Development Bank of Southern Africa Annual Report

FINANCE SELECT COMMITTEE
9 October 2007
DEVELOPMENT BANK OF SOUTHERN AFRICA ANNUAL REPORT

Chairperson: Mr T Ralane (ANC)

Documents handed out:
DBSA presentation on Corporate Performance Results
Development Bank of Southern Africa Annual Report 2006/07 (available soon at www.dbsa.org)

Audio recording of meeting

SUMMARY
The Committee was generally pleased with work of the Development Bank of Southern Africa (DBSA) which gave an upbeat report on its 2006/07 performance - noting an acceleration of development financing. The bank’s focus on making a difference in disadvantaged communities formed the bulk of the discussion. The bank’s financial performance was commended.

MINUTES
Presentation by the Development Bank of Southern Africa (DBSA)
Mr Paul Baloyi (Chief Executive DBSA) gave a presentation about its 2006/7 corporate performance results saying that it was strong in both strategic and operational terms. The organisation had repositioned itself for deeper development impact and increased capacity. The Development Fund (DF) was deploying resources to national departments (DWAF & DPLG) to address bottlenecks affecting the implementation of the Siyenza Manje Programme (an initiative to tackle the lack of skills faced by under-performing municipalities) which would accelerate overall project implementation.

The on-the-ground development impact of Development Fund operations included 12 billion of government’s municipal infrastructure grants unlocked, 471 infrastructure projects under implementation, 170 000 households connected to water, 120 000 households upgraded with sanitation facilities. The number of jobs created grew to 25 000, compared to 17 100 in 2005/06. Low income households benefiting from DBSA’s investment increased from R400 million to R500 million in 2006/07.

DBSA was now going out of their offices to engage their clients so that by the time they bring the projects to the office, they are ready to be funded.  There has been a jump in growth of disbursements, raising public and private investment in infrastructure and economic development. Country distribution of DBSA disbursements include Angola and Tanzania which account for 3.5% and 5.7% respectively. With Zambia receiving 8.3% as it is a good performer. Mr Baloyi said that the performance of the Bank was much higher than it had been in the previous year with all 12 targets achieved or exceeded.

Mr Peter de la Rey (Chief Financial Officer DBSA) noted that the bank kept to its mandate but still demonstrated financial soundness. DBSA’s performance was sustainable. The Balance Sheet was done under AAA rating which reflected a steady growth in assets by 5.5% to R28 billion. The shift in focus of disbursements meant that social infrastructure and water got the lion’s share.

Mr Baloyi said that the DBSA was working on creating a sustainable economic development fund concept using a deferred repayment loan product based on the assumption that debt absorption capacity would improve as human capacity constraints are addressed.

Discussion
Mr T Ralane (ANC) asked the DBSA Chairperson of DBSA to comment about the lack of transformation in the board as he had noticed that it was very male-dominated.

Mr Jay Naidoo (Chairperson of DBSA Board of Directors) responded that Cabinet appointed the board members. The DBSA acknowledged the advice given to them by the Committee in this regard and they would take up the matter with National Treasury. He noted that geographical representation on the board had not been addressed either and that would be looked into.

Mr Ralane (ANC) asked how the bank would ensure that people see results from the shift of DBSA to working in disadvantaged areas.

Mr Naidoo (DBSA) responded that the bank had challenges in terms how they were shifting operations to disadvantaged municipalities. DBSA did not receive money from government and they had got to ensure that after all such projects, the bank was still sustainable. Municipalities did not have the capacities and hence the launching of the Siyenza Manje operation which was a five-year program. People were deployed on a five-year basis and the bank funded that.
 
Mr Ralane (ANC) commented that the Bank succeeded where many others had failed. This was evident in the bank’s ability to unite the Platfontein community. He thanked the DBSA Chairperson for a team that was always willing to assist whenever he had any queries. Mr Ralane also suggested that the Committee and the bank prioritise their visit to the SADC region so that they can all get a feel for the quality of investments there.

Mr B Mkhaliphi (ANC) commended the bank for a captivating report. He asked for clarity on what was written in the Annual Report on page 37. National Treasury had budgeted approximately R8 billion for stadiums and DBSA had entered into an urgent agreement to manage stadium building funds of approximately R200 million. He asked whether this R200 million was additional funding over and above the amount allocated by National Treasury.

