Budgetary Review and Recommendation Report of the Portfolio Committee on Trade and Industry, dated 24 October 2014

The Portfolio Committee on Trade and Industry, having assessed the service delivery performance of the Department of Trade and Industry, against its mandate and allocated resources, in particular the financial resources for the 1 April 2013 to 30 September 2014, reports as follows:

1. Introduction

The aim of the Department of Trade and Industry (DTI) to lead and facilitate access to sustainable economic activity and employment for all South Africans is on track in its core objectives. An inclusive economy using the instruments of broad-based black economic participation, preferential domestic procurement and a trade policy that implements global and regional relations has been effectively implemented during this budget review period. However, outstanding issues such as the realisation of black industrialists, a more robust regulatory framework that is more effective with the linkages between localisation and public procurement remain and calls for stronger enforcement measures as well as the pursuit of more compelling persuasion.

· The essential purpose of the Budget Review and Recommendation (BRR) Report, which takes into account the Medium-term Expenditure Framework (MTEF), is to evaluate the allocative efficiency implemented by the DTI and how effective its performance has been in achieving its stated objectives. This BRR Report is a significant milestone after 20 years of a democratic government.

· The DTI has evolved from the twin mandates of the former Ministries of General Services and of Finance and Trade and Industry to a department with an architecture now more focussed on its primary mandate of industrialisation and broadening participation underpinned by trade and supported by a robust regulatory framework. Although President Jacob Gedleyihlekisa Zuma has proclaimed a Ministry of Small Business, the Department of Small Business Development coexists in the DTI budget on Vote 36. A separate budget vote for the new Department will be established in the 2015/16 financial year.

· The recognition of the structural economic challenges called for a decisive break with the past of jobless economic growth to an employment generating economy and from an economy characterised by exclusion to an inclusive and equitable economy which is directed at eliminating poverty.

1.1. Description of the core functions of the Department

The DTI’s key strategy is the implementation of the Industrial Policy Action Plan (IPAP), within the framework of the National Industrial Policy Framework. This serves to drive domestic, regional and international trade and investment to create sustainable jobs. The DTI’s key priorities are derived from the IPAP and the central theme is to facilitate labour-absorption through the reindustrialisation of the manufacturing sector. This is supported by incentives for new and expanding manufacturers, initiatives to improve productivity or competitiveness and export promotion of locally produced goods.

The development of an enabling environment for business and manufacturers to operate effectively and efficiently to enable job creation and economic development is another key priority for the Department. The creation of regulatory frameworks related to company and intellectual property legislation and consumer protection provide market certainty and thus support IPAP.

Furthermore, the DTI is responsible for improving trade and investment relations and supporting deeper regional integration in Africa.

In addition, the DTI drives the national broad-based black economic empowerment regulatory framework as well as other interventions that promote the economic participation of vulnerable and previously disadvantaged individuals. In this regard, the DTI has supported the development of small, medium and micro enterprises (SMMEs) and co-operatives.

In terms of its core functions, the DTI is responsible for overseeing 14 entities and administering 45 Acts[1]. Its agencies are:

· Companies and Intellectual Property Commission (CIPC)

· Companies Tribunal (CT)

· Export Credit Insurance Corporation of South Africa (ECIC)

· National Consumer Commission (NCC)

· National Consumer Tribunal (NCT)

· National Credit Regulator (NCR)

· National Empowerment Fund (NEF)

· National Gambling Board (NGB)

· National Lotteries Board (NLB)

· National Metrology Institute of South Africa (NMISA)

· National Regulator for Compulsory Specifications (NRCS)

· Small Enterprise Development Agency (SEDA)

· South African Bureau of Standards (SABS)

· South African National Accreditation System (SANAS)

It should be noted that subsequent to the recent election, the President announced the creation of a new Department of Small Business Development[2]. Therefore, a portion of the DTI’s mandate and legislation related to the development of SMMEs and co-operatives was transferred to the new department, as well as the SEDA. The Department was established by Presidential Proclamation on 8 July 2014 and a Memorandum of Understanding with the DTI governs its portion of the budget and the management thereof until its governance structures are functional.

Furthermore, the DTI has a close, collaborative relationship with the Economic Development Department (EDD), particularly related to the functioning of the Industrial Development Corporation (IDC), the International Trade Administration Commission of South Africa (ITAC) and the Small Enterprise Finance Agency (SEFA) (formerly Khula Finance Ltd, the South African Micro-finance Apex Fund and the IDC’s small enterprises support section). These entities were shifted from the DTI to EDD in 2009. EDD is responsible for their administrative oversight, while the entities still support and/or are responsible for fulfilling parts of the DTI’s mandate in terms of industrial development, implementation of trade agreements and broadening economic participation respectively.

1.2. Mandate of the committee

Section 5 of the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) requires the National Assembly, through its committees, to annually assess the performance of each national department. A committee must submit a report of this assessment known as a BRR Report. The overarching purpose of the BRR Report is for the committee to make recommendations on the forward use of resources to address the implementation of policy priorities and services, as the relevant department may require additional, reduced or re-configured resources to achieve these priorities and services. This Act gives effect to Parliament’s constitutional powers to amend the budget in line with the fiscal framework.

