Ekandustria Industrial Park & Nkomazi SEZ: follow-up engagement with Mpumalanga agencies, DTIC, IDC & NEF

Meeting report

Opening Remarks
An apology was received from the MEC for the Mpumalanga Department of Economic Development and Tourism.

The Chairperson explained that the meeting was a follow-up engagement. The purpose of the briefing was to determine whether any progress had been made concerning the issues raised during the oversight visit to Mpumalanga in April 2022 about the status of the SEZ entity and the number of investors in the pipeline as well as the progress made in developing the SEZ. The Committee was interested in the success of the strategy to attract investment and investors, whether the demarcation of traditional land in the SEZ had been resolved and whether the traditional land ownership had created a challenge in attracting investment and securing investments.

Both the Mpumalanga Department of Economic Development and Tourism and the Mpumalanga Economic Growth Agency would brief the Committee before the Committee discussed matters.

Presentation on Nkomazi Special Economic Zone
Mr Nathaniel Sebitso, Acting HoD, Mpumalanga Department of Economic Development and Tourism (MDEET) introduced Mr Andre van Niekerk, Director for Trade & Investment Promotion & Strategic Initiative, who made the presentation.

Mr van Niekerk informed the Committee that there were three phases in the establishment of the Nkomazi SEZ.  Firstly, the designation phase had been completed; secondly, the interim phase which was the current phase during which MDEET was addressing the issues that would hamper or impede the development phase. MDEET intended to move into the development phase from the beginning of the new financial year in 2023.

The site was situated adjacent to the town of Komatipoort strategically next to the N4 route which ran from Gauteng to Mozambique, five kilometres from the border. It was also in close vicinity to Eswatini. It was important in terms of access to the port of Maputo, as well as collaboration with the neighbouring countries.

The designation was complete; the SEZ was a standalone entity registered as a state-owned company. The MEC had appointed a six-member interim board, consisting of three members of the dtic, one member from MDEET, and a member each from the Ehlanzeni Municipality and the Nkomazi Municipality. The Project Management Unit currently consisted of three members, an acting CEO and CFO had been seconded, and there was a political Oversight Committee. A steering committee had been established as well as a rapid intervention task team that was tasked to address bottlenecks in the development process and governance issues. A five-year plan was in place for the entity. A 50-year land lease with the Nkomazi Municipality was in place. The change in land use from agricultural to industrial had been approved and the environmental authorisation was in place, but MDEET had to address the conditions of establishment that the site had to comply with. The registration as a stand-alone company was creating problems in terms of the listing with National Treasury, so the entity would be registered as a subsidiary of MEGA. That would significantly shorten the process to obtain the listing of the company by National Treasury and then it would be possible to appoint the full members of the board.

Phase one consisted of 300 acres of land, but approximately 373 acres could be added, if the need arose for further development. One of the main issues to be resolved was a right of way servitude which MDEET had assumed belonged to Sasol but, unfortunately, the petrol station had been sold to a new owner so MDEET was in engagement with the new owner.  Sasol was involved as it had a gas pumping station on the site and would also need an access road. A meeting between the three parties was underway at that time. The water use license was a long outstanding matter. The application had been made but MDEET had been told to do the necessary detailed engineering drawings, especially in terms of the wastewater treatment plant and the water treatment plants. Professional engineers were doing those detailed designs and work was expected to be completed by December 2022. Mr van Niekerk was also working very closely with the Komati Water Authority, which was also participating in a process to ensure that the designs were satisfactory and then the Water Authority would recommend the application to the Department of Water and Sanitation. Engineering designs were being completed for the water infrastructure, the stormwater drainage and sewer infrastructure, and access roads to the site. A detailed traffic impact study had been completed and MDEET was engaging with SANRAL.

There were eight stages to the investment pipeline. Currently, 12 investors were interested in the areas of energy logistics and agro-processing, especially in stages one and two. MDEET was dealing with various other investors and talks were ongoing. Two companies were undertaking investor pre-screening and due diligence was being carried out on five companies. The potential investment was just over R48 billion at the moment which would create 43 000 jobs, including those in the value chain, especially the agricultural value chain. There was no railway siding located on the site and that was being investigated while negotiations were ongoing between Transnet and the investor about utilising second-hand rails from Transnet as that was a significant cost-saver. It was important to ease the congestion at the border, which was a serious risk and mitigation measures had to be put in place.
One criterion set by the Minister of dtic was that particularly black farmers and SMEs should participate in the value chain of the SEZ. A well-resourced and integrated support plan had been developed for SMEs and smallholder farmers and the team was working very closely with the Department of Agriculture, Rural Development, and Land Reform in terms of creating a comprehensive support plan for smallholder farmers, including expansion of the irrigation infrastructure.

Mr van Niekerk stated that the traditional leaders were very important stakeholders as well as the national and provincial departments, and the investment pipeline was well structured and gaining momentum. The budget was R64 million for the current financial year, divided into goods and services of which R23 million would be used mainly for professional services and engineering reports.

(See presentation)

The Chairperson invited the Mpumalanga Economic Growth Agency to present before Members posed questions. The purpose of the briefing was to determine whether any progress had been made in respect of the issues raised during the site visit with particular reference to the status of the management and human resource capacity at MEGA and the financial resources, implementation of its debt collection policies, the status of the bulk electricity account with the city of Tshwane, including related legal matters, as well as the status regarding the maintenance of infrastructure, the status of the operations of the landfill site and whether the license had been obtained or planned for. The Committee was also interested in the status of the proposed strategy to develop public-private partnerships to attract financial resources and technical know-how to revitalize and modernise the industrial park.

