Economic Development Department on its 2015/16 Annual Report, with Deputy Minister; Unemployment Insurance Amendment Bill: finalisation

NCOP Economic and Business Development

08 November 2016
Chairperson: Mr M Rayi (ANC, Eastern Cape)
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Meeting Summary

Annual Reports 2015/16 

The Economic Development Department briefed the Committee on its Annual Report for 2015/16. The Department had spent 99.8% of its allocated budget. The planned target for the period was 164 and it had been achieved. An additional 68 targets were met. Some statistics provided included that total jobs at the end of 2015/16 were 15.6m. Gross Domestic Product (GDP) growth for the 2015 calendar year was 1.3%. Industries that had declined in 2015 were agriculture, utilities and manufacturing. The EDD realised that it needed to create more jobs and stimulate growth through its six I’s ie Infrastructure, Industrialisation, Innovation, Investment, Inclusion and Integration. This was how the EDD implemented the National Development Plan and the Nine Point Plan.

During the reporting period the Presidential Infrastructure Coordinating Commission (PICC) had spent R269bn. There were a total of 312 PICC monitored infrastructure projects. On PICC monitored projects 191 142 jobs had been created. The EDD had worked with lawyers, the National Prosecuting Authority (NPA), the PICC Secretariat, the Security Cluster and the Department of Justice on the Criminal Matters Amendment Bill to address cable and metal theft on the public infrastructure programme. During the period under review the PICC had 22 successful unblocking interventions. For example the EDD and the PICC worked with the BRICS New Development Bank (NDB) to facilitate the approval of a $180m loan from the NDB for Eskom to fund transmission lines.

The EDD provided oversight and strategic guidance to the Industrial Development Corporation (IDC) during the year under review through engagements with the Board, management and potential investors. Highlights were that R14.5bn had been approved for 180 transactions. Of this a total R11.4bn had been disbursed and 15 272 jobs had been supported. Further investment initiatives by the IDC were an R10bn pledge by the China Construction Bank initiated through an EDD Ministerial engagement during a China state visit to SA .In addition the Beijing Automotive International Group (BAIC) was to establish an automobile plant in SA. The Committee was given a breakdown of investment interventions in provinces as well as identifying priority sectors in provinces. Provincial figures were also provided on employment, unemployment, job creating industries and on job loss industries. 

The EDD was on target in regards to employment equity. The EDD’s vacancy rate had consistently been reduced. In 2014/15 it was 26% and in 2015/16 it was 17%. In Quarter 1 of 2016/17 it was 15%. National Treasury had imposed restrictions on the hiring of staff and had capped payroll, hence the EDD had to reorganise its organisational structure.   The EDD had obtained an unqualified audit opinion. The Auditor General of SA had drawn attention to the Annual Performance Plan (APP) predetermined objectives as well as on financial and management gaps that needed to be addressed. The EDD was putting remedial actions in place.

Members asked the EDD how it would quantify its impact especially in the green economy. The EDD was urged to focus more on rural areas. Members noted that SA’s export base was unfortunately still commodity driven. Greater emphasis should be placed on beneficiation and localisation. The EDD was asked how it intended to arrest the decline in manufacturing sectors. Members strongly felt that there needed to be consequence management on issues like collusion. Members were concerned about the EDD not being able to fill the posts that perhaps were needed in order for it to deliver. Members did point out that often times when the issue of SA’s slow growth was brought up the blame was placed on the recession that the world was in. The facts were that on growth SA was lagging behind its Sub-Saharan partners. Members observed that if the EDD was coordinating as it said it was and there was still no economic growth then things were not going as they should be. Members were quite surprised that SA was importing sugar when SA had a healthy sugar industry of its own. The EDD was asked whether there was not another reason besides the drought in the Western Cape that had caused jobs to have been lost in the agricultural sector. Members pointed out that China was trying to monopolise the world’s steel industry and urged SA to stop it from becoming a reality. The EDD was asked what it felt the problem on cable and metal theft was. Members felt that there was a lack of enforcement on the part of the South African Police Services (SAPS). Was the Criminal Matters Amendment Bill of any assistance? Members also felt that the Mineral and Petroleum Resources Development Act and the Mining Charter was not of much assistance when it came to the lack of beneficiation and localisation as well as the lack of compliance on Broad-Based Black Economic Empowerment. The EDD was asked why in its briefing nothing had been said about fraud and corruption. Was all well within the EDD? Corruption was after all rife in state entities. The Committee asked the EDD to provide it with a list of projects that had been unlocked in the provinces. If there was a decline in the manufacturing sector, the EDD was asked what could be done to stimulate investment. Members also asked what could be done to assist the agricultural sector, especially in the Free State Province.

