Update on SEZ implementation & SABS turnaround strategy; Committee Report on DTI performance

Meeting report

Opening remarks
The Chairperson welcomed Members and everyone on the platform.

The Secretary confirmed the attendance of Members.

The Chairperson noted that according to the Agenda the Committee would be receiving a briefing on the SEZs and a status report from SABS. Thereafter, the Committee would formally consider the Second and Third Quarter dtic Financial and Non-Financial Report and then consider several sets of minutes. He added that the proposed 2nd term Committee Programme would be presented to Members for their final consideration.

The Chairperson welcomed the delegations that would be presenting to the Committee.

Mr Lionel October, Director-General, Department of Trade, Industry and Competition (dtic) greeted the Committee and informed the Chairperson that he would be handing over to the responsible officials to make the presentations on the Special Economic Zones (SEZs) and the South African Bureau of Standards (SABS).

Presentation on SEZs
Mr Maoto Molefane, Chief Director: SEZs, dtic, explained that as part of the economic recovery plan, South Africa was using Special Economic Zones to reignite manufacturing-led industrialisation in an accelerated manner. The value of operational investments had increased from R17 714 billion in Q3 2019/20 FY to R19 538 billion Q3 2020/21 FY, recording a positive increase of R1.824 billion increase. The number of investments had increased from 129 in Q3 2019/20 FY to 143 Q3 2020/21 FY. Despite the devastating impact of COVID-19 in the economy, the SEZ programme continued to develop and improve in 2020/21.

The dtic, Gauteng and Eastern Cape provincial governments and Ford Motor Company had proposed the development of a Gauteng-Eastern Cape high capacity freight corridor to support the expansion of Ford and the Tshwane Automotive SEZ. The rail corridor would assist with the efficient movement of finished vehicles for export through Gqeberha. That corridor development would include the deep-water port. Transnet would commence with the extensive feasibility study process in the new financial year to test the long term viability of the initiative.

The National Project Management Unit had been established following cabinet approval of the reconfiguration of the SEZ programme to include intimate involvement of the national government in the planning and management of Special Economic Zones.

Priorities for 2021 included policy and legislation; fast tracking the development of newly designated SEZS and fast tracking the planning of proposed SEZs.

(See Presentation)

Discussion
The Chairperson stated that he would encourage communication and participation across all spheres of government and inter-departmentally. The MINMEC (Minister and provincial Members of the Executive Council) meetings between the Minister of Trade, Industry and Competition and his provincial counterparts would be an important mechanism to support SEZs by keeping everyone updated. IDC was assisting with planning at local government level. The linking of roads and rail was important. The provision of basic services, such as electricity and roads, would be key to growing and developing SEZs once they had been stabilised.

Mr S Mbuyane (ANC) thanked the dtic for an informative presentation. He had a number of issues to raise, including the recession caused by the pandemic and he was wondering about the reduction in job creation in the industrialisation programme as opposed to the job increases as a result of the programme to support the SEZs.  

Mr Mbuyane appreciated the report on the SEZs and, especially, the information on the investments and on the tax incentives offered, as well as the improvement from Quarter 3 2019/20 to Quarter 3 2020/21. He asked about the attrition of investments and the current agreement being finalised with municipalities. The presenter had spoken of 130 investors in all the SEZs to the value of R19.5 bn. He asked about the Nkomazi SEZ in Mpumalanga and what had been achieved there.

He noted that a possible solution was the District Development Model (DDM). Had there been community engagement so that people around those areas could talk the same language as government? Were there specific programmes linked to the economic recovery of the President?

What was happening to the Nkomazi SEZ? He did not see a report on Kabokweni Industrial Park. It did not seem as if anything was happening in Mpumalanga. It seemed to have been paused. There were no reports on the revitalisation or development of infrastructure. Mr Mbuyane asked about the Roadmap and the consultative process across the spheres of government. The three levels operated differently, so how were the three spheres of government going to be integrated? What meetings and consultations had taken place?