Presentation by the Mpumalanga Economic Growth Agency:  Ekandustria Industrial Park
Mr Isaac Mahlangu, CEO, Mpumalanga Economic Growth Agency (MEGA), made the presentation.

The infrastructure at Ekandustria was not in a good state. The landfill site was unlicensed and not operational; the Waste Water Treatment Works required major refurbishment, proper management and maintenance; underground pipes and electricity supply infrastructure was old, and required constant repairs while roads and fire prevention /management infrastructure were poorly maintained. Of the 101 large factories and 31 small factories on site, 20% were in extremely poor condition and 50% required refurbishment. The occupancy level in March 2022 was only 53%, but 2 239 people, mostly from the Ekangala area, were employed in the Industrial Park. However, the accumulating municipal debt had reached R160 million.

Challenges were severe and included financial losses which meant that current operating costs were not covered and so the injection of additional financial resources was a requirement for efficient operation as well as upgrading and refurbishment. Theft and vandalism of electricity distribution infrastructure and the ever-present threat of disconnections by the City of Tshwane was a red flag to investors.

Interventions were underway. A strategic development partner had been appointed; a contractor had been appointed to install new electricity meters; the Senior Manager for Properties and Facilities Manager was stationed at Ekandustria. Discussions with Gauteng Provincial Government were focussed on a possible partnership and MEGA was engaging the City of Tshwane to possibly take over the utility infrastructure from the City. R5 million had been committed per month to arrest further debt escalation.

Considering the location of the site, a real opportunity existed to successfully introduce agro-processing.

(See presentation)

Discussion
Mr W Thring (ACDP) said that when the Committee first visited Nkomazi,  there were some challenges with the traditional leaders. Have those challenges with the traditional leaders been resolved? What was the percentage occupation for agro-processing, noting that agro-processing sectors were more labour intensive, and as a result, helped to reduce the unemployment burden? The servitude with Sasol appeared to be a problem. Was the servitude related to gas? How long would it take to resolve that particular issue; what was the timeframe? Was Mr van Niekerk confident that the issue would be resolved?

Mr Thring noted that Mr van Niekerk had mentioned that a traffic impact assessment had been done. Had an environmental impact assessment been done? How certain was he that the SEZ would be good to go by the first quarter of the next financial year, especially in the light of the risk factors mentioned, particularly the bulk infrastructure risk, water and so on? There was a challenge relating to human resources as posts needed to be filled, but the financial constraints meant those particular posts were unlikely to be filled and that would affect good governance.

He believed that the landfill site did not meet health standards, and because of financial constraints, it would not be possible to mitigate the challenges of the landfill site. That was a concern. Landfill sites emit gases and one should not build there unless the relevant department has issued clearance certificates. Clearly, it was a health hazard and he was not sure whether throwing finances into a weak system, was going to solve the challenges. And so, unless the weaknesses were resolved, challenges would continue. However, if those particular areas were strengthened, the rest would follow. What would happen if the deal with Tshwane fell through? Was there a plan B?

Mr Thring noted that in the long-term plan, a creche was included. Hopefully, that creche was for the tenants because if it was for the general public, that might create some challenges.

Mr S Mbuyane (ANC) appreciated the improvement since the visit by the Committee in April 2022, but he had several questions. How far was the credit control unit with debt collection? Was there any improvement in terms of debt collection or payments? How far was the matter of transferring municipal management services from Tshwane? It was wrong that rural funds were used to pay Tshwane. Could the dtic advise on that matter? The dtic funding was another issue. Revitalisation funds had been allocated to the two industrial parks but no information was forthcoming. What was happening? Could the dtic clarify the trade policy matters concerning Mozambique and Swaziland that seemed to be an issue for the Mpumalanga authorities? Was there a plan for regional economic integration? What assistance did Mpumalanga require to move forward with economic integration? The African Continental Free Trade Agreement was already in place which could help to stabilise economic development around the region.

He expressed concern that there were so many officials in acting positions. Permanent appointments had to be fast-tracked, especially the process of appointing permanent board members, a permanent CEO and a permanent CFO for the SEZ.

Mr Z Burns-Ncamashe (ANC) recognised SEZs and IPs as very important economic instruments for massive job creation. If the area were visited the following day, what would Members find on the ground that would attest to the presentations? Having those economic instruments in rural provinces was key because for quite some time, as part of the apartheid and colonial spatial development, the economic concentration had been around Johannesburg, Durban and Cape Town. Provinces currently in the rural periphery and the hinterland had not been so fortunate. They were not considered areas of economic opportunity.

He recognised a significant improvement from what the Committee had seen during the oversight visit.  There was a great role to be played by investment in the process. At a very important function, at which the President officiated, several captains of industry had made huge commitments. To what extent were those commitments translated into practical investment in the industrial parks and were there any deliberate efforts at the level of the municipalities to aggressively embark on a programme to attract investment predicated on the district development model? Some provinces had bilateral arrangements and/or agreements that had been signed. To what extent were those bilateral agreements exploited for the benefit of creating or empowering local businesses?

Mr Burns-Ncamashe added that when it came to output, South Africa had to consume what it produced. There should be greater investment in localisation and there should be greater investment in the value chains, so that finished products are produced. SA should not export raw materials as that meant the country was exporting jobs that could otherwise be created in SA to process those raw materials.