The Report of the Select Committee on Economic and Business Development on the Unemployment Insurance Amendment Bill was adopted by the Committee unamended.

Meeting report

Briefing by Economic Development Department (EDD) on its Annual Report 2015/16

Mr Madala Masuku, Deputy Minister Deputy Minister of Economic Development, stated that the briefing would speak more to outcomes and impacts than on issues. The briefing would highlight work on key areas and was not a detailed account of activities. The EDD had spent 99.8% of its allocated budget. The planned target for the period was 164 and it had been achieved. An additional 68 targets were met. Some statistics provided included that total jobs at the end of 2015/16 were 15.6m. Gross Domestic Product (GDP) growth for the 2015 calendar year was 1.3%. Industries that had declined in 2015 were agriculture, utilities and manufacturing. The EDD realised that it needed to create more jobs and stimulate growth through its six I’s ie Infrastructure, Industrialisation, Innovation, Investment, Inclusion and Integration. This was how the EDD implemented the National Development Plan and the Nine Point Plan.

Infrastructure - During the reporting period, the Presidential Infrastructure Coordinating Commission (PICC) had spent R269bn. There were a total of 312 PICC monitored infrastructure projects. On PICC monitored projects 191 142 jobs had been created. The EDD had worked with lawyers, the National Prosecuting Authority (NPA), the PICC Secretariat, the Security Cluster and the Department of Justice on the Criminal Matters Amendment Bill to address cable and metal theft on the public infrastructure programme. During the period under review the PICC had 22 successful unblocking interventions. For example the EDD and the PICC worked with the BRICS New Development Bank (NDB) to facilitate the approval of a $180m loan from the NDB for Eskom to fund transmission lines.

Innovation - The EDD introduced a producer of an innovative product which reduced the risk of fires in informal dwellings to a retailer. It was an ethanol based gel product which reduced fuel costs and emissions from one plate burner stoves. The company was 100% black owned and employed eight people. In addition the Cape Ray (Pty) Ltd received funding from the IDC to develop a breast cancer diagnostic machine. The machine was undergoing clinical trials and had an advantage of being implemented in rural clinics which reduced diagnostic costs and diagnostic times.

Integration - The top five counties SA exported to were China, USA, Germany, Namibia and Botswana. The top five countries SA imported from were China, Germany, USA, India and Japan. Top export products to Africa in 2015 were petroleum, trucks, coal, iron & steel products as well as diamonds. The problem with SA’s exports was that the products were commodity based and not diversified. Top imports from Africa in 2015 were crude oil, petroleum, gas, food mixes, sugar and electricity.  

Investment - The EDD provided oversight and strategic guidance to the Industrial Development Corporation (IDC) during the year under review through engagements with the Board, management and potential investors. Highlights were that R14.5bn had been approved for 180 transactions. Of this a total R11.4bn had been disbursed and 15 272 jobs had been supported. Further investment initiatives by the IDC were an R10bn pledge by the China Construction Bank initiated through an EDD Ministerial engagement during a China state visit to SA .In addition the Beijing Automotive International Group (BAIC) was to establish an automobile plant in SA. The Committee was given a breakdown of investment interventions in provinces as well as identifying priority sectors in provinces. Provincial figures were also provided on employment, unemployment, job creating industries and on job loss industries. 