Ms J Hermans (ANC) said that, in the current economic environment of unemployment, the SEZs had to play a greater role in job creation. As she saw it, the single most important factor was to cut the red tape. Mr Molefane had said that the dtic was doing that but she asked him to unpack that for the Committee so that Members could support the Department. It was about bringing together the different levels of government. She praised Mr Molefane for the good work.

The Chairperson had noted issues relating to local government but what was most important was to stabilise what had already been started and to grow and develop that. The old, disused and vandalised Industrial Parks gave the impression that government was throwing good work into bags with holes and a lot of the good work would be lost.

Mr October stated that Mr Sipho Zikode, DDG Spatial Industrial Development and Economic Transformation, at dtic would respond to queries about how the dtic was going to work with municipalities and deal with the red tape.

Mr Zikode informed the Committee that, in complying with the DDM, the new approach approved by Cabinet in terms of developing the SEZs and the Industrial Parks was really a tool that dtic would be using to ensure that all spheres of government collaborated and joined together to deliver on the special projects. Everyone was aware of the challenges in municipalities in respect of the lack of capacity of municipalities; District Development Plans would be the vehicle that dtic would use to lead and manage development. The dtic would take the lead in the development of Industrial Parks and work hand-in-hand with local government.

He added that issues of governance and strong executives at managerial level would be a focus. It was important to have properly constituted boards and executive management and so dtic would send people to work on those boards and to assist management. The dtic would also work on a budget for SEZs and Industrial Parks. Another important issue was that the revenue generated by the Industrial Parks would have to ploughed back into the Parks and not used to support the budget in another sphere of the municipality. The dtic was developing Standard Operating Procedures (SOPs) that all Industrial Parks and SEZs would be given in order to guide operations. The dtic had the expertise to supplement whatever expertise was available in each municipality. An annual report would be submitted to the Minister detailing the technical details and indicating all partners contributing to the industrial Parks and SEZs.  Even SABS would be contributing to the District Development Plans.

He informed Ms Hermans that red tape remained a problem. The Musina-Makhado SEZ had begun its Environmental Impact Assessment (EIA) and had worked carefully to prepare a good report that covered all requirements, but whenever the SEZ presented its EIA, the province had a new demand that the SEZ had to fulfil. The implementation of infrastructure could not even start until the EIA had been approved.

Mr Molefane thanked Members for their words of encouragement. He stated that the new approach had come to the fore simply because of the red tape. For example, getting building plans approved by a municipality had become a huge blockage. The dtic now had a tri-partite agreement with municipalities and provinces that clearly articulated the responsibility of each sphere of government. In Gauteng, the dtic was leading the project and the City of Tshwane would provide land and bulk infrastructure. For example, a process of EIA need not take 18 months. In that timeframe, a month was allocated for obtaining a signature when it could happen in a day. Likewise, the dtic had speeded up the approval of applications for SEZs and Industrial Parks and most applications could be completed in less than a week. The dtic would make monthly presentations to provincial colleagues, so that they could take up any challenges.

He explained to Mr Mbuyane that that the pressure was being applied because of the need to increase jobs and, in that sense, the programme was being linked to the Economic Recovery Plan. Ford had approached dtic for assistance as the company had wished to double its production of vehicles in SA. However, the timeframe in which the dti had to assist was extremely limited. The dtic had taken on the challenge to assist in a short space of time. One of the biggest hold-ups had been the acquisition of suitable land but the Tshwane Municipal government had been approached to assist with approval of the land. One mechanism that had greatly assisted with speeding up matters and cutting red tape, was the provincial committees, often led by the premier of the province. A key focus had been on building infrastructure and the contribution and collaboration of the province.