He suggested that the industrial parks would prevent congestion of urban areas. A significant number of people from the rural provinces moved to Gauteng, etc. precisely because there were no economic opportunities in rural areas. The knock-on effect was that when it came to budget allocation, the formula favoured those provinces with bigger numbers. As a result, provinces like Mpumalanga, Limpopo, and Eastern Cape received a limited amount of money, further exacerbated by under-expenditure. Opportunities had to be created for people to remain in the rural provinces.  Did the planning envisage that kind of long-term investment?

Mr C Malematja (ANC) applauded the presenters, saying they had taken the Committee’s advice and done well. The dtic should share that approach with other departments, especially those that could assist the process, such as the Department of Agriculture, Land Reform, and Rural Development which could assist with permits and township proclamations, ensuring no delays were preventing the terrible challenges of poverty, unemployment, and inequality from being addressed. The Department of Water and Sanitation could assist with the licensing process and the Department of Transport could assist with access roads. It was necessary to push the programme to change the lives and living conditions of the masses. If there was one government system, all the departments could be onboard. He did not want more reports but actions on the ground. Jobs had to be created where people were residing to cut costs.

Mr Malematja applauded MDEET for including the traditional chiefs through their representatives so that everybody was on board with the project at the end of the day. However, he agreed with Mr Mbuyane that the issue of the CEO and the interim board was a concern. The institution would not be stable until there was a permanent board and CEO. They would also bring accountability.

He concluded that the presentation was very good, but he wished they would deal with the issue of the routing of services from Tshwane. It was also important to attract the youth, women, and people with disabilities as the function of the industrial parks was to benefit the entire society.

Dr M Tshwaku (EFF) said that when departments or entities presented progress reports or whatever one could call them, he found it to be very, or extremely, depressing. He had reached the point where he would be glad if there were a way that he could just get presentations and not attend meetings. Members had to listen to the same presentation over and over in each quarter of the year but nothing ever got done. He wanted to be brutally honest. Since he had joined the Committee, he had heard about the challenge with electricity, the challenge with licenses, and so on. Why did they come to the Committee to tell Members about those challenges? Why did they not come and tell Members how they were going to sort it out? Why did they come up with excuses for not sorting it out?  They always came and said they needed money; they needed more money to do A, B, C, and D. Why could they not finish up with all the hassles and everything? Was there no leadership? When people got into projects of that nature, which were very important in job creation, they should not get paid until the project was at least 80% or 90% finished because government gave money to people who were still conceptualising.  When they were paid, they forgot that their main job was to do job creation for people on the ground in the townships, in dark places, and rural areas. It was very clear that they had been deployed there at some point. Presentations of that nature, and all the talk was very depressing.

He said that the thing he hated about those presentations was that they made Blacks look incompetent as if they could not get things done, and they created a very bad name for Black people. It seemed that Blacks could not manage and could not get something right. The essence of all those projects was to create jobs but those things were not working. The Committee needed to ask how far they were and they should come in and explain what the project did and how many people had been employed. That was when he would say congratulations, but now he had to listen to lament after lament. It was not assisting. It was not nice. Could they be honest and tell the Committee how many jobs they had created with the amount of money they already had and how many jobs had been created with the money? He bet it was going to be two or three or four or five jobs or something like that. Was the government getting value for money? It was pumping money into those things, and they never stood up. They told the Committee all those nice things and lied about it. It was an irritating thing. Entities like the IDC and NEF came to the Committee, telling Members lots of nice things but the reality was something totally different.

Dr Tshwaku addressed the matter of public-private partnerships. He acknowledged that Mr Burns-Ncamashe liked PPPs but one had to remember that private companies were there to make money. They made a deal, frustrated the people, and then ran away. The government had to be at the centre of creating jobs. Maybe it could work, but the problem was that private companies were coming to the public sector to invest, but one needed to remember that they just wanted to make a profit. They were not people there to say they wanted to do whatever social intervention, socio economic intervention the people wanted. They wanted to make a profit and would do everything to squeeze and frustrate the government in terms of ensuring that people got jobs and all of that. That was not the forecast for the private sector. They wanted to make a deal, make money, frustrate the people, and then from there, they made money, and then they dumped everyone. So the government must be directly involved; it must pump money. There are some loan sharks and people like banks and all of that. The private sector was looking at the market, looking at the market price, checking what was happening and if they were going to make a profit.  Meantime the presenters would be idling. Government must be at the centre of development. Government must take children to school so that they could grow and be capable and all of that; government was like a parent.

He stated that the government had to fund these things to create jobs. There was a need to create jobs because the young people were not working out there in the township. And it looked as if there was no engine. That was why he was getting very agitated and also very sad because people were sitting and doing boardroom politics, and getting all these monies and all of that, but the people in the townships and everywhere were looking for jobs. That was his contribution for now. He wished that sometimes he did not get into those progress reports because they were depressing, highly depressing and he had not ever imagined it to be like that in his job. He expressed concern that there were so many officials in acting positions. People came to the Committee and lied about things. He did not like unethical behaviour.