Inclusion - In the public interest during the 2015/16 financial year the Competition Commission had imposed employment  related merger conditions resulting in the saving of 7 857 existing jobs and the creation of 3 137 new jobs. However 1 399 jobs were lost in mergers reviewed during this period. The net number of jobs created and saved was 9 595. Other attempts on inclusion were for example on equitable growth where the EDD conducted surveys on 28 township enterprises to ascertain real challenges on the ground and to develop interventions in support of township enterprises. The survey had focussed on township enterprises that had received both financial and incentive support from government and DFIs, the purpose of which was to measure the impact of Small Enterprise Finance Agency (SEFA), the IDC and National Empowerment Fund (NEF) funding.

Industrialisation - On legislation the EDD conducted significant research and consulted on proposed amendments to the amended Competition Act. A memorandum was produced for President Jacob Zuma as a result of the work undertaken. On the 1 May 2016 the government gazetted a Presidential Proclamation that brought into effect certain sections of the Competition Amendment Act. It made it a criminal offence for directors or managers of a firm to collude with their competitors or fix prices, divide markets amongst themselves or collude tenders or to acquiesce in collusion. The significance was that if found guilty of anti-competitive behaviour, directors exposed themselves to the risk of up to 10 years in jail.

Mr Lawrence Maqekoane, Chief Director: Corporate Management, EDD, provided some detail on the organisational structure of the EDD. The EDD was on target in regards to employment equity. The EDD’s vacancy rate had consistently been reduced. In 2014/15 it was 26% and in 2015/16 it was 17%. In Quarter 1 of 2016/17 it was 15%. National Treasury had imposed restrictions on the hiring of staff and had capped payroll, hence the EDD had to reorganise its organisational structure.  

Mr Steven Hlabane, Acting Chief Financial Officer, EDD, continued on the financial performance of the EDD. For the year under review the EDD had spent 99.77% of the allocated budget as compared to 99.72% in 2014/15. Under spending had reduced from 0.28% to 0.23% in 2015/16. It constituted a reduction of 0.05%.

Mr Malcolm Simpson, Acting Director-General, EDD, spoke to the audit outcome of the EDD. The EDD had obtained an unqualified audit opinion. The Auditor General of SA had drawn attention to the Annual Performance Plan (APP) predetermined objectives as well as on financial and management gaps that needed to be addressed. The EDD was putting remedial actions in place.

Discussion

Mr B Nthebe (ANC, Gauteng) asked the EDD how it would quantify its impact especially in the green economy if it wished to take things away from the numbers. He said that the focus should be more on rural areas. SA’s export base was unfortunately still commodity driven. He noted that the impact of the Industrial Development Corporation’s $60m would be able to quantify localisation and beneficiation. There was a need for intra-Africa trade on a medical base. The EDD was asked how it intended to arrest the decline in manufacturing sectors. Agriculture and manufacturing was considered important sectors. He referred to slide 64 which spoke to collusion and said that consequence management was needed.

Deputy Minister Masuku said that the EDD was dealing with the diversification between rural and urban areas. It was an issue which the EDD was grappling with. The SEFA had come into the space. The Minister of Economic Development was engaged in discussions on what agricultural initiatives the IDC could fund. There were policy discussions taking place. A number of outflows had been observed in the Northern Cape on the green economy. Many outflows of the IDC would be seen in the Western Cape and the Gauteng. The EDD was also focussing on the KwaZulu-Natal and Eastern Cape in terms of work being done.

On how investment impacted on the restructuring of the economy, the issue was about shifting IDC financing to other areas. Previously investment had mainly been in commodities and manufacturing. New investments were being made ie the green economy. On arresting the decline in manufacturing and agriculture, he agreed that beneficiation of commodities was needed. Agro-processing was being done. Green energy had also triggered manufacturing. The issue was about putting systems in place to ensure that policy imperatives were addressed. On localisation the EDD had controls in place that was being monitored. More could be done on private sector investments. He said that on collusions the criminalisation aspect had already been covered. It was now about creating awareness in communities.