The BRR Report process enables the committee to exercise its legislative responsibility to ensure that the Department and its entities are adequately funded to fulfil their respective mandates. However, as the Budget Office is still in the process of becoming fully functional, the committee was unable to exercise its full powers on providing detailed budgetary recommendations. The committee looks forward to a fully operational Budget Office, which will substantively contribute to the budgetary support the committee requires to undertake this process.

1.3. Purpose of the BRR Report

The purpose of this report is to analyse the financial and non-financial performance of the DTI, and identified entities, against predetermined objectives to inform recommendations for the forward-looking budget for the DTI and its entities. This report attempts to provide an assessment of the financial and non-financial performance of the DTI and identified entities for the 2013/14 financial year, and the first six months of the 2014/15 financial year (from 1 April 2013 to 30 September 2014) within the context of the three-year MTEF.

The budget is informed by the national policy priorities as outlined in the State of the Nation Address (SONA). It is driven by the policy commitment to inclusive economic growth to attain social cohesion and job creation.

1.4. Method

The committee met with the Auditor General on 10 September 2014 to discuss its mandate in relation to the work of the Department. From this engagement, it was decided that the Auditor General would submit the results of the 2013/14 audit outcomes and the key findings by mid-October since the results were not available at the time of the meeting. The committee was then briefed by the DTI on its 2013/14 annual report and 2014/15 first quarter performance on 12 September 2014.

For the period under review, the committee had also been monitoring the performance of the Companies and Intellectual Property Commission, the National Consumer Commission, and the National Credit Regulator on an on-going basis. The committee considered the development of these entities vital to the economy and consumers. It also identified the National Gambling Board and the National Regulator for Compulsory Specifications for the annual report process. In this regard, the committee held meetings with these five entities to engage on their 2013/14 Annual Reports and their 2014/15 first quarter reports on 16 and 19 September and 14 October 2014.

One of the key limitations of the report was that not all 14 of the DTI’s entities’ annual reports and quarterly spending trends were monitored over the 18 month period. Therefore, there was a reliance on the DTI and the Auditor General to highlight challenges experienced by the other nine entities. However, all entities, with the exception of the NRCS, received unqualified audit opinions.

In addition, due to the timing of the BRR Report, verified second quarter financial and non-financial information was not available. The key challenge was that the DTI and its entities were still in the process of verifying the non-financial information, which is due at the end of October each year in compliance with Treasury regulations. Therefore, the report has only captured performance up to the first quarter of the 2014/15 financial year.

1.5. Outline of the contents of the Report

This BRR Report consists of eight sections. Section 1 briefly provides an overview of the DTI’s core functions, the mandate of the committee, the purpose of this report and the method followed in preparing this report, as well as the limitations of the Report.

Section 2 sets out the key policy focus areas for the DTI. This includes an overview of the relevant national priorities which the DTI contributes to, as well the DTI’s strategic objectives, outcome-orientated goals and key measurable objectives.

Section 3 provides a summary of the key financial and performance recommendations of the committee as captured in its previous BRR Report and its 2014/15 Budget Report. Where available, the Minister of Finance’s responses to these recommendations, as prescribed by the Money Bills Amendment Procedure and Related Matters Act are captured.

Section 4 assesses the DTI’s financial and non-financial performance against its vote allocation from 1 April 2013 to 30 June 2014. Firstly, it provides an overview and assessment of the DTI’s service delivery. Secondly, the available human resources are discussed. Thirdly, it considers the 2013/14 budget vote allocation in terms of the economic classification and per programme. It also assesses the actual total and programme expenditure for the period ending 31 March 2014, as well as the audit findings. This is followed by a comparison of the DTI’s budgeted and actual expenditure as at 30 June 2014. Fourthly, the report discusses key issues raised by the committee during deliberations with the DTI.

Section 5 discusses the five entities identified by the committee for oversight during this BRR reporting process in terms of their mandates, strategic objectives and core issues previously identified by the committee. In addition, their financial and non-financial performance and their additional forward-looking budgetary and/or performance requirements are assessed.

Section 6 provides the committee’s concluding remarks followed by a note of appreciation in Section 7. The report then closes with the committee’s recommendations for the National Assembly’s approval in Section 8.

2. Overview of the key relevant policy focus areas

In the annual SONA held in February this year, the President reaffirmed government’s commitment to implement the National Development Plan (NDP) as the country’s plan to eradicate poverty, increase employment and reduce inequality by the year 2030. The President’s first SONA of the fifth democratic Parliament reemphasised the areas of importance in the NDP which aims to address the reduction of poverty, the creation of decent work, and the acceleration of economic growth.[3]

In his post-election SONA address, the President highlighted five priorities, namely (i) education, (ii) health, (iii) the fight against crime and corruption, (iv) rural development and land reform, and (v) creating decent work.[4] The DTI’s mandate mainly relates to the latter priority of creating decent work. Table 1 provides the linkages between highlights extracted from the post-election 2014 State of the Nation Address and the DTI’s strategic objectives under which these points will be implemented.

