a development of the service delivery model and change management implementation plan on the new way of work; is this trying to accommodate working from home and what is the implication for the Department’?

She said that as for the Public Servicewomen and Management meeting, one would wonder if the Department could provide details on this. There is an exciting development to better match skills and jobs in the province around the youth; what kind of levers should the Department influence and act as a catalyst for that kind of change and skills development?

It was known that the Department has assisted in the Port of Cape Town, especially with the container terminals. Broadly speaking, with the global shipping prices, she asked if there was anything that could be done provincially to assist the local businesses with better transport for the exports given the crisis and difficulties that companies were experiencing.

Ms N Nkondlo (ANC) wanted to understand from the Minister and the HOD the announcement made by the Premier which was anchored in the budget speech about the reconfiguration to try and give a kick to the economy through the infrastructure and mobility; is there any specific impact on this Department given that it is supposed to drive economic planning and growth? Would such a pronouncement affect the Department and its programmes, if so, in which areas and what are the budgetary considerations? What is the role of the Department in the whole approach to the economic growth of the provincial economy?

Ms Nkondlo noted it was said that there was a lot of work coming up in the informal sector. She asked what the work was, and what was the tangible strategic work that leads to the types of projects and programmes that this Department was doing around the informal sector. She also asked for details on the municipal ease of doing business priority mentioned by the HOD earlier in his presentation. What are some of the issues that were being addressed under the guise of the ease of doing business? The benefit of investors is never going to be optimally leveraged if the local economy is not enabled to take up the opportunities. The most beneficial group will always be the investors, not those who are the supposed beneficiaries of those investments. The regulatory framework is very stringent around the informal sector.

Finally, on the energy resilience project, she asked how much has been spent to date on this municipal resilient energy project. Are we still in the feasibility study phase, if yes, by when will those studies be completed?

Mr D America (DA) said that substantial appropriation was made for the development of skills. He asked if the skills development initiatives planned to speak to the strategic objectives of the Department. To what extent can we decentralise in various districts when we know that a higher uptake of individuals in the metropolitan areas make use of these developmental opportunities?

The Department of Transport and Public Works also has an extensive skills development and retention strategy. He asked if there was any way alignment or cooperation could enable the Department to have greater synergy in terms of developing a broad range of skills that the economy of the Western Cape might need.

Mr America said that as far as the booster fund was concerned, R20.571 million has been appropriate for it. There are several SMMEs listed that were funded in the past and for some reason will not be funded this year. The only organisation that will receive funding is the Western Cape Economic Development Partnership. He asked if the R13.2 million for the Western Cape Economic Development Partnership was part of that R20.571 million. He asked further what were the reasons for the discontinuation of funding for some of the organisations.

The Chairperson sought clarity on the impact of the inaction by the Minister of Transport on the bilateral air agreement has been on the Western Cape recovery plan, specifically the delay in approving the request of Delta Airlines. He asked how this had affected the Western Cape tourism plan and secondly asked the Department to expand on the successes of the Tourism Development Fund and what was planned going forward.

He wanted to know what collaboration was happening with national government to further strengthen the Port of Cape Town and prevent future incidents of cyber-attacks on the Port - which delayed its operations.

He referred to page 614 and asked what collaborations were happening with municipalities to make sure that bottlenecks in development planning and land using planning applications are streamlined and strengthened. This was one of the core concerns of the Western Cape property industry.

Responses
Mr Fourie responded that the Department's big reduction for 2022/2023 is that it would be the last year the Department would fund the Saldanha Bay IEZ. In 2023, 2024 operational funding stood for about R42 million which would be reduced. This reduction will kick in in the outer years of the MTEF. Secondly, on the service delivery model, Mr Fourie explained that the new way of work is a matter that is being discussed from an integrated Western Cape government perspective.  The new way of work also speaks to a focus on prioritisiation for the reassignment of Department staff on the organogram structure in areas of work that have been de-prioritised. The Service Delivery model of the Department has not been finalised, but the work was underway.

He said thirdly, on the public service and women in management question refers to the last paragraph on the better matching of skills to jobs. This was an important area that the Department was working on with the private sector. It was one of the issues that the Department has invested much time and effort in on over the years to hear from business what the issues were. What currently can be seen in the economy was the significant reduction of skills and jobs. Many firms are reluctant to employ people for various reasons. The Department wants to ensure that people understood the levels of skills in demand and assist them to narrow the gap between what is demanded and supplied in the labour market. The Department has just completed the West Coast where 28 young ladies from Atlantis, Pela and Dunoon were trained from the stipend paid by the Department to be code 14 truck drivers. Young people were being enabled to be skilled and acquire jobs.