Mr J Londt (DA, Western Cape) was a bit concerned about the EDD not being able to fill the posts that perhaps were needed in order for it to deliver. He understood the EDD to be a coordinating department and felt that this would be especially useful on the rollout of internet broadband. Broadband would allow people to empower themselves. He remarked that when people brought up the fact that SA’s economic growth was slow then the excuse was used that the world was in a recession. SA was lagging behind its Sub-Saharan partners. The unemployment rate in SA needed to decrease. If the EDD was coordinating as it says it was and there was no economic growth then things were not happening as it should.

Deputy Minister Masuku confirmed that coordination was effective. There was horizontal coordination between departments and vertical coordination with provinces and metros. The coordination role allowed Development Finance Institutions (DFIs) to speak to one another. There were already initiatives that were ongoing. The issue of broadband had been discussed with the Department of Telecommunications and Postal Services for the past two years. Metros like Cape Town, Gauteng, Tshwane and eThekwini had the capacity to rollout broadband.

Mr Simpson, on the EDD’s human resources, said that National Treasury had placed a funding cap on hiring for the next two years. The human resources structure of the EDD would have to be designed accordingly. It was work in progress as the structure needed to be flexible.

Mr W Faber (DA, Northern Cape) was concerned that the Northern Cape Province was not mentioned in the briefing as one of its priority areas. Members were supposed to represent their provinces. How was he supposed to report back to his provincial legislature? He needed more detail on what was being done in the Northern Cape Province.

Deputy Minister Masuku noted that in 2016 the Northern Cape had the highest contribution on clean energy. There were programmes on green energy and the Square Kilometre Array (SKA) in tthat province. He added that when a cycle was done then the EDD reported.

Mr Y Vawda (EFF, Mpumalanga) noted that looking at SA’s top five imports and exports as presented to the Committee he asked how SA could be importing sugar. SA’s own sugar industry was huge enough for it to be exporting sugar. On imports and exports it was good that countries like China, the USA and Germany was both buying from and selling to SA. However countries like India and Japan were only exporting to SA. How could this be changed? The presentation had spoken about agricultural jobs being lost in the Western Cape due to the drought. He noted that the Mpumalanga and Eastern Cape Provinces also had drought but that there had been increases in jobs. Was there not perhaps another reason why jobs had been lost in the Western Cape? He noted that efforts were being made by China to monopolise the steel industry internationally. Steel would always be a huge industry and whoever ran it would have huge power. SA needed to prevent this from happening.

Deputy Minister Masuku explained that the sugar industry collaborated to manage its own demand. The issue was about how SA would deal with trade deficits with trade partners like Europe. On the African Continent, SA imported less and exported more. SA tried its best to get a balance. SA imported its sugar from Swaziland. The Brazil, Russia, India, China and Russia (BRICS) relationship was on an equal basis.  Each member had to present their own national interests. On improving systems, he said that when a scrap yard bought metal they had to find out its origin and the seller had to furnish his identity document. He stressed that the buying and selling of scrap metal needed to be regulated.

Mr Simpson said that the EDD had a steel task team in place. The team was made up of the EDD, the Department of Trade and Industry (DTI), National Treasury and the IDC. Thus far the task team had managed to stabilise the primary steel industry. Much more work was needed on the secondary steel industry. 

Mr E Makue (ANC, Gauteng) suggested that when the EDD engaged provinces they inform Members so that Members could participate. If the EDD had 312 projects as Members were told why only 72 reports were submitted to Cabinet. What happened to the rest of the projects? He spoke about the Criminal Matters Amendment Bill and the intention of addressing the problem of cable and metal theft. The EDD was asked what it considered to be the problem. Members picked up that there was a lack of enforcement by the South African Police Services (SAPS). Did the Bill actually help? He pointed out that the Mineral and Petroleum Resources Development Act (MPRDA) and the Mining Charter was not much help when it came to beneficiation, localisation and Broad-Based Black Economic Empowerment (B-BBEE) compliance.