Table 1: Linkages between the State of the Nation Address and the DTI’s strategic objectives

DTI’s Strategic Objectives[5]	Highlights from the State of the Nation Address[6]
Facilitate transformation of the economy to promote industrial development, investment, competitiveness and employment creation	• "....Promote local procurement and increase domestic production by having the state buy 75% of goods and services from South African producers." • "...Promote regional economic development and industrialisation, through the creation of Special Economic Zones around the country."  • "...Provide incentives, to support the competitiveness of the auto, clothing, leather, footwear and textile industries, which are labour intensive."
Facilitate broad-based economic participation through targeted interventions to achieve more inclusive growth	• "…Implementation of the amended Broad-based Black Economic Empowerment Act ... in order to transform the ownership, management and control of the economy."
Build mutually beneficial regional and global relations to advance South Africa’s trade, industrial policy and economic development objectives	• “…Champion broader regional integration through the Southern African Customs Union, SADC and the envisaged Tripartite Free Trade Area that spans Eastern and Southern Africa.” • “…Promote South-South cooperation by utilising membership and engagements with formations and groupings of the South.” • “…Deepen economic development, trade, and investment partnerships with the BRICS[7] through the work of the BRICS Contact Group for Economic and Trade Issues.”

Source: Madalane (2014)

The President also highlighted the low level of private sector investment and interrupted energy supply as key constraints to economic growth. The committee welcomes the inter-ministerial task team established to deal with the current challenges that the current energy supply poses to economic growth.

The DTI is committed to the development of an enabling environment to create decent work. Therefore, the DTI has identified a number of policy tools such as promoting local procurement, attracting investment through incentive-based programmes such as the Special Economic Zones, and providing incentives for domestic production in specific labour-absorbing sectors.

There have not been any shifts or changes in priorities for the Department from the 2013 SONA to the two 2014 SONAs. In the 2013 SONA, priority areas were broadening economic participation, industrial development, and international trade relations. These were also highlighted in both 2014 SONAs. However, the President announced in his post-election SONA that government would be establishing a Small Business Development Department which will take over certain functions of the DTI.

2.1. Strategic plans of the Department

The strategic objectives of the DTI are to:

· “Facilitate transformation of the economy to promote industrial development, investment, competitiveness, and employment creation;

· Build mutually beneficial regional and global relations to advance South Africa’s trade, industrial policy and economic development objectives;

· Facilitate broad-based economic participation through targeted interventions to achieve more inclusive growth;

· Create a fair regulatory environment that enables investment, trade and enterprise development in an equitable and socially responsible manner; and

· Promote a professional, ethical, dynamic, competitive and customer-focused working environment that ensures effective and efficient service delivery.”^[8]

It is required that all government departments align their strategic objectives to the national priorities/government outcomes. Figure 1 provides a representation of the DTI’s strategic objectives for the 2013/14 financial year as they relate to the national priorities.

There were no changes in terms of the strategic objectives and goals in the 2014/15 financial year.

Figure 1: Linkages between the DTI’s strategic goals, government outcomes and the 2013/14 allocated budget

Source: Department of Trade and Industry (2013d: 22)

2.2. Measurable objectives of the Department

The DTI in its strategic plan had listed key interventions that were aimed at addressing the challenges faced by the country. Particularly for the 2013/14 financial year, interventions were aimed at tackling the challenges of high unemployment and the impacts of the global economic crisis. The DTI aimed to tackle this challenge through sector-specific support programmes, such as the agro-processing; automotive; clothing, textiles and leather and footwear; and business process services sectors.[9] These sectors are concentrated in the manufacturing and business services sectors, and they form the backbone of employment in the country.

For the 2013/14 financial year, the Department had planned to continue creating an enabling environment to re-industrialise the country, as industrialisation is viewed as a tool through which South Africa can create jobs and stimulate economic growth. Industrialisation is mainly supported by the DTI through the IPAP. The key planned interventions were as follows[10]:

· Upscale industrial policy by tabling the annual rolling IPAP to Cabinet and produce quarterly implementation reports.

· Develop three sector-specific action plans developed to influence and respond to the changing economic environment to enhance manufacturing potential.

· Complete and submit designation templates to the National Treasury for 2 subsectors/sectors for local procurement.

· Undertake two key research projects to facilitate development of interventions to expand value-added activities in existing and new sectors of the economy including beneficiation.

· Special Economic Zone (SEZ) policy and Bill approved by Cabinet and endorsed by Parliament.

· Enhance technological competencies by supporting 1 350 students and 700 researchers via the Technology and Human Resources for Industry (THRIP).

· Implement the Support Programme Industrial Innovation (SPII) by supporting 20 new projects valued at R43 million.

· Implement the Tool-making apprentice programme - Support 385 students enrolled for the tool making apprentice programme.

· Implement the Industrial upgrading programme - Support 220 workers trained through the industrial upgrading programme.

· Support 940 enterprises approved to participate in the Export Marketing and Investment Assistance (EMIA) scheme.

· Support 40 companies supported through the Workplace Challenge Programme (WCP).