Responses
MEGA
Mr Mahlangu agreed with the concern regarding the vacant positions, but the agency needed more money. The agency had received an unqualified report for the first time in ten years, although it was still dealing with matters of emphasis. Mr Mahlangu was hoping that each division within MEGA would be able to have at least five more professionals. It was something that they were waiting upon. More management was required. The areas of weaknesses were being attended to. Of course, the audit was qualified with matters of emphasis, and MEGA wished to reduce those matters of emphasis to as few as possible. It was currently proceeding as though the Chinese deal would succeed. So the blend with the Strategic Development Partners (SDPs) and Special Purpose Vehicles (SPVs) increased the need for planning, but MEGA was alive to the reality that it might not succeed. However, the attitude of the City of Tshwane was very cordial and cooperative. It gave some hope that the deal with Ford would be successful. He confirmed that the creches were for the tenants.

Members had asked exactly what they would see if the Committee visited the site. He assured Members that a few things had been done. MEGA had attracted a few more investment tenants, so it was now a bit busier than in the past. But serious maintenance was also required in terms of cleaning, etc. that he hoped would also have gone further than just cleaning by the end of the financial year.

He explained that there were bombings of the local substations but they had been fixed. So there was some movement to be seen. 1 012 jobs had been created between January and the current date, including more than 200 jobs with the new tenants. So that was the little contribution MEGA was doing in terms of putting a dent in poverty, unemployment, and inequality.
He added that the agency needed more money.

MDEET
Mr van Niekerk responded to the questions on behalf of MDEET. The House of Traditional Leaders was represented on the steering committee and all Traditional Leaders were invited to the political oversight committee together with the MEC and the mayors to ensure their participation in the Nkomazi SEZ and that they provided land for vulnerable people who wanted to participate in the agricultural development of the Nkomazi area. There was a question on agro-processing: what was the agro-processing stake? If one looked at any of the current investments as well as the backup, one could see that agro-processing ought to be around 60% to 70% of the newcomers, and that was a very good thing in terms of, as the Member rightly indicated, job creation in terms of the agricultural value chain.

In terms of the servitude and the timeframe for the servitude, Mr van Niekerk explained that it would be the new access for the community. Regarding approvals, the SEZ could not get direct access from the N4 so the servitude over the Sasol garage was required to gain access. The timeframe?  As they spoke, members of MDEET were meeting with Sasol and the new owner of the garage to get the consent variance. The timeframe was that by the end of the current month, everything would be in place in terms of access as Sasol was also affected because the SASOL gas pumping station was adjacent to the SEZ site. It currently had access from the N4 route but the SEZ barrier fence would close that access, so Sasol was directly involved in the matter of an access road.

Was the Environmental Impact Assessment (EIA) done? Mr van Niekerk assured Members that it was in place. Issues such as the barrier fence, the access road, the services, etc. were mainly conditions of the approval of the EIA and the township establishment approval. As he had stated previously, MDEET was currently in the interim phase and was now applying all those conditions for development to commence in March 2023.

Concerning the bulk infrastructure, MDEET had engineers doing the detailed designs, as he had stated, of the required bulk infrastructure, as well as the internal services. What was important was the programming and staging of those infrastructure services as per the requirements of the tenants and that was why the investment plan and the investment stages were so important. Ultimately, the engineering services had to be rolled out as per the requirements of investors.

Mr van Niekerk addressed the question of acting board members as well as the acting members of staff. Those appointments were on the critical plan as MDEET had to staff the entity as soon as possible with permanent staff members, especially the critical posts referred to, i.e. the CEO and CFO, and some posts moving forward, especially critical in the development phase. The MEC would appoint a permanent board, but a permanent board that would also be representative of the stakeholders of the Nkomazi SEZ. Those issues were receiving attention. Construction should commence by the end of the current month. The first step would be the erection of a barrier fence, but at least there would be some activity on the site.

In terms of trade agreements, the Mpumalanga province had a trade agreement with the Maputo province in Mozambique. He informed Members that the agreements were mainly on collaboration on agricultural and logistical matters as they were working together on those two areas with specific reference to the Port of Maputo and the Nkomazi SEZ. One of the other projects was a fresh produce market. He agreed that rural development was crucial, especially for a rural province like Mpumalanga, to create opportunities for people where they live; agriculture was seen as the main stimulus in that regard. The SEZ would require density planting as quantity was very important in terms of providing agricultural goods for agro-processing because there were very tight margins on the pricing of those commodities. Density planting was a requirement for farmers to make some profit, but more importantly so that those farmers could participate in the value chain. Getting the necessary secondary cooperatives in place for those farmers was important for participation in the value-add process.

Mr van Niekerk understood that Members felt that the approvals were taking too long, but they related specifically to fulfilling the requirements of the environmental approval as well as the town planning approval. MDEET was complying with the conditions of establishment, so the SEZ could be fully established by March 2023. Most of the critical planning issues had been addressed, the work was being done according to compliance standards, and the site establishment needed to be finalised. The main theme of his presentation was that the current year was the interim phase; there would be a move into the development phase by March 2023. However, some work would be happening before that, especially in terms of the professional work by the engineers, the town planners, and the environmentalists. The construction of the barrier fence would take place, offering some jobs, but the jobs would be mostly for professionals at that stage and funds were being raised to pay for their work. Some jobs would be created by work on the site and also the jobs created by professionals. So as Mr Tshwaku indicated, not many jobs had been created at that stage, but when the process moved into the development of the SEZ, many more jobs would be created. It was important to note,  in terms of the provincial economic recovery plan that the SEZ was a priority project for the provincial government and so all the necessary steering committees, intervention teams, as well as political oversight committees, were in place to ensure delivery on the project.

