Development Bank of South Africa Annual Report: briefing

Meeting report

FINANCE SELECT COMMITTEE
11 November 2005
DEVELOPMENT BANK OF SOUTH AFRICA ANNUAL REPORT: BRIEFING

Chairperson: Mr T Ralane (ANC)

Documents handed out:
DBSA Footprints of Africa [please email [email protected]]

SUMMARY
The Development Bank of South Africa presented its Annual Report to the Committee. Detail was provided on various development initiatives and financial results. Progress reports on key development indicators were provided and a new strategy outlined. The Bank would seek to focus on smaller projects to promote entrepreneurial activity and contribute to job creation. Greater partnership would be fostered with the private sector. Capacity-building at the local government level would remain a key priority. Black Economic Empowerment would continue to receive attention. Local Government Resource Centres would be established to promote improved service delivery.

Members asked questions on a number of issues, including the need for human resource training to ensure adequate use of infrastructure resources, whether value-for-money was achieved in projects, whether the intended beneficiaries actually experienced an improvement in lifestyle, the evaluation system employed by the Bank to assess the efficacy of spending, the placement of dams in rural areas, the need to reduce under-spending at the provincial and local government level, the role of ward committees in planning activities and the value of partnership building in implementing meaningful development projects.

MINUTES
Development Bank of South Africa (DBSA) Presentation
Mr M Gantsho (CEO) provided detail on the impact of development initiatives and business results. The overall strategic goal was to foster sustainable development. A roadmap until 2014 had been formulated that contained infrastructure development challenges. Growth in all key development indicators had been recorded and total disbursements were R3 billion. Smaller projects would be focused on following a strategic shift. The private sector would be encouraged to increase its contribution to development work. DBSA would support capacity-building initiatives at the local government level.

Ms J Matlala (CFO) declared that the bank had received a currency rating upgrade from Moodys. Total assets stood at R24,8 billion and total borrowings could be increased in the short term. The strategic shift had resulted in greater risk but the bank would remain sustainable.

Mr Gantsho added that the greater risk would allow for an enhanced development impact. Private sector partnerships would play a key role in development initiatives and Economic Empowerment would be promoted. Municipalities would be assisted to reduce the backlog in basic service delivery. Examples of various projects were provided. A knowledge management strategy would be rolled out to enhance efficacy of projects. Local Government Resource Centres had been established in certain areas to improve service delivery and local government capacity. The Bank would provide support to the 2010 Soccer World Cup.

Discussion
Ms Robinson (DA) sought detail on the linkages of Resource Centres to other role-players. She noted that the availability of impressive resources to conduct development work did not automatically translate into success. Additional training was necessary to ensure efficacy and meaningful usage of available mechanisms.

Mr E Sogoni (ANC) noted that the Select Committee on Local Government should have been present at the meeting to contribute to the debate. He asked whether value for money in capacity-building initiatives was achieved. Clarity was sought on the role of the Bank in house-building activities. The effectiveness of recent projects in the Eastern Cape was questioned. A system was required to evaluate resource spending and monitor whether the intended beneficiaries actually benefited from the investments. He asked whether the recent decrease in profits was a one-off or likely to be repeated. The value of investment in other African countries was questioned.

Ms A Mchunu (ANC) noted that the training of traditional leaders in Kwazulu-Natal had been a positive achievement but feedback was needed on the level of performance after training. Dams were urgently needed in rural areas and water reticulation systems put in place to supply water. Detail on certain agricultural projects was requested. The Bank should work with co-operatives to foster growth and contribute to a higher project success rate.

Mr Gantsho stated that Members should assist the Bank in initiatives to improve municipal capacity and promote sustainable use of implemented tools. The Bank worked closely with the Department of Provincial and Local Government to create synergies. Successful interventions had occurred in Kwazulu-Natal culminating in a management information system. Local Government suffered from a leadership problem and a proposed leadership academy would assist in rectifying the weakness. The development of housing was a fundamental part of the Bank’s mandate and the National Housing Forum was supported on an ongoing basis. DBSA had provided financial resources to the Gateway housing project in the Western Cape. An evaluation unit constantly evaluated the benefits of investments and the quality of project delivery. The recent alteration in strategy had resulted in a dip in profits but results would improve in the short term. Temporary and permanent jobs were included in the estimation of future jobs to be created. An average benefit model was available to assess the effectiveness of projects. Investments in the Southern African region were recovered and risk policies were in place to ensure recovery of money. At one point the external portfolio had performed better than the internal one.

Ms J Nhlapo (COO) added that the Resource Centres were supported by a partnership between the Department of Provincial and Local Government (DPLG), the Local Government Sector Education and Training Authority (SETA) and the South African Local Government Association. Key officials had been identified within municipalities and trained to assist in the process. The Bank provided advice and support where necessary. Capacity-building systems were in place to assist new councillors after the upcoming local government elections.