Mr Molefane informed Mr Mbuyane that dtic was also concerned by the lack of progress in Nkomazi SEZ. The main reason for the delay was the red tape. The establishment of the company and the EIA approval had held matters up but the dtic had come together with all spheres of government and it had been decided that it would be a case of all hands on deck as they worked together, including Deputy Minister Majola, the Deputy Minister of Trade, Industry and Competition. The company had subsequently been formed and registered and progress was being made.

The Chairperson noted that any programme had to be integrated to avoid red tape, duplication and to address challenges that might not relate to red tape but to other issues not declared by the municipality.

Mr October added that the tri-partite approach was key to overcoming red tape. That was to be the new way of undertaking work on the SEZs.

Ms Hermans appreciated the work that had already been done to cut red tape. She noted that to get an EIA in three months was commendable. In a country that had spectacular scenery, one had to be careful not to destroy the countryside, but, on the other hand, processes should not be too onerous.

She asked the Chairperson if the Committee could do an oversight visit to the best performing SEZ and to the SEZs that were struggling, so that Members could have a good understanding of SEZs. To her, the SEZs were critical in the creation of jobs.

Ms Y Yako (EFF) agreed with Ms Hermans that the Committee should do oversight visits to SEZs as the Committee had been talking about SEZs since the beginning of the Sixth Administration.

The Chairperson noted the comments.

Presentation by the South African Bureau of Standards
Mr October stated that Ms Scholtz would present. He noted that a great deal of work had been done.

Ms Jodi Scholtz, Administrator, SABS, requested her team to introduce themselves: Dr Tshenge Demana, Co-administrator; Lungelo Ntonbongwana, Customer Services Executive; Katima Temba, Acting Executive: Certification; Lizo Makele, Human Capital Executive; Tina Maharaj, CFO; Sadhvir Bissoon, Head of the Standards Division; Thabo Sepuru, Acting Divisional Head for Laboratory Services.

Ms Scholtz began with the 3-month suspension of SABS by the FSSC Foundation (Food Safety System Certification (FSSC) 22000). The new owner of the international scheme was located in the Netherlands. SABS was licensed to audit and certify food products on behalf of the Foundation. SABS had been suspended for three months because documentation that had not been uploaded timeously. SABS had 143 certified customers with the scheme with an income of R9.1m per annum. It was expected that SANAS would also suspend SABS’ accreditation for that system once it had been informed of the suspension by FSSC. An audit would be conducted in April 2021 and failure to comply with any of the conditions could result in the termination of the License. SABS management had put a corrective action plan in place, inclusive of an investigation into the root causes of the suspension and intended to implement consequence management once the investigation was complete.

Ms Scholtz presented the core reasons for the decline of SABS, following which she explained how each of the challenges had been addressed:
-Policy decisions which resulted in customer complaints and a loss of customers and decline of revenue.
-SANAS suspension March to June 2016 when the estimated loss of revenue was +/-R50m.
-Lack of investment in technology and infrastructure which led to the organisation losing its competitive edge.
-Operational inefficiencies resulted in a significant loss of customers – 5305 customers in 2014/15 to 4047 customers in 2019/20 and +/-R100m loss in revenue.
-Unfunded bargaining unit benefits which cost the SABS +/-R60 million per annum.
-Poor stakeholder engagement.
-Poor performance management across SABS and an organisational culture of fear and mistrust.
-Impact of a labour case by middle management against SABS.

Having addressed progress made in various areas, Ms Scholtz presented the next steps. The first was the implementation of the turnaround plan by focusing on revenue generation and further reductions in costs.
The Compensation of Employees remained the highest cost item at 65% of the total operating expenditure.
The decline in revenue had been further exacerbated by the impact of the COVID-19, rendering the current
labour costs unsustainable. SABS had invoked the Section 189 of the Labour Relations Act (LRA) which called for consultations between the employer and employees on possible staff terminations as a form of reducing labour costs. Alternatives to terminations would be explored by the parties.

The phased implementation of the new structure and a new board was the other major step to be taken.