The dtic - Industrial Parks Funding
Ms Susan Mangole, DDG: Industrial Parks Funding, dtic,  explained that funding applications came from the province through MEGA. Currently, a second application for Ekandustria Industrial Park is in the pipeline. The funding for the industrial park was similar to the funding for the SEZ.  The dtic had received a funding application from the province; it could be assisted by dtic under the critical infrastructure programme. So as soon as the dtic approved, a three-party agreement with the province would be signed, as was done with the phase one funding. The dtic followed that process because it also assisted the province with technical expertise through the Development Bank of SA (DBSA). Because it was the second application, DBSA had requested an assessment of what other plants were required; the application was waiting for that. The dtic would also look at other industrial parks within the province as soon as the province was ready to put in the applications. The province would have to get approval from the Park’s board and then apply through the DBSA fund. However, the flow of funds with the current loan would be different because the agreement would include the dtic itself.

Mr Thami Klassen, Director: Regional Industrial Development, dtic, added that applications currently in the process would only be finalised once DBSA and the operators of the industrial parks themselves had concluded on the elements highlighted. Currently, he was not able to ascertain whether there was an application; perhaps the Park itself could indicate if they had put in an application and addressed the areas which would have been highlighted during the compilation of the application process. He sat on the board of the adjudication committee which only received applications once they had been fully completed with all the areas that might have been raised during the interaction between the dtic, DBSA and the lessor park itself. Quite a few issues had been raised in the previous application process, such as how they would address the issue of the payment due to the city of Tshwane, the governance structures, and the issue of the SPVs that were proposed. The park had to be able to take decisions and manage the collection of revenues from the companies within the operation to make the park itself sustainable. Some of the other areas raised included addressing the issues of maintenance, post-funding, and revitalisation of some of the assets.

He said that when the applications came up again, the committee would need certainty concerning how funded items would be sustained through the period for which it was intended. The committee wanted to see a new investor pipeline and that kind of thing.

Follow up discussion
Mr Malematja said it was taking too long to approve funding. In all the projects that were being dealt with, and when it came to the issue of funding generally, everybody complained about the process. It took a long time, often for a client just to be told that he could not be assisted. Even in a very critical situation such as was before them, it took too long. How long did it take to get everyone involved in one room and yet the Committee still heard about all the things to be attended to? All the engineers belong to the government, so why did it take so long to get a sense of speed in those matters? They should take all the players into one room for a month, deal with the issues and determine how it was going to be.

Mr Klassen explained that the delay was not necessarily from the dtic's point of view, neither was it in feedback given to the parks themselves. The dtic had no control over the challenges that usually embroiled the agencies and the provinces. Members would have seen the previous reports presented to the Committee on the underperformance and on the vandalism that took place in most of those entities and estates that had been funded and were now subject to audits conducted by the AGSA, and National Treasury, which were also working to address the issues. They could not be addressed in the short term because the issues had been there for quite a long time. Those issues led to delays. The funding was available. But when one looked at the funding that had been made available, vis-a-vis the value and the yield on it, one found it was significantly low and resources were used which could not be accounted for. That came back to the dtic.

He emphasised that the delay was not caused by the dtic; it had largely to do with the issues on the ground, which had to be addressed jointly by the province leadership, their agencies, and the provincial department. The dtic worked with them, but some things were beyond the control of the dtic.

Dr Tshwaku agreed with the earlier statement that when the Committee left the meetings and went to check, on departments and entities, the situation differed. They were bullies and did not do their work and so the Committee had to move in closer. They said money was available and so the Committee needed to track it, especially at the IDC and NEF which were always stalling and were unresponsive. They created a run-around, up and down. His party, the EFF, had cases that he would submit to the Chairperson. So it was not surprising to him that when anyone applied for funding, the person was taken from pillar to post. Fortunately, the Chairperson had said the Committee would talk about it and get the full picture. The agencies would have to defend themselves before the Committee.

Industrial Development Corporation (IDC) Presentation
Tshepo Ramodibe, Head of Corporate Affairs, IDC, presented a status update on IDC clients' businesses that the Committee had engaged with during the Mpumalanga Oversight Visit.

Gegana Business Enterprise in Secunda was a family-owned agri-company operating a commercial livestock operation (beef and chicken) and farming grain crops near Leandra, Mpumalanga had been provided with R70,2 million funding, including R22,6 million in grant funding, of which 55% had been disbursed. Construction at Gegana was nearly 90% complete and the first order for day-old chickens had been placed. David from Gegana spoke about the project.

Roadgrass Investments was an agri-company operating a fully commercial chicken broiler business in Delmas, Mpumalanga and was approved for funding of R55,3 million, of which 99% had been disbursed. The company also received an R18 million grant from the Department of Agriculture, Land Reform, and Rural Development. The project had been completed and was operating at full capacity. The first cycle of chickens was delivered to Astral Operation Limited in October 2022.

Mixcorp was a youth-owned emerging logistics company established in 2014 to provide intermodal logistics solutions. The company secured a 5-year Eskom contract for the provision of management and handling services for the delivery of coal by rail to Tutuka Power Station. Mixcorp experienced challenges with repayment of debt due to high planned and unplanned stoppages at Tutuka Power Station and the coal requirements of the power station for Mixcorp’s services plummeted when it became uneconomical to transport coal to Tutuka via rail. The last train was offloaded at Tutuka on 8 May 2022 and thereafter coal was delivered to Tutuka via conveyor belt only. Notice of termination of the contract was issued in September 2022 and the parties were in negotiation of a settlement which would cover IDC’s facilities and all creditors affected by the early termination. Mr Mixo Kobe, CEO & President, spoke to the Committee.