Broadening Participation also forms part of the DTI’s mandate. Through its Broadening Participation Division, the DTI aims to create opportunities in which black South Africans and women can participate more in economic activities. In terms of Broadening Participation, the key interventions were to[11]:

· Finalise and implement Informal Sector Strategy.

· Finalise and implement Youth Enterprise Development Strategy (YEDS).

· Obtain approval for the revised Broad-based Black Economic Empowerment (B-BBEE) Codes of Good Practice.

· Revise the National Strategic Framework on Gender and Women Empowerment.

· Obtain approval of the business case for the establishment of the Co-operative Tribunal as well as the Co-operatives Development Agency and phase-in implementation of the amended Co-operatives Development Act.

The third part of the DTI’s mandate is Trade, Investment and Exports. Key intervention in terms of trade for the 2013/14 financial year were to[12]:

· Increase manufactured exports under Export Marketing and Investment Assistance (EMIA) by increasing the value of exports to R900 million.

· Facilitate investment in targeted sectors to the value of R50 billion within the investment pipeline.

· Conclude trade negotiations with regards to the Economic Partnership Agreement (EPA) with the European Union (EU), Southern African Customs Union (SACU) India Preferential Trade Agreement (PTA), and Southern African Development Community (SADC) - East African Community (EAC) – Common Market For Eastern and Southern Africa (COMESA) FTA (also known as the Tripartite-Free Trade Agreement (T-FTA)).

· Implement African regional development programme in five priority development areas in SACU, SADC FTA and in Spatial Development Initiatives (SDI) infrastructure projects.

3. Summary of previous key financial and performance recommendations of committee

3.1. 2013/14 BRRR recommendations[13]

The committee recommended the following in relation to key areas of financial and non-financial performance:

· The Minister should ensure that the Co-operative Development Agency, the Broad-Based Black Economic Empowerment Commission, the Co-operative Tribunal, the National Trust Fund on Indigenous Knowledge, and the National Council on Indigenous Knowledge are adequately funded for the 2014/15 financial years and over the MTEF period to ensure that these bodies are able to fulfil their mandates.

· The Minister should consider the recapitalisation requests of the Export Credit and Insurance Corporation and the National Empowerment Fund in order for these institutions to fulfil their mandate of facilitating the export of trade and cross-border investments between South Africa and the rest of the world, and of broadening black participation in the economy respectively.

· The Minister should ensure that government designated procurement products comply with the relevant national standards.

· Consider ensuring a real increase in the allocation to the Consumer and Corporate Regulation programme to ensure adequate support to its regulatory entities.

The Minister of Finance had responded that the National Treasury was working with the DTI to address funding requirements on a case-by-case basis. The DTI had reprioritised and revised its allocations to the NCR and NCC over the 2014 MTEF period.[14] At that stage, the Minister of Finance had not responded to the recommendations in relation to the funding of the new entities.

3.2. 2014/15 Committee Budget Report[15]

The committee had recommended that the Minister should consider:

· Additional funding for the Consumer and Corporate Regulation Programme’s allocation for its regulatory bodies to fulfil their mandates in the outer years of the MTEF.

· Increasing the budget for the Trade Investment South Africa Programme to ensure an adequate presence in strategic foreign missions in the outer years of the MTEF.

4. Overview and assessment of the department’s financial and NOn-financial performance

4.1. 2013/14 Non-financial performance

The Department’s work is divided into five thematic areas. These areas are (i) Industrial Development; (ii) Trade, Investment and Exports; (iii) Broadening Participation; (iv) Regulation and (v) Administration. This section gives a comparison of the Department’s key interventions for the financial year under review and the performance of the Department against those key interventions for the first four thematic areas.

4.1.1. Industrial Development

Industrial Development relates to the development of policies and strategies that promote sector competitiveness, economic growth, job creation and the provision of efficiently administered support measures. Key interventions for the 2013/14 financial year, as referred to in the Annual Performance Plan, are listed in Table 2. The performance side of the table shows the DTI’s performance as per the 2013/14 Annual Report in achieving the key interventions.

Table 2: Key interventions and performance for Industrial Development

Key Interventions	Performance
Upscale industrial policy by tabling the annual rolling IPAP to Cabinet and produce quarterly implementation reports	New iteration of the annual rolling IPAP 2013/14- 2015/16 approved by Cabinet in March 2014
3 sector-specific action plans developed to influence and respond to the changing economic environment to enhance manufacturing potential	The 4 sector-specific action plans developed were: • Nuclear Localisation and Industrialisation Strategy and Action Plan • Yellow Metal Strategy and Action Plan • Music Strategy and Action Plan • TV Strategy and Action Plan
Complete and submit designation templates to the National Treasury for 2 subsectors/sectors for local procurement	5 Designation Reports completed and submitted including the designation of cables, solar water heaters, valves and boats and electricity meters
2 key research projects will be undertaken to facilitate development of interventions to expand value-added activities in existing and new sectors of the economy including beneficiation	The 4 key research projects undertaken were: • Wind Energy Localisation Roadmap • Development of a Ports Industry Promotion Strategy • SAA wide body fleet procurement process • Beneficiation in key value chains in a selected group of minerals
Finalisation and Implementation of the SEZ Act (No.16 of 2014): SEZ Policy and Bill approved by Cabinet and endorsed by Parliament	SEZ Policy was adopted by Cabinet in 2013 and the Bill was passed by the two Houses of Parliament by March 2014 and assented to by the President.
Enhance technological competencies by supporting 1 350 students and 700 researchers via the THRIP	1 548 students supported under THRIP funding and 1 047 researchers approved for THRIP funding
SPII implemented by supporting 20 new projects valued at R43 million	31 projects valued at R75.9 million were supported (funds were freed to support new projects)
Tool-making apprentice programme – Support 385 students enrolled for the tool making apprentice programme	1 022 students enrolled in tool-making apprentice programme
Industrial upgrading programme – Support 220 workers trained through the industrial upgrading programme	400 workers trained through the industrial skills upgrading programme
940 enterprises approved to participate in the EMIA scheme	1 835 enterprises were supported through the EMIA scheme
51 companies supported through the WCP	322 companies supported as a result of R5 million sourced to enhance the Programme