Deputy Minister Masuku said that the matter of SAPS would be looked at. On the modalities of the implementation of the Criminal Matters Act the idea was to empower the SAPS to be able to do more.

Mr L Magwebu (DA, Eastern Cape), on governance said that the EDD had not reported on fraud and corruption. He noted that fraud and corruption was rife in state entities. Was all well within the EDD? The EDD had alluded to the fact that it had policies in place. 

Deputy Minister Masuku, on fraud and corruption, said that the issue was whether governance was strong. The interaction between Minister Patel and the IDC was about checks and balances.

Mr Simpson noted that the EDD had a hotline. To date there were no reports on fraud and corruption.

The Chairperson agreed that the Committee needed a list of projects that had been unlocked in the provinces. He referred to page 13 which spoke to infrastructure highlights and said that the Committee should be provided with a breakdown per province. The EDD was asked whether there was a mechanism to ensure localisation. He asked to what extent women and youth were benefitting from efforts in the provinces. The EDD was also asked to what extent was there investment to accelerate development in the rural space. If there was a decline in manufacturing, what could be done to stimulate investment? He also asked to what extent was the relaxation of capital controls being dealt with. Local procurement and localisation needed to be encouraged. Was bringing the Public Investment Corporation (PIC) to the EDD been considered yet?

Deputy Minister Masuku said that unlocked areas were indicated on page 17. The list of projects that were unlocked was not a closed list. Some of the provinces covered were Mpumalanga, Eastern Cape and the Free State. There were a number of projects unlocked. On localisation the EDD was engaging in the mining Phakisa. To ensure compliance on localisation there was an emphasis on what needed to be done. He added that the PIC also picked up on things and had discussions with Departments like Health and Higher Education. The issue was about how better to complement efforts.  

Mr M Chabangu (EFF, Free State) said that zama zamas in the Free State had been orchestrated by foreigners. Free State was the agricultural hub of SA but that things were in the decline. What could be done to assist framers? He suggested that a cableway be built in the Drakensberg mountains so that tourists from all over the world could be attracted to the destination.

Deputy Minister Masuku on initiatives at local level he would check on what was included in the development plan of the Free State Province.

The Chairperson, referring to the approval of the Vodacom and Neotel deal, asked why it was necessary for experts to be appointed. Was the Competition Commission not an independent body?  Why was another study commissioned? He asked whether the findings of the Competition Commission were not good enough.

Mr Masuku responded that the Competition Commission was an independent body. The focus was on public interest. There was nothing wrong with the merger between Vodacom and Neotel. The only issue was about Vodacom obtaining the spectrum that Neotel had. Public interest came in where Vodacom would have undue dominance if it managed to get the spectrum. The EDD was checking on the level of impact of the deal. 

The Chairperson said that the Committee had to consider its Report on the Unemployment Insurance Bill.

Report of the Select Committee on Economic and Business Development on the Unemployment Insurance Amendment Bill [B25D-2015]

The Chairperson placed the Report before the Committee for consideration.

Ms Dikgale (ANC, Limpopo) was concerned that traditional leaders did not form part of the Bill. She nevertheless agreed to the process on the Bill to go ahead.

Mr Vawda noted that the EFF supported the essence of the Bill but had some issues over it. He wished to remind members of the issues that the EFF a problem with. It was felt that progress on the minimum wage was not fast enough. The Unemployment Insurance Fund (UIF) was considered inefficient. The period of contract labour should be limited or even better contract labour should be done away with.

Mr Nthebe said that the Committee had dealt with all the issues in the Bill. The issues raised by Mr Vawda could be dealt with on other platforms.

The Chairperson agreed that for example the issue of minimum wage could be dealt with at the National Economic Development Council (NEDLAC) level.

The Report was adopted unamended.  

The meeting was adjourned.

 

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