National Empowerment Fund (NEF) Presentation
Mr Zama Khanyile, Divisional Executive for Venture Capital and Corporate Finance, NEF, briefed the Committee on the two clients of NEF visited by the Committee on its overview visit to Mpumalanga.

Electrotron was a Mpumalanga manufacturer of conveyor protection, belt monitoring, communication, weighing, and signalling equipment but needed funding to fulfill orders timeously. NEF had made funding of R18 million available and Electrotron had since grown faster than forecast in the first year since receiving the funding. The NEF was at an advanced stage of conducting due diligence investigations for a further loan for working capital to the extent of R15 million to unlock further growth and add at least 20 jobs to the current 57 jobs.

Mazikenzi Recycling business required additional funding to acquire new production equipment and upgrade their facilities so that they complied with health and safety requirements, as well as working capital to scale up production. NEF had experienced some challenges and stepped in to assist the client in packaging the business proposal and undertaking some of the activities, such as calling equipment suppliers, developing health and safety standards, and assisting with the factory layout. The NEF was in the process of writing an investment proposal for the company.  Mr Koos Msiza, Managing Director, addressed the Committee.

Discussion
Mr Thring expressed concern about the energy mix in the country. He thought the progress that had been made regarding Mixcorp was a pity. The project was being terminated and as a result, jobs would be lost. He was not sure it was appropriate to raise his concern, but he was going to do it anyway. The policy with regards to shutting down and limiting the derivation of energy from coal was not right. South Africa had an abundance of coal and yet it appeared to be a government policy to look at limiting SA’s use of coal and going on to what was called green energy. He was concerned because while SA was cutting back, it was also exporting coal to the first world countries. He had raised the concern before. SA was exporting its coal and Europe was buying up as much coal as it could because of its challenges with the Russia-Ukraine war. And so while SA was cutting back, it was, in a sense, doing itself a disservice because where the country had a possible supply of energy for its economy, it was cutting that back and reducing. That was a prime example of how jobs were going to be lost. He did not think that  SA should continue along that path. He contended that the country needed to have a good energy mix. To cut back on the usage of coal, where SA had an abundance, which gave it a competitive advantage, did not make sense to him. In fact, it was economic suicide. Perhaps the Committee needed to discuss SA’s energy mix.

Mr Mbuyane welcomed the presentation from both entities, the IDC and also the NEF. Concerning the IDC, what happened to Mixcorp, and the consequences of Covid, SA seemingly failed in the mandate to industrialise. How was the dtic going to fulfill the main mandate of the country to industrialise? Maybe the NEF could say how it would happen. The Committee just wanted to see an impact on the ground. What had been done by NEF? They had just two programmes in Mpumalanga; one company had applied in June and the funding still had to be finalised. Will the NEF be able to assist with the stable contract that was needed by Magic Recycling? And were they able to assist the company in buying the drying machine? And also the package the NEF referred to, was it workable and user-friendly?

Dr Tshwaku referred to complaints from two companies. He said that there was something unethical about the NEF and its dilly-dallying. The Committee needed more reports about what was really happening. He suggested that the Committee should not focus on Mpumalanga alone. The agency needed to come back and give a detailed report on the projects they were engaged in and how far they were, who they had funded, how many applications had been processed, how many were successful, and how many had been declined. They needed to give detailed reasons, not some frivolous answers, to all of that.

Dr Tshwaku told the Chairperson that he had two complaints on hand that actually talked about what was happening and which diagnosed issues and problems in the programmes offered by NEF and all of that. He would send the Chairperson a letter and require a written response, in detail, to the complaints. Something was going on in that NEF that he really did not understand. He hated people who were unethical. When people came to that Committee of Parliament, the Committee had to be taken very seriously, and they had to respect each other. There were people on the ground who needed funding, and the NEF was playing with them. There was a very good, serious complaint about NEF representatives actually colluding with an individual who was willing to sell something to another individual, the one in the interview. That applicant and the NEF officials who interviewed individuals went behind the scene and made deals with the applicant who was actually applying for funding. He would write about it to the Chairperson. He did not want to make it easy for the NEF as he was highlighting that some shenanigans were going on that could not be allowed to happen in the NEF. And maybe they should get their house in order because when he went in and investigated and exposed them, it was not going to be very nice. Another one with a complaint was Monument Business Solutions and he required a proper response to the concerns of that company.

Coming to Gagana, which was a very good one, Dr Tshwaku was really impressed. He liked to see progress. He called a spade a spade if people were doing some clandestine things, were crooks, and started to do things He did not understand. He did not praise that, but Gagana was a good step in the right direction. IDC should just continue assisting there. Those were the things that he wanted to hear. Most people came to complain and complain. With Gagana, the report was simply about what they did and where they were currently. The IDC needed to assist those individuals and assist them quickly. The IDC could not spend time and time and time because there was a  cash flow and then they lost money. The problem with the IDC was the time taken to make decisions. The IDC took time to reflect and he did not know why it needed to do that because, for those people, conditions were changing all the time. So if you dilly-dally, and don't make a decision, the situation gets very worse. So he hoped now, with the chicken farm, the IDC would be able to assist and ensure that they become one of the success stories that the Committee could be proud of.