Fourthly, Mr Fourie said that the Port of Cape Town has been a challenge exacerbated throughout by Covid and it was now affected by the global crisis within shipping and the delays in existence.

An official from the Department said that for the Informal sector, the SMME Booster Fund is part of the response to the informal sector to assist both formal and informal businesses to ensure they are compliant and develop their capacity. The Department is also engaging different departments to assist all non-compliant businesses to become compliant and apply for tenders. The Department has also put measures in place to ensure that informal businesses applied for funding opportunities, reducing criteria for application and ensure the application process was not onerous for those businesses. The Department was also working with SEDA and SEFA to assist these businesses to take up opportunities.

Mr John Peters, Chief Director: Integrated Economic Development Services, DEDAT, responded to the Municipal Ease of Doing Business; he said previously there was a focus on case resolutions and looking at issues on a provincial and national level, working closely with the DSBD on high-level issues. In the coming years, the areas of focus were broken into three parts which were: Municipal Support, Culture Transformation in the Western Cape government, assisting officials to be more business-centric, and the advocacy role in regulatory reform in any sphere of government. Significant funding has been channelled towards the municipal space. For the past couple of years, 23 municipalities have been assisted to digitise their systems. One or two municipalities were also looked at for event permitting and phone permitting. There was also constant engagement with municipalities on how to improve the relationships and interfaces with businesses. For the past month, SALGA has been engaged in collaboration with the Department and the index that will look at measuring municipalities in terms of the improvement of their services including the informal sector. Discussions have been had with COGTA as well as the DSBD and the Department of Local Government from the Western Cape on the matter of regulations and by-laws.

On the projects the Department was busy with and would be taken forward, last year, the Department started the ECD project where ECDs that were on the verge of being registered were looked at. If these ECDs were registered, automatically the standard for everyone goes up. They can get funding from social development; donors and the curriculum improved. The ECD project which would be carried forward was one of the projects done for township businesses. Support was committed to that.

Mr Peters said they were looking at improving those regulations and by-laws to make it easy for these organisations to start and grow and not be hidden from mainstream businesses. The Department has engaged municipalities, MMs, corporate businesses, organised businesses and the South African Informal Traders Association. What came out of the engagements were the issues of planning regarding township businesses. The strategy was integrated but the Department was looking at the regulatory aspects and how it could improve collaboration with the stakeholders mentioned above. Going forward, the Department will focus on the ECDs and regulatory reforms for informal businesses in the township areas.

Mr Peters reported a decline in overall demand but certain sectors in the economy have shown skills shortages. There were now 15 international investors that want to put down about 3 000 jobs in the city. Shortages in capacity have been seen in those sectors but in aggregate, there was a significant decline.

95% of all individuals that finish the Department’s experiential learning programme were offered further employment. Last year, the Department had over 4 500 beneficiaries and was on track to assemble a similar amount this year. Other institutions were rallied to fund the skills component. Last year, for every R1 the Department voted for skills, it brought another R2 from other sources. Last year, the Department collected a total of R105 million and was hoping this will be higher this year.

On the SETA collaborations, most of the challenges have been addressed. One of the challenges is that some of the SETAs expected the Department to be the lead employer, but its regulations do not allow for this. 

On energy resilience, to date, R18.9 million has been spent on the MER project. 20% has been transferred to the municipalities to support them in project preparations. Mr Peters said that in the energy space, there were many regulatory requirements that municipalities needed to adhere to before they procure. This money directly assists the municipalities with costs of supplies and IRPs to be in place so that they could procure renewable energy projects to assist with load shedding or reduce the impact of load shedding. Project preparation work generally costs about between 5% and 12% of the total value of the project and this is important to ensure that wise procurement for infrastructure takes place with the least risks. Mr Peters emphasised the importance of the project preparation work the Department does because it is considered the basis upon which municipalities do their work.

He said that so far there have been 49 megawatts of energy that has gone into roofs of businesses and households, and because of the support that was provided to the private sector; seven projects were essentially given nearly 800 megawatts per project and have successfully landed in the Western Cape. 16 of the 25 projects have been won by Cape Town-based energy developers for the bid window five. By and large the Western Cape is the headquarters for renewable energy companies.