Mr Gwede Mantashe (Executive Manager: Strategic Operations DBSA) replied that the R8.4 billion for the construction phase. The 241 million was for the planning phase and was disbursed by the DBSA. The 8.4 billon for construction however, was disbursed by means of the Division of Revenue Act (DORA) and not DBSA. The DBSA would be disbursing the R241 million at the planning phase so it was an amount over and above the R8.4 billion.

Mr Makhaliphi (ANC) asked about the bank’s year on year growth being at 16.8% and the increase in loans amounting to 2.9 billion. He asked for an explanation of what that meant with respect to sustainability and whether this made a contribution to the bank’s financial position.

Mr Baloyi (DBSA) responded that size did not matter because the bank was expanding into a riskier environment and they needed to ensure that they had funds for this as they could not go beyond their means.

Mr Makhaliphi (ANC) said that municipalities were expected to prepare anticipated income and expenditure reports and donor funding did not feature in those budgets. He asked whether funding from DBSA was additional revenue to these municipalities and whether grants contributed to gross revenue of municipalities.

Mr Baloyi (DBSA) responded that the bank manages projects that municipalities want to do. The bank did not put money into their bank accounts. By the time the bank agrees on funding projects, they ensure that there was a project in place ready to be funded. They did not deal with anticipated projects.

Mr Z Kolweni (ANC) asked whether in the rural development areas, engineers had anything to offer when it came to the real situation and whether their work was supervised.

Mr Baloyi (DBSA) replied that when projects were approved, there was rigorous oversight over what people were doing on the ground.

Mr Kolweni (ANC) asked if the profiling criteria did not disadvantage certain initiatives of disadvantaged municipalities.

Mr Luther Mashaba (Executive Manager: South Africa Operations) responded that certain criteria were used which assisted the bank in determining whether or not they should proceed with a project.  These include: absorption criteria of the entity taking up the loan, the capacity to implement the project and sustainability of the project going forward.  In terms of the loan funding for infrastructure provision, there would be areas where certain municipalities could not access funding because of not meeting the above criteria. These municipalities were also looked into and assisted in gearing them up to the above level.

Mr Kolweni (ANC) asked why there was a separate finance and credit committee at DBSA and were these committees not inter-related?

Mr De La Rey (CFO) explained that the Credit Committee was responsible for approving loans and assessing credit ratings and the Finance Committee’s duty was oversight over DBSA’s financial health. The Finance Committee was there as an oversight body over DBSA’s financial heath and worked very closely with the Audit Committee.

Ms Mncunu asked whether DBSA could assist in running the Multi Purpose Centres seeing as they work with government. She gave the example of a training building in Msinga, Kwa-Zulu Natal, which was left desolate with grass growing tall around it.

Mr Baloyi (DBSA) replied that he would note the request and ask Mr Mantashe to look into the matter. After consulting further, they would be able to give a more structured answer in this regard.

Ms Mncunu asked about funding mobilisation. Communities had to be mobilised before projects get off the ground and she asked if there was any way that DBSA could work with the co-operative banks.

Mr Mashaba (DBSA) replied that the bank was careful not to duplicate government transfers when it allocated money. The DBSA was aware that government provided some funding and that some municipalities come straight to DBSA in trying to avoid government funding. The DBSA complements what government has done in terms of its funding.

Mr Ralane (ANC) raised a question about transformation in the executive management team of the Development Fund. He noted that it was also male-dominated and asked if there was a plan on how this would be addressed.

Mr Baloyi (DBSA) replied that they had three more executives joining the team in the future and that moving forward, the bank would definitely improve in this regard.

Mr Mkhaliphi (ANC) asked that the bank comment about one of their biggest initiatives, the Vulindlela Academy. He asked if this academy was up and running in terms of addressing skills development.

Mr Ralane (ANC) replied that the bank had targeted to train 400 people and they had exceeded that because they managed to train 490 people. With respect to capacity building, there continued to be problems at municipal level and that needed to be looked into across all spectrums.

Mr Baloyi (DBSA) added that the Vulindlela Academy had been successful. The key focus of the academy was scaling up in terms of the intake. As DBSA was close to their stakeholders, they had also integrated the process of Siyenza Manje. He said that the bank did not have all the answers and that the interest expressed by the banks’ international partners was worth pursuing in terms of where they were taking their program.

The Chairperson thanked the DBSA and congratulated them for the progress thus far.

The meeting was then closed.