He asked if there was a contract in place for the uptake of the chickens because tariffs were very low and so South Africa was a dumping ground for chickens coming from the UK and USA and some other countries. It would become an escalating problem if there were no orders anymore and the businesses would have to terminate. Mixcorp was a very sad, very sad case. With all the corruption SA was going through and yet one thought a contract from a state company would support one, but in the end, things were reversed. There was no clear communication. Those who were supposed to help took one from pillar to post. He knew the stories and what was actually happening on the ground was a reality for every black entrepreneur in the country. They did not get support, especially from the so-called entities which reported to the Committee. IDC should have taken Mixcorp by the hand instead of reporting all the bad stories. They could have asked how they could help that young guy instead of coming and lamenting to the Committee. How could the IDC help the group of black entrepreneurs with the families that they were employing? If there were 80 people employed, there were five or ten people at home for whom they were putting bread on the table. 800 people might have been benefiting from that work. They had to prove him wrong but Mixcorp was not going to go away debt-free and would be blacklisted so he could not do any other jobs. The IDC had to return and report how it had helped Mixo because Mr Kobe had not put himself in that condition. The Committee had to make sure he did not go into the debt spiral. He was pleading because he had seen cases of that nature dealing with entities that did not even answer their calls. Many people wanted to engage the NEF but they were slow. The Committee should move in closer and monitor it. Those black entrepreneurs should not find themselves with huge debts.

Dr Tshwaku agreed with Members who said that the coal thing was not going to work. That happened when one dealt with people who did not know science. They did not know the heating value of coal compared to the heating value of the so-called renewables. They could not even do the mathematics that showed what they were doing. There should be statistical modelling. It could take ages and ages. One could not switch off and go onto something other than coal. The Committee should have a debate on energy because that was going to impact the jobs that the Committee was trying to create. The Committee needed to zoom into all the entities which were supplying funding, like IDC, and the Committee had to get a thorough, detailed report and check with each and every person how the IDC was dealing with the applications because he did not buy it, not after the stories he had heard.

He said he would be sending letters to the Chairperson about the NEF shenanigans which had left a bad taste in his mouth. The entities had to specifically present how they had been assisting and funding black entrepreneurs.

The Chairperson informed Dr Tshwaku that most of his comments were outside of the scope of the meeting as the entities were specifically requested to report on matters related to the Committee Oversight visit to Mpumalanga earlier in the year.

Mr Malematja was angry that NEF had only two clients in the whole of Mpumalanga.  They had to be mathematical and ask how many small businesses the NEF had assisted, if not funded, specifically in the current financial year. How many outreach campaigns or programmes had they embarked on to help the SMEs access government funds for their businesses? Those two questions were influenced by the fact that in the whole of Mpumalanga the NEF was assisting only two businesses, despite the population of Mpumalanga and taking into account the number of small businesses in Mpumalanga. Were all of the other applications declined? What were the common issues? And how had the NEF advised them? Had it assisted them in overcoming the non-compliance that meant they did not qualify according to the criteria?

He addressed the IDC. How much had it spent in assisting the above-mentioned, and how much was still left, so the funds could be channelled to assist people as the demand was there? The Committee did not want to find, at the last minute, that the entities had declined applicants, yet still had money which would go back to National Treasury. Those who showed elements of success had to be supported. At what point did the entities intend to support them? The Committee’s mandate was to create jobs and to create as many industrialists as possible so that they could help in the current economic challenge. At what point did the entities intend to multiply by opening other branches? Where were they going to create more jobs? And at what time? Did they see themselves starting to pick up other small business entrepreneurs so that at the end of the day, they could multiply and change the status quo of the current economic status in the economy? He congratulated the IDC for assisting Gagana.

The Chairperson reiterated that most of the comments were outside of the scope of the meeting as the entities were specifically requested to report on matters related to the Committee Oversight visit to Mpumalanga earlier in the year. The entities were not requested to present the full scope of their clients in Mpumalanga or across the country.

Mr Koos Msiza stated that he was renting a building from MEGA and the maintenance was very poor. He had also experienced extensive water shortages.
           
Response
Mr Ramodibe responded to the question about the use of coal for energy. From an IDC perspective, the understanding was that coal would remain a significant portion of the energy mix which was why there was still some investment in it. The big challenge for Mixcorp related to the demand for coal at that particular power station, Tutuka, which had experienced an unplanned drop in demand. That was one of the key issues but that was a conversation for another time. Industrial capacity development was very much the core of the IDC mandate. The entity supported industrial capacity and development where there was enterprise and entrepreneurs with businesses and plans to scale up. The IDC remained ready to evaluate and support businesses to ensure that it was able to meet its expectation that the funding would yield jobs.

Regarding the turnaround time, which was a consistent concern that the corporation worked with and, as reported to the committee, the IDC was making sure that it could support applicants when they started that journey. The focus of the IDC had been to ensure that the multiple steps in the application journey from a funding application to screening went through as quickly as possible. If applicants had all the details required, it shortened the turnaround time, but where there was a requirement for IDC specialists to support the applicants in tightening up the application to go through the funding committees and meet the requirements, that caused an extension of that turnaround time. The IDC was quite fortunate that the expedited systems put in place for funding for COVID and post-unrest distressed funding had led to improvements in that area that ensured that the entity was able to shorten the turnaround time. There was a standing commitment by the corporation to take all those learnings to ensure that the turnaround time was shortened for the benefit of the entrepreneur.