On the public servicewomen in management meeting, Mr Peters said that this was an annual meeting that used to take place in August in Women’s Month but the Department has identified the gap to further discuss issues coming out of that meeting. As a result, the Gender Equality Forum was developed within the Department. The forum mainly discusses the issues coming from that meeting but also addresses issues such as sexual harassment and looking at women in leadership and putting processes and systems in place to continue the empowerment of women. In addition, the Department also considers the policy environment to increase gender mainstreaming and ensure that policies do not hamper women or groups being addressed in those meetings.

Mr Peters said that as for the Port of Cape Town, there was a significant leadership gap in the port logistic chain but Minister Maynier built the gap effectively and mobilised a departmental response. The Department started with collaboration and building networks with different agencies. The most critical issue the Department could assist with was to reduce the turnaround time of vessels in the Port of Cape Town waiting to berth and time at berth. Although this was a complex issue, equipment adequacy would be vitally important in determining the vessel turnaround time. The Department was working on the augmentation of cranes and better incentives for operators when they worked on their cranes to get their performance levels up. In addition to the cranes, there is some work to mitigate the risks.

Mr Peters reported that as the Department worked on economic recovery during Covid, it was important to stabilise the supply side as in the last two years, it had spent R8 million and leveraged an additional R15 million. From that R8 million spent, 400 jobs were created, both direct and indirect. This translated into about R20 000 per job created for value for money. These were sustainable jobs. All 15 of the projects took place outside of the Metro area because that is where it was felt the money needed to be spent. The Department tried to support SMMEs in local areas and to drive most of the spend into those areas, but due to reprioritisation, the Department was not funding the project going forward.

The EDP partnership initiatives were in support of municipalities. Mr Peters reported that four key areas were supported which were the direct projects with the municipalities. Next year,  there will be a focus on the Garden Route and the City of Cape Town because these municipalities have requested assistance on projects. There was water and economic recovery to build the ecosystem around water, resource efficiency, savings and making sure that water levels were sustained. There was also work on food and economic recovery where there was work with area-based stakeholders to enable food security and better value chains around food. There were also collaborative practices for economic recovery and growth to support all levels of government to collaborate better on initiatives on economic recovery and growth.

The Minister responded to the institutional review and said it was ongoing and the implications for the Department will be clear in the next financial year. The focus will be on how the cluster is coordinated rather than the amalgamation of departments. He believed that it would focus much more on how the cluster was coordinated.

As for the Delta Airlines issue, he reinstituted the intergovernmental dispute yesterday. The matter has been ongoing for some time. Wesgro did some calculations on what the impact might be of this delay and it could cost the economy up to R420 million. He remained confident that in the next few weeks, this matter would be resolved with the National Department of Transport. Delta Airlines has made applications to fly directly to Cape Town from Atlanta.

On the Port of Cape Town, he said the Department has done excellent work in collaboration with all the stakeholders in the environment but what remains a concern is the longer-term play for the Port. National government has indicated clearly that the intention is to bring in private sector participation in Port operations. How this will be achieved was unclear at this point.

Further discussion 
Mr America said that there was no doubt that there was a significant amount of work being done by the Department to support SMMEs in the province. Many departments have made significant transfers TO municipalities and often have the same objective in mind. For example, last year, the Department of Local Government appropriated about R50 million to municipalities for SMMEs to develop business plans to assist with the alleviation of poverty. With the JDMA, are the departments talking to each other in terms of landing the same programmes that aim to achieve a similar objective?

He was pleased with the ECD project as in rural areas it provides an opportunity for people to have their children educated. Many of the rural people work on farms and they do not always have opportunities. He asked if there was a conversation in rural areas where the Department was talking to the farmers.

Lastly, on the ease of doing business and removing obstacles, what is the experience of the Department in its engagement with the Deeds Office? He asked further what the causes of bottlenecks and delays were.

Ms Nkondlo said that some money would be sent back because some SETAs want the Department to be employers. She asked which SETAs, how much money will be sent back and when all of this will be done.

On the issue of the informal sector or Township Economy, she felt that straight answers were needed and one needed to be deliberate on this matter to be clear on what theory of change is responding to the informal sector or township economy. One would need this discussed in more detail. Last year in July, one asked about the strategy for the township economy and she was told that there was a review of the Township Economic Strategy, which is part of the larger Western Cape growth strategy. Has this been concluded? If yes, can the review also be shared with the Committee?

Mr Fourie responded by saying that on transfers to municipalities, there were interactions with the local government team but essentially the money was utilised within a local government context, and it was spent soundly. Inputs were provided on how SMMEs were dealt with.