(See Presentation)

Discussion
The Chairperson stated that the Committee could not engage on the issue relating to the collective bargaining forum and the management forum, although they were important structures, as that was work in progress. It was important for the Committee to look at quality and standard as that was the foundation of SABS. He said that, for example it was important to show that certain face masks were proudly South African and of a good quality and standard. On the issue of the ventilators, SABS should be spreading its wings to a point where it was specifically standardised South African products. “Local is lekker” and one should know which SA products, and other products, met the SABS standards.

Mr Mbuyane welcomed the report. He required some clarity around the turnaround strategy of the SABS. He asked about the Auditor-General’s report on the institution that had initiated the concern about the entity. He expressed concern on the labour relations issues as he saw that the only response to the issue of cost-cutting was to reduce the labour force. That was a concern.

The Chairperson asked for a response to Mr Mbuyane, Covid-19, the collective bargaining forum, the management forum and the turnaround strategy, as well as the Auditor-General’s report.

Mr October agreed that local was “lekker” and there was a focus on localisation projects. SABS had set up a special localisation and verification unit. That unit had worked on PPE and was working on localisation in preparation for the African Continental Free Trade Area agreement that would soon be operational. SABS would be inviting the Committee to some of the events launching localisation projects.

He assured Members that the emphasis was not only on reducing the labour force. Funds had been spent on upgrading machinery and modernising systems and processes to attract additional customers and generate revenue but the entity did not want to be subject to the same problems as other State-Owned Enterprises. Revenue had to be generated and costs had to be line with revenue. It could not carry staff to the detriment of the cost base. He assured Mr Mbuyane that SABS would engage in full consultations before any decisions were made. It would be a joint exercise and there would be no forced retrenchments. That was a last resort. The main aim was to build the services and to bring customers back.

Ms Scholtz asked the management staff to respond to relevant questions.

Ms Maharaj informed Mr Mbuyane that three years previously the entity had been given a disclaimer by the Auditor-General, two years earlier it had received a qualified audit report and the previous year an unqualified audit with findings. That was evidence of good progress. There were five or six findings outstanding but they all related to ICT system issues and not to financial issues and could only be addressed by the introduction of new systems in the organisation that would address the security concerns. SABS was in the process of developing a business case for upgrading the key IT systems in the organisation. The implementation of that system would result in SABS addressing the last of the five or six findings that were still outstanding with the Auditor-General.

She added that the compliance findings relating to the establishment of SABS Commercial and inter-company law had not yet been resolved. The Auditor-General was in consultation with National Treasury on the matter. SABS had received advice from Senior Legal Counsel but there was a point of difference between counsel and the Auditor-General. The concern lay in the reading of the Public Finance Management Act and once that was resolved, SABS would either have resolved that issue or know which steps to follow.

Ms Maharaj assured the Committee that a great deal of progress had been made in resolving the Auditor-General’s findings.

Mr Makele informed the Committee that the labour relations environment was in a much better space than it had been prior to the commencement of the turn-around strategy. The entity had re-instated all the appropriate labour structures, agreements had been signed and management held regular engagement with the labour force. The management forum was in response to the request from managers to have a space for bringing issues to the table at the time prior to the arrival of the Administrators who had immediately instituted the Forum to hear the concerns of management. The fact that there were no funds to provide increases had not been a welcome situation but he emphasised that looking at a reduction of the labour force had not been the first step. SABS had looked at all other means of reducing costs but the Covid-19 pandemic had been a real setback. Talks were on the go with employees and labour, and management had been sharing information about the financial constraints. People had been given the opportunity to raise issues, fears and ideas before any legal process got underway. He was working hard at keeping the labour environment stable.

Ms Scholtz noted, in response to the Chairperson’s concerns about “local is lekker”, that South African National Standard (SANS) 1286:2017 was on the entity’s website and was a free standard that could be applied for, i.e. a product would be tested for that standard without charge. It was the contribution of SABS towards localisation, after discussions with Ms Thandi Phele, the DDG for Industrial Development Division at dtic, about how SABS could promote localisation. Consumers could be assured which products were locally produced. SABS also had a partnership with ProudlySA.