Source: DTI (2014b)

The achievement of targets as depicted in the table above contributes to the advancement of the South African economy by stimulating increased industrial outputs.

4.1.2. Trade, Investment and Exports

This thematic area is responsible for the strengthening of trade and investment links with key economies and fostering African development, including through regional and continental integration and development co-operation in line with the New Partnership for Africa’s Development (NEPAD). Key interventions for the 2013/14 financial year as identified in the DTI’s Annual Performance Plan and the related performance are listed in Table 3.

Table 3: Key interventions and performance for Trade, Investment and Exports

Key Interventions	Performance
Africa regional development programme implementation: Progress report to be produced on implementation of agreed programme and projects for priority development areas in SACU, SADC FTA and SDI infrastructure projects	Status reports produced
Conclusion of EPA trade negotiations with the EU, SACU-India PTA, T-FTA: Status report to be produced on progress towards conclusion of trade negotiations	Progress reports produced
Increase manufactured exports under EMIA by increasing the value of exports to R900 million	R3.4 billion exports – Target exceeded due to high export sales from projects in new high-growth markets identified including Indonesia, Thailand, Turkey, Nigeria, Angola, Mozambique Tanzania and Ghana as well as BRIC.
Investment facilitation in targeted sectors – R50 billion	R60.5 billion – Target exceeded due to a large number of renewable energy projects that have reached financial closure in terms of the Renewable Energy Independent Power Producer Procurement (REIPPP) Programme.

Source: DTI (2014b)

4.1.3. Broadening Participation

Broadening Participation is concerned with the development of interventions and strategies that are aimed at promoting enterprise growth, empowerment and equity. Key interventions and performance for the 2013/14 financial year are listed below (see Table 4).

Table 4: Key interventions and performance for Broadening Participation

Key Interventions	Performance
Disburse R119 million to SEDA for the establishment of new incubators and support of existing incubators; and support of SMMEs	R123 million disbursed to support SMMEs – Target was exceeded as a result of a virement from the Incentive Development and Administration Programme to the Broadening Participation Programme.
Performance monitoring reports on SEDA Technology Programme to be produced	Monitoring and performance reports produced
Approval of business case for the establishment of the Co-operative Development Agency and phased-in implementation thereof	Business case approved by Minister, National Treasury and DPSA A phased-in implementation plan has been initiated by developing a draft staff migration plan and organisational structure
Approval of business case for the establishment of the Co-operative Tribunal and phased-in implementation thereof	Business case approved by Minister, National Treasury and DPSA Phased-in implementation has commenced and a draft structure is in place.
Revised draft National Strategic Framework on Gender and Women Empowerment	Revised draft National Strategic Framework on Gender and Women Empowerment
Isivande Women Fund – Approve 18 new projects	During the 2013/14 financial year, the actual projects approved were 16. The poor quality of applications resulted in targets not being met.
Approval of Broad-Based Black Economic Empowerment Amendment Act	B-BBEE Amendment Bill assented to by the President
Approval of revised B-BBEE Codes of Good Practice	The B-BBEE Codes of Good Practice were approved by the Minister and published for implementation in 2015
1 560 enterprises approved for Black Business Supplier Development Programme (BBSDP)	1 066 enterprises approved
Finalisation and implementation of Informal Sector Strategy	The National Informal Business Upliftment Strategy (NIBUS) was adopted by Cabinet and launched by Minister in March 2014.
Finalisation and implementation of YEDS	YEDS approved and launched by the Minister in November 2013.
Supported companies through the WCP: support 40 new enterprises	322 enterprises supported due to additional funding of R5 million being sourced to enhance the Programme.

Source: DTI (2014b)

4.1.4. Regulation

Regulation involves the development and implementation of coherent, predictable and transparent regulatory solutions that facilitate easy access to redress, and efficient regulatory services for economic citizens. This occurs by developing policies, bills and regulations to enforce fair business practices and conducting impact assessments of regulation on business and other economic citizens.