On the Joint District and Metro Approach (JDMA), Mr Fourie said there is an integrated and deep discussion on the alignment of work needed in the municipal spaces. For example, there are projects that are handled at the JDMA levels, and there was a JDMA lead in each one of the districts to bring alignment of what is required within municipalities and what the departments are doing. There is a strong working relationship within the JDMA space.

He said that he could go on at length about the work and experience with the Deeds Office. The delays were mostly due to Covid-19 where they had to close the entire office. The building was shared with another department which was managed by the provincial covid task team. The entire building was locked down for deep sanitisation if someone contracted covid.

On the SETAs, the issue around lead companies is that when a SETA dispenses funds, some SETAs expect the dispensee to be the employer. This works well in the private sector but not in government. The one SETA was the MERSETA where R44 million in funds were sent back – this had already been received from the SETA. Other SETAs are more flexible. There was a SETA forum and these issues are taken up in that forum.

In the Informal Sector and Township Economy, this whole area is fundamentally an important part of the enterprise development approach. This year, five areas have been prioritised and enterprise development is one of those areas which include the informal sector or businesses. It is a unique space within the enterprise development space that has continued support. A township strategy is being worked on but because a holistic economic strategy is being developed, that work has been placed on hold to incorporate a lot of what is coming out of the overall strategy. The final outcomes have not yet been published.

Ms Nkondlo said that on page 615 in the first paragraph, she sought clarity on the aquaculture sector where exports to China were unblocked and the process of gaining market access to Russia was initiated. Given the provincial stance on the current war between Russia and Ukraine, she asked how the initiatives were affected and how long it would take to recover access to these markets again for the aquaculture sector.

On page 624, on township retail, she saw in the presentation that there was R1.3 million allocated to this programme - she asked what this funding was for. In one inquiry, Members were told that the Department contributes a grant of up to R500 000 per store owner to this programme. She sought clarity on whether the amount was for new store owners or other ancillary expenses. She also asked whether the Department was aware of the challenges that the store owners were experiencing.

On pages 657 to 660, it is outlined that on consultants and professionals, the Department would spend R13 million on programme two and R10 million for programme five. She asked what are the specifics of the technical expertise sourced externally and whether the Department did not have that expertise or skills internally.

The Chairperson said he just received a WhatsApp message asking what the process would be to start a call centre in the Western Cape for someone who wants to open one in Mitchells Plain.

Ms Wenger said that on page 628, Table 8.2, under public cooperation and private enterprises, there is a substantial increase of 236% to R8.3 million. She asked what accounts for the large increase and the large decrease in non-profit organisations.

On page 635, Table 9.2 on sub-programme red tape, there is a significant increase in the budget - what are the plans for this programme? On page 654, Table 8.2, why are there no audited figures for entertainment for the 2020/21 financial year?

Mr America said he noticed a significant increase in training in programmes six and seven on page 661, he asked if was this a result of the lockdown to increase training and what kind of training was envisaged.

Responses
Mr Fourie said the Department had responded to requests last year from industry sectors for areas that had been blocked. The agriculture sector required looking at the blockage for the export of pears to China and that was done. There was also a significant request for the Department for the unblocking of mussels in Saldanha Bay - which was going to be exported to Russia. This happened long before the war started. The Department responded to the business at the time. The reference in 615 is to the activity that a trade barrier team has done in the past. The Department has now been looking at its responses to all of this and was committed to the decision of the provincial government.

As far as the township retail spending goes, the Department also looked at its own budgets and re-established what was available in the tight fiscal space and so they were responding to that. The allocation of the funding to the township that was referred to earlier was linked to the Department going out on a call for proposals. It is not linked to Pick n Pay because that arrangement has come to an end. It has been in existence for about five years. There will be a call for a proposal but will be predominantly on the hardware stores within townships and what other retail stores can be assisted in that space.

On consultants, the Department has significantly reduced consultant usage over the years and was totally committed to looking at how this can be reduced to the lowest levels, or match the skillset it has internally. There are several instances where experts are needed. The two major areas where consultants were used were for subscriptions that the research team uses. It is cost-effective to purchase these subscriptions. If we had to do it in-house, we would need dozens of economists to produce the data, so it is much more cost-effective to purchase these subscriptions. The spending reflects about a third of the current expenditure, R10 million, in programme five. The other is mainly for transaction advisors that will be availed through to the municipalities and service providers that provide support to the private sector regarding renewable energy. It is almost entirely directed to renewable energy.

Mr Peters said that in terms of the Port, much of the interventions will be based on getting the evidence and putting it to Transnet to ascertain how it can be used to increase efficiency. This was also done for the wine exports to better understand the logistical change to get better imports and exports in terms of efficiencies. The work that was done at the Port requires specialised inputs which are normally sourced from consultants.