Mr L Mashaba (Executive-Manager: South African Operations) stated that management issues had been addressed within the Keiskamma project. The Nguni cattle project had experienced difficulties and the welfare of the cattle was compromised. The Board would continue to support the development programme within Kwazulu-Natal, and water provision would receive particular attention. Appropriate funding would be designed to support established and emerging co-operatives. Other funders would be involved in infrastructure development and resources would continue to be supplied after training initiatives.

Mr Sogoni declared that the intended beneficiaries did not benefit from projects in most cases and consultants tended to exaggerate the success of projects for personal gain. The Bank should empower ordinary people and he asked whether such upliftment of people’s lives occurred in practice.

The Chairperson referred to a recent project in Kosi Bay where a lodge was developed without any tangible benefits to the local community. The Bank had to enhance its ability to understand needs on the ground, particularly in rural areas. The placement of infrastructure was weighted in favour of property developers to the detriment of community needs. Communities should acquire a certain percentage of shareholding in developments. He asked what level of capacity had been imposed in the Eastern Cape after various initiatives and whether the Bank followed up skills-training projects to ascertain effectiveness and the employment position of beneficiaries. The infrastructure backlog in the Eastern Cape had to be addressed and outdated statistics should be discarded in favour of new research information. Provincial development growth strategies tended to focus on tourism initiatives to the detriment of other needs. The lack of any revenue base for certain municipalities impacted negatively on development prospects. A different pricing model was required for rural areas to accommodate the variance. He asked what areas of focus should be employed by the Committee to evaluate the performance of the Bank. Municipalities should be assisted to reduce the high level of under-spending of budgetary allocations. He asked whether certain potential beneficial organisations were ignored within rural areas and proposed a more flexible approach to development partnerships.

Mr Gantsho stated that DBSA was establishing a task force to maintain the Project Consolidate initiative. The high attrition of skills within municipalities added to the obstacles bedevilling attempts to improve service delivery. A Centre of Excellence would be established at the Bank to contribute to enhanced capacity at the local government level and engage in the implementation of development projects. Interventions would focus on social infrastructure and would be conducted in an integrated manner. Special purpose vehicles would be created with key private sector institutions to develop clearly identified rural areas. The Bank would seek to complement other programmes and generate synergies. The success of projects would be determined by comparison with previously established targets. Business planning mechanisms were used to plan projects and gauge efficacy.

The Chairperson drew attention to the presence of a healthy bank balance sheet in the midst of grinding poverty and asked whether additional investments should not be made.

Mr Gantsho stated that a balance was needed between development work and financial sustainability. The Bank did not serve as the owner of projects but provided finances to ensure development. The owners of projects had to monitor progress and facilitate development. The Bank procured services from targeted groups. Reports were compiled on the social impact of projects to evaluate the effectiveness of investment.

Mr Mashaba stated that an integrated programme had been developed in the Eastern Cape to address service delivery and infrastructure backlogs. Funding would be provided to foster technical development within provinces to stimulate exports and promote employment creation. The objective was to create sustainable development within communities.

Ms Mchunu added that structures did exist in rural areas and should be used more frequently. Partnerships would assist in promoting project development.

Mr Sogoni referred to attempts to develop capacity at the local government level and asked for detail on current interventions. Oversight was needed to reduce under-spending at the municipal level. The practice of hedging loans was a high risk activity.

Mr B Mkhaliphi (ANC) added that capacity-building within local government had to involve all role-players including tertiary institutions. The Bank should participate in infrastructure planning with all spheres of government to facilitate inclusive planning.

The Chairperson asked whether ward committees played a role in planning activity. Fluctuations in activity by the Bank within SADC countries had to be explained. He asked whether the economic empowerment targets were being reached within the Bank.

Ms Matlala stated that hedging contained risks but borrowed money had to be secured. The Bank was managing assets and liabilities in a satisfactory way. Fluctuations in activity within SADC countries depended on change in demand for finance or new development initiatives.

Ms Nhlapo stated that the decline in infrastructure spending was due to a number of factors including lack of project management skills, emigration and low numbers of engineers. Graduates urgently needed mentoring from experienced engineers to address experience shortfalls and enhance skills.

Mr Mashaba replied that linkages with tertiary institutions did exist to provide necessary skills for local government delivery. The Bank had established an internal academy to enhance skills. Ward committees tended to change on a regular basis but plans were in place to assist them.

Mr Gantsho added that the Bank participated in provincial planning exercises providing information and expertise. National Treasury would be assisted in the production of an Information Development Improvement Programme.

The Chairperson asked for further detail to be provided in writing on the number of emerging entrepreneurs flowing from development funding to assess the impact of investment. The Bank should directly assist provincial governments in development initiatives arising from community needs. Members should be informed of upcoming events involving the Bank to assist in the pending constituency period. Constituents would be informed of such events. Communities had to benefit from all financial interventions.

The meeting was adjourned.