Table 5: Key interventions and performance for Regulation

Key Interventions	Performance
Two Regulatory Impact Assessment (RIA) Reports with recommendations for approval on Liquor and Gambling	Liquor: A RIA was finalised to incorporate the new policy Gambling: A draft RIA report was produced.
Two policies for approval on Intellectual Property and Gambling	3 Policies developed for approval for gambling, liquor and intellectual property.
Four Bills for approval on National Credit Act, Lottery, Liquor and Business Acts	4 Bills developed for approval: • National Credit Amendment Bill to be assented by President. • Lotteries Amendment Bill assented. • Licensing of Business Bill done and referred back for consultation and establishment of Task Team by Minister • Liquor Amendment Bill developed, however not approved yet.
Two regulations for publication	• 2014 African Championship of Nations Liquor Amendment Regulations developed and published • Regulations for Protected Event status and Prohibited Marks (liquor) developed and published • Labelling of Meat Regulations developed and published

Source: DTI (2014b)

4.2. Non-financial performance as at 30 June 2014

The DTI highlighted a number of key achievements as at 30 June 2014. The key achievements are listed in the sections below in terms of the Department’s thematic areas.[16]

4.2.1. Industrial Development

· IPAP 2014/15 – 2016/17 was launched in April 2014.

· Legal Metrology Act (No. 9 of 2014) was assented to by the President in May 2014 but is not yet enacted as it requires a Presidential proclamation in the Government Gazette.

· Two instruction notes for the designation of Rail Rolling Stock and Solar Water Heaters were amended and re-published by National Treasury in June 2014. Local content verification of Solar Water Heaters was finalised by the SABS.

· Development of draft Manufacturing Support Guidelines for newly-established projects under the Manufacturing Competitiveness Enhancement Programme (MCEP) is in progress.

· Medium and Heavy Commercial Vehicles Automotive Investment Scheme (MHCV-AIS) guidelines was launched for public comment.

4.2.2. Trade, Investment and Exports

· The Promotion and Protection of Investment Bill was amended incorporating comments from the public consultation process.

· Led the South African delegation to the sixth BRICS Contact Group for Economic and Trade Issues (CGETI) meeting held in May 2014 in Brasilia, Brazil.

· Updated status report on EPA negotiations to inform the stalled review of the SACU–European Free Trade Association (EFTA) agreement.

· Draft EPA Tariff Schedules completed and submitted for verification to the South African Revenue Service (SARS).

· Notice of termination of Bilateral Investment Treaties (BITs) given to Sweden and Finland. Agreement reached with Argentina and Cuba to mutually terminate BITs.

· Facilitated exports to the value of R1.4 billion.

· Achieved R14.2 billion investment pipeline in large renewable and manufacturing projects.

4.2.3. Broadening Participation

· The terms of reference for the Black Industrialist Incentive has been developed and adopted.

· Supported 92 projects under the Co-operatives Incentive Scheme (CIS) incentive.

· Supported 280 projects under the BBSDP incentive.

· Five pre-feasibility studies for proposed SEZs have been finalized, namely for: (i) Rustenburg Platinum Hub in North West, (ii) Musina Logistic Hub and (iii) Tubatse Platinum Hub in Limpopo, (iv) Upington Solar corridor in Northern Cape and (v) Harrismith Agro-processing Hub in Free State).

· Additional three draft pre-feasibility reports have been developed for Wild Coast Agro-processing Hub in Eastern Cape, Nkomazi Agro-processing and Logistic Hub in Mpumalanga and Atlantis Renewable Energy Hub in Western Cape.

4.2.4. Consumer and Corporate Regulation

· Draft regulations for the National Credit Amendment Act (No. 19 of 2014) produced.

· The Intellectual Property Laws Amendment Act (No. 28 of 2013) enacted, with amendments focusing primarily on the protection of indigenous knowledge as well as the process to establish the council and trust.

· RIA on Gambling conducted and a report finalised.

4.3. Human Resources

The DTI had employed a total of 1 286 people as at the end of the 2013/14 financial year. A total of 133 posts were vacant given the total approved posts of 1 149. The 133 vacant posts translate to a vacancy rate of 9.4 per cent.

Table 6: Employment statistics as at end March 2014

Total posts	1 419
Filled posts	1 286
Additional employees to the establishment	286
Vacancies	133
Vacancy rate (% of total available posts)	9.4
Black employees (% of total employees)	91.2
Female Employees (% of total employees)	58.1
Employees with disabilities (% of total employees)	2.7

Source: DTI (2014b)

The demographics of the staff complement was 91.2 per cent black employees. Female employees accounted for 58.1 per cent of total employees while people with disabilities accounted for 2.7 per cent.

4.4. Overview of Vote allocation and spending (2009/10 - 2014/15)

4.4.1. Overview of the Budget Allocation 2013/14

The Department of Trade and Industry’s budget was divided among its seven programmes/divisions. The Divisions were[17]:

· Administration

· International Trade and Economic Development

· Broadening Participation

· Industrial Development: Policy Development

· Consumer and Corporate Regulation

· Incentive Development: Incentive Administration

· Trade and Investment South Africa

The Department’s budget has increased from R8.35 billion in 2012/13 to R9.57 billion in 2013/14 financial year, a real increase of 8.55 per cent. The Department of Trade and Industry’s expenditure has been on an upward trend since the 2011/12 financial year increasing from R6.8 billion and to R8.3 billion in the 2012/13 financial year. In the 2013/14 financial year, expenditure is expected to be R9.6 billion. The Department’s expenditure is forecast to reach R11.4 billion by the 2015/16 financial year.