On municipalities, the Department did not go down the route to ask what the municipalities want and transfer the money. The Department decided to procure itself. Where specialist knowledge is required in terms of the regulatory review, the Department will employ those consultants. Within the unit itself, there are about three people who are legally qualified and able to run regulatory projects but there may be instances where outsourcing was required for the requisite skills.

The R18.345 million was linked to the enterprise development booster fund; next year the Department will be spending R18.3 million on that programme.

On the red tape expenditure, this programme has three priorities; the municipal fund is the largest.

On entertainment, this referred to the Covid year, and there was no expenditure on entertainment. Expenditure on items that were considered non-essential was reduced.

The training referred to non-employees and related to the CDNT ompetency-based modular training programme. The other is the tourist guide training.

Setting up a call centre required setting up the operations that are required. Depending on the type of service offered by the call centre, this might require accreditation or registration with the respective authorities. The difficult part is finding those deals. The easy deal is what one calls outbound sales which call consumers to sell products. These are risky products because one would sell the products and pay a commission to an agent. The more lucrative one is the inbound call centre where customers call in for assistance with various services. These require typically five to ten years of work experience.

Ms Nkondlo asked what the meaning of no medium-term estimates was for 2023 up to 2025 for Saldanha IDZ and an almost 12% cut on the Atlantis SEZ. She also asked about the allocation of R23 million on red tape reduction for the ease of doing business. She asked if this was new, given the 83% increase in the budget.

Mr Fourie responded to say that on page 629, on transfers topublic entities, the reduction in the outer years for the Saldanha Bay IDZ indicated that it would be able to be self-sustaining with effect from the years 2023/2024.

Ms Kaashifah Beukes, Chief Executive Officer, Saldanha Bay IDZ, added that the IDZ has communicated that. It is within the agreement reached between the company and the Minister. There is nothing on the horizon that indicates that the company will not fulfil that commitment.

Dr Pierre Voges, CEO, Atlantis SEZ, said the reduction in the Atlantis SEZ was about assisting the Atlantis SEZ to get its designation. The land question that was acquired from the City of Cape Town had a VAT component to it. The SEZ was not yet able to be financially independent in the foreseeable future. With the land transfer now happening and once the resolutions were signed off, the land will be in the Department’s books, and we might start seeing the SEZ sweat. We are not going to see the company financially independent for a couple of years, but it is fully operational.

On red tape reduction, the R23 million will be spent mainly on the human resources component which was still operating as a director with a few deputies. This year, there was much more spending on projects and interventions. The amount covers two main components, the one is municipal support, which is R10 million, and the Port of Cape Town as well as R1 million allocated for projects that will look at regulatory reforms and amendments for SMMEs.

He said whilst local content was one bow in an arrow, the Department’s role was largely to support these companies on the other challenges such as input costs, which is a far greater challenge now. For example, on the cement side, the logistics costs, rail costs that are incurred and the lack of sustainability and continuity from Transnet freight rail, are massive challenges the Department was looking to support. The Department’s role is very much on easing the side of the burden on input costs and getting through the blockages that are inhibiting the business from growing.

The Chairperson said the budget is also a public engagement but there were no inputs or comments or questions for the Minister. The head of the department is retiring at the end of the month. On behalf of the Committee, he thanked Mr Fourie for his dedicated service, contribution to the Western Cape government and the people of the Western Cape - it is greatly appreciated. The Committee wished Mr Fourie well.

Committee resolutions
The Chairperson said the Committee should get Mr Fourie a parting gift. 

The Committee would also organise a condolence card for the passing of Mr David Spicer.

Ms Nkondlo requested that the Committee invite the Department to present again on the work of the enterprise development programme, especially around the informal sector for Members to get a better grasp of the work done in that space. Some updates in the skills development programme would also be appreciated. These updates can come in monthly, bi-monthly or quarterly instalments. One believes that this would be interesting work to follow.

The Chairperson supported the request and resolutions made by Ms Nkondlo.

Mr America, as a new Member of the Committee, suggested an oversight visit to the Saldanha Bay IDZ and the Atlantis SEZ to orientate ourselves with the work and programmes of these industrial zones.

The Chairperson submitted Vote 12 to Members to vote on.

The Democratic Alliance supported Vote 12 but the ANC invoked Rule 90 to not support Vote 12.

The Chairperson submitted the report of the Committee.

The meeting was adjourned.