Concerning the question on Gagana and whether there were any offtake agreements, he confirmed that Gagana had offtake agreements. So there was a demand for the additional capacity that the company had generated. There were agreements to ensure the sustainability of the project. The IDC had been partners in the journey for a long time and understood the question around debt obligations. He said that Mr Kobe was best placed to respond as he could provide granular detail. The IDC understood that the settlement of the contract would include not only the settlement of the IDC facility, but all other creditors affected and all partners involved in the transaction. He appreciated the situation and empathised, not only with the challenges unrelated to the entrepreneur or the funding facilities available. The challenge was much more from a client demand perspective. But also there was the Transnet contribution to the exercise. It was regrettable as the IDC was not comfortable with even one business failure.

Concerning the questions on the number of businesses supported, he did not have the figures with him but, the IDC would be coming back to the Committee at some point to unpack the IDC’s performance for the financial year ended 31 March 2022 and that would provide granular detail on the number of businesses that had been supported and various interventions. Overall approvals in the past year amounted to R16 billion: R7.2 billion in disbursements 27 130 jobs created and saved by IDC funding interventions. 90 businesses were supported with R1.5 billion in funding, but when he returned to the Committee, he would be able to provide granular detail of the segment working with small businesses. He knew for a fact, and just having checked the numbers, the IDC had supported over 40 000 businesses in the Small Business Finance category.

Ms Khanyile stated that the NEF had zero tolerance for corruption and had received an unqualified external audit report for 19 years.

She thanked the Chairperson for assisting in clarifying the request that had been put to IDC and the NEF for the presentation to the Committee that day. She welcomed the opportunity to come back and give a more detailed account of the work that the NEF did. The empowerment evidence of the work done by the NEF, the investments to date, and its portfolio would allow her to respond to Dr Tshwaku, who had raised several concerns. And right off the bat, she wanted to state that the NEF had a zero-tolerance policy for any form of corruption. So, if he had any information, he was welcome to put it forward. The NEF had a code so he could report corruption and the entity would investigate the allegations that he had indicated. She highlighted that the NEF prided itself on being ethical. It had received unqualified external audit reports for 19 years running. She hoped that attested to the strong governance structures, and risk mitigations that the NEF had built into its processes. The NEF had also undergone an audit by National Treasury for the files that were transferred to assist with the economic recovery fund and there were absolutely no findings; likewise when it came to the unqualified audit opinion. She believed that through further interaction, the Members of the Committee would better understand what the NEF did and the type of support provided.

The NEF was there to help its clients, so the NEF did not only provide financial assistance in terms of determining how much was required and how it would be paid back, but it also provided non-financial support. Ms Khanyile explained that the NEF was the only government agency solely mandated to grow businesses of previously disadvantaged persons through the provision of financial and non-financial support, and also the promotion of the culture of savings and investments amongst Black people, so it had a pre-investment function that offered product advisory, a business plan tool and a financial modelling tool that assisted in taking away some of the perceived difficulties around putting together financial models and business plans. The NEF worked with incubators because, as the Chairperson knew, the NEF was a rather small organization, confined to 140 staff members. The entity worked with partners to ensure it was extending the empowerment dividend. To that end, it had formed a number of relationships and had taken many clients through the integration process, because some of the applications that were not funding-ready, had potential and just needed a little bit more guiding and tweaking, which it did internally, and with its partners as well.

In terms of the investment portfolio, Ms Khanyile said the NEF provided mentorship and support, putting in interventions to ensure the sustainability of the businesses. The NEF funding threshold was a minimum of R250 000 up to a maximum of R75 million, so it worked in the space of supporting black-owned SMEs, with a focus on women. It provided mentorship support at the NEF’s cost and back-office support to help the smaller entities that might not be able to afford a finance function in-house. That helped to corporatise them and take them from being SMEs into medium-sized and really large businesses.

In terms of what the NEF had achieved, she highlighted the current year's achievements, with the caveat being that its work was to support only black-owned businesses, particularly SMEs. The NEF had supported 203 businesses, and approved funding to the extent of R1.3 billion, paying out R1 billion rand to black-owned entities. The NEF started with seed capital of 2.4 million Rand as an allocation from Treasury and since then the NEF has not received funding in any budget speech for a number of years, and it has not had any upgrades or funding from Treasury. The IEC had funded businesses through funds that have been repaid, and through partnerships with other government organizations, including the dtic, which had worked closely with NEF, especially in the last two years when it had a specific allocation of funds. So the NEF had been able to approve over R12.5 billion and was proud to say that it had collected R6 billion in re-payments, which had allowed the entity to spin-off from the original R2.5 billion plus these repayments and partnership allocations to breach almost R30 billion of approvals.

Ms Khanyile said that the NEF would like to come back and have more time to brief the Committee on the NEF’s achievements. Its challenges, and perhaps the Committee could help to unlock some of the challenges so that it could help even more black-owned enterprises, particularly ensuring that women-owned entities were brought into the fold.                                                                                                                                                                                                                                                                                                                                                                                                                          Closing Remarks
The Chairperson recognised that it had been a robust engagement and acknowledged that there was a need for similar discussions on all SEZs and IPs across the country.

The Committee Secretary informed Members that the following meeting would be a workshop on economic policy on Tuesday, October 2022. On the Wednesday, there was a Committee Business engagement.

The meeting was adjourned.