The Department’s budget is centred on the implementation of policies, strategies, programmes and incentives aimed at promoting industrial development and broadening participation in the economy. These were implemented through the Incentive Development: Incentive Administration and the Industrial Development: Policy Development programmes, which use the bulk of the Department’s allocation over the medium term. For the 2013/14 financial year, this was R5.5 billion for the Incentive Development: Incentive Administration Division (57.5 per cent of the total budget) and R1.6 billion for the Industrial Development: Policy Development Division (16.7 per cent of the total budget).

Furthermore, the budget was allocated to the Broadening Participation Division (R968.3 million), the Administration Division (R690.1 million), the Trade and Investment South Africa Division (R369.7 million), Consumer and Corporate Regulation Division (R256.2 million) and International Trade and Economic Development Division (R138.6 million).

In terms of the economic classification, the majority of the DTI’s budget (84.2 per cent) consisted of transfers to businesses or to its entities, compared to 82.2 per cent in the 2012/13 financial year. The DTI’s transfers also grew in real terms by 11.2 per cent since 2012/13. The DTI has decreased its budget share allocated to current payments from 17 per cent in 2012/13 to 15.6 per cent in 2013/14. This share has increasingly been dominated by compensation to employees (R854.2 million in 2013/14, which grew in real terms by 9.9 per cent). However, payments on goods and services declined in real terms by 11.8 per cent since 2012/13.

4.4.2. Overview of spending (2010/11 - 2014/15)

The Department of Trade and Industry’s expenditure has been increased by an average annual growth rate of 17.7 per cent between the 2010/11 and the 2013/14 financial years. In the 2010/11 financial year, expenditure declined from R5.9 billion in 2009/10 to R5.8 billion. However, expenditure has been on an upward trend since the 2011/12 financial year increasing from R6.8 billion to R8.3 billion in the 2012/13 financial year. In the 2013/14 financial year, expenditure was at R9.4 billion. The Department’s expenditure is forecast to reach R10.9 billion by the 2015/16 financial year.

Table 7: Audited and estimated expenditure per programme from the 2010/11 to 2015/16 financial years

Programme (R millions)	2010/11	2011/12	2012/13	2013/14			2014/15	2015/16
	Audited	Audited	Audited	Main	Adjusted	Audited	Main	Estimates
Administration	480.0	639.4	705.4	690.1	725.9	700.4	706.9	730.7
International Trade and Economic Development	106.9	132.9	132.7	138.6	141.6	139.6	147.2	154.8
Broadening Participation	798.1	887.5	929.7	968.3	1 010.3	999.8	1 005.8	1 060.2
Industrial Development: Policy Development	1 172.6	1 328.7	1 521.1	1 606.5	1 596.7	1 575.6	1 796.8	2 078.5
Consumer and Corporate Regulation	145.0	218.6	223.6	256.2	256.2	256.7	277.3	286.9
Industrial Development: Incentive Administration	2 793.0	3 283.5	4 514.6	5 543.1	5 443.1	5 361.3	5 540.3	6 246.5
Trade and Investment South Africa	301.1	310.4	259.4	369.7	341.7	347.0	360.7	370.1
Total	5 796.7	6 801.0	8 286.4	9 572.6	9 515.6	9 380.3	9 835.0	10 927.7

Source: National Treasury (2013) and (2014c) and DTI (2014b)

For the 2013/14 financial year, the Departmental budget was R9.5 billion; however, the Department’s expenditure fell short of this budget by 1.4 per cent amounting to expenditure of approximately R9.4 billion. At a programme level, there was under spending on all programmes, however, the most significant under spending were in the International Trade and Economic Development Division (4.6 per cent), the Administration Division (3.2 per cent) and the Industrial Development: Incentive Administration Division (1.5 per cent).

Table 8: Actual versus budgeted expenditure for the 2013/14 financial year

Programme (R’000)	Revised Budget 2013/14	Expenditure	Variance	Variance (%)
Administration	724 139	700 370	23 769	3.28
International Trade and Economic Development	146 339	139 566	6 773	4.63%
Broadening Participation	1 006 282	999 833	6 449	0.64%
Industrial Development: Policy Development	1 590 453	1 575 586	14 867	0.93%
Consumer and Corporate Regulation	258 146	256 689	1 457	0.56%
Industrial Development: Incentive Administration	5 440 720	5 361 292	79 428	1.46%
Trade and Investment South Africa	349 501	346 951	2 550	0.73%
Total	9 515 580	9 380 287	135 293	1.42%

Source: DTI (2014b)

4.4.2.1. Expenditure on Administration

There was under spending of R23.7 million in the Administration Division. This was a result of:

· Under-spending on compensation of employees due to 47 posts being vacant out of an establishment of 480. In addition, there were delays in the implementation of re-evaluation of posts.