Mr Temba added that, in respect of local content, the intention was to re-position local content, mainly in the government sector. SABS was working closely with dtic, National Treasury and ProudlySA. SABS was looking at the validity of verification and how to address the risks. In future, the entity would only need to undertake verification where those risk areas had changed. What was important was the introduction into the verification process of a categorisation of (a) to (j) to include even smaller volumes of local content. That would also allow SABS to collect data on local content and would inform policy decisions on local content.

He added that SABS was engaging with mining, NEDLAC and other structures to create an awareness of the scheme.

Mr Ntonbongwana spoke on the ventilators. The entity had been working on a partnership with CSIR. National Treasury and dtic had approved the setting up of a testing facility at CSIR. The legal department was checking the partnership agreements to ensure legal compliance. It would take about five to six months to ensure that all ventilators manufactured locally met the standards.

Mr Sepuru stated that he would appraise the Committee on further progress on the CSIR project at the next meeting.

Ms Scholtz stated that SABS had undergone a very severe cost-cutting exercise. Internally, energy efficiency had already been introduced and several similar projects were underway to reduce costs. However, ultimately, costs had to be aligned to revenue. That was the only way to remain sustainable.

The Chairperson said that he would like to know which PPE masks had been SABS-approved and where they were available so that he could be proudly South African. There were too many sub-standard masks in the market.

Mr October thanked the Committee for the input and guidance and assistance in turning around. SABS and Proudly SA would expand their work around SA-produced masks that had SABS approval. He noted that the Deputy Ministers were working on the SEZs and Industrial Parks. He added that work was underway to appoint a new SABS board.

The Chairperson said that it was about more than just knowing the websites; it was about knowing the products.
 
Second and Third Quarter dtic Financial and Non-Financial Report
The Chairperson called on the Secretary to present the report.

The Secretary noted that no further input had been received from political parties in the Committee for the Conclusions and Recommendations sections of the report.

He re-read the conclusions.

Resolution
Mr Mbuyane proposed the adoption of the Second and Third Quarter dtic Financial and Non-Financial Report; Ms Hermans seconded the proposal. There were no objections to the report and the Committee adopted the report.

Minutes
The minutes of 2 March 2021, 9 March 2021 and 10 March were presented to the Committee and adopted without amendments or objections.

Minutes of 12 March 2021:
Mr M Cuthbert (DA) requested that the DA’s reservations about Dr M Madzivhandila be clearly articulated. The objections had also been based on its view that the Committee had not adequately considered the outer recommendations from the public comment process as they should have been.

The Chairperson stated that the public comments were available to all members but that certain Members had read it in different ways.

Mr Cuthbert clarified that he had asked that it be recorded as the DA’s view of the situation.

Ms Hermans requested that the recording be checked to verify that the DA had made that particular point in the meeting.

Mr Mbuyane requested that the ANC’s view be included as the ANC had considered that matter in the meeting.

The Chairperson stated that all views raised during the meeting should be captured. He requested that the Secretary refer to the recording and bring the minutes back for approval at a later stage.

Committee Programme: Term 2 2021
The Committee Secretary presented the Programme for the second term 2021. The constituency period and recess was to be held from 23 March 2021to 3 May 2021. Mini-plenaries on departmental and entity budgets would take place from 10:00 to 18:00 from 18 to 25 May 2021. No meetings would be held during that period. The following constituency period was from 2 June 2021.

Discussion
Mr F Mulder (FF+) asked if the programme could be emailed to Members.

Mr Mbuyane agreed with the programme in principle.

The programme was adopted by the Committee with no amendments or objections.

The Chairperson indicated that the programme was open to change, depending on any changes from the parliamentary programming committee.

Closing remarks
The Chairperson noted that the Committee had completed its work for the day.

The meeting was adjourned.