· Under-spending on goods and services was as a result of ongoing engagements with the Department of Public Works on planned projects for office accommodation. There have also been savings in certain areas as a result of cost-containment measures, for example on air travel.

· Computer equipment that could not be procured as planned pending the filling of vacant posts.

4.4.2.2. International Trade and Economic Development

An under spending of R14.9 million occurred as a result of:

· Under-spending on goods and services due to outstanding foreign mission accounts. There have also been savings in certain areas as a result of cost-containment measures, for example on air travel.

· Under-spending on transfers and subsidies was due to exchange-rate fluctuations on payments to the World Trade Organisation and the Organisation for the Prohibition of Chemical Weapons.

4.4.2.3. Industrial Development: Incentive Administration

· The under-spending occurred largely on business and advisory consultants as well as venues and facilities, catering and travel due to the implementation of cost-containment measures.

· Under-spending of R58.6 million under the MCEP is due to the cancellation of projects. These cancellations were due to clients not being able to secure investments to qualify for MCEP incentives.

· The under-spending of R17 million on payment for capital assets was due to delays in appointing a vendor for the delivery of IEMS.

Table 9: Economic classification of expenditure for the 2013/14 financial year

Programme (R’000)	Revised Budget 2013/13	Expenditure	Variance	Variance (%)
Compensation of employees	799 139	789 346	9 793	1.23%
Goods and services	718 808	690 354	28 454	3.96%
Payments for financial assets	1 219	1 164	55	4.51%
Capital assets	39 961	18 655	21 306	53.32%
Transfer payments	7 956 453	7 880 816	75 637	0.95%
Total	9 515 580	9 380 335	135 245	1.42%

Source: DTI (2014b)

4.4.2.4. Reasons for under spending

On compensation of employees was due to 133 posts (9.4 per cent) being vacant out of an establishment of 1 419 posts as well as the delays in the implementation of the re-evaluation of posts resolution.

On goods and services, under spending was as a result of ongoing engagements with the Department of Public Works on planned projects for office accommodation. In addition, there was under-spending on business and advisory consultants as well as venues and facilities, catering and travel due to the implementation of cost-containment measures.

Under-spending of R58.6 million under the MCEP was as a result of the cancellation of projects. These cancellations were due to clients not being able to secure investments to qualify for the MCEP incentives.

Transfers to foreign governments and international organisations were lower than anticipated due to exchange-rate fluctuations on payments to the World Trade Organisation, the Organisation for the Prohibition of Chemical Weapons and the United Nations Industrial Development Organisation (UNIDO).

Funds earmarked for Proudly South Africa were not disbursed as projected.

Payment of bursaries to non-DTI employees was delayed due to the late receipt of invoices.

The under-spending on capital assets was due to computer equipment that could not be procured as planned pending the filling of vacant posts and delays in the appointment of a vendor for the delivery of the integrated electronic management system.

In terms of payments for financial assets, funds projected for payments for financial assets were not fully utilised as planned.

4.4.3. Audit opinion

4.4.3.1. Five year audit trends

Over the 2008/09 and 2012/13 period, the Department has had unqualified audit reports with findings. Observations by the Auditor General in previous financial years included: material losses, issues with performance indicators, compliance with regulation, and irregular expenditure.

For the 2012/13 financial year, the Auditor General noted that the Department’s entities have had a record of good governance and financial management. However; newly-established entities have had a number of challenges with regards to their governance and financial management systems. According to the Auditor General, close monitoring, by the Department, of its entities was necessary.

For the 2012/13 financial year, the Auditor General’s report raised the following issues: material losses, compliance with certain regulations, and irregular expenditure.

4.4.3.2. 2013/14 Financial audit performance

The DTI received an unqualified audit opinion from the Auditor General.[18]. However, the Auditor General noted the following concerns which relate to Regulatory Requirements, in particular Compliance with legislation:

· Expenditure management: “Effective steps were not taken to prevent irregular expenditure, as required by section 38(1)(c)(ii) of the Public Finance Management Act[19] and Treasury Regulation 9.1.1”.

· Leadership: “Leadership did not exercise effective oversight with regard to performance reporting and related internal controls”.

· Financial and performance management: “Management did not prepare, in certain instances, an accurate and complete annual performance report that is supported and evidenced by reliable information. Management did not have adequate preventative and detective controls in place to ensure compliance with laws and regulations relating to supply chain management”.^[20]

4.5. Financial performance as at 30 June 2014

The DTI’s budget for the 2014/15 financial year is R9.83 billion, a real decrease of 2.7 per cent from the previous financial year’s budget.

Approximately 56 per cent of the budget will go towards the Incentive Development and Administration Division[21], 18 per cent to the Industrial Development Division and 10 per cent to the Broadening Participation Division.

Table 10: 2014/15 First quarter expenditure by programme

Programme (R’000)	Revised Budget 2014/15	1^st Quarter			Available budget (%)
		Cash Flow projections	Expenditure	Variance (%)
Administration	708 246	184 925	142 652	22.9	79.9
International Trade and Economic Development	147 197	33 746	29 091	13.8	80.2
Broadening Participation	1 004 477	273 452	256 921	6.1	74.4
Industrial Development	1 796 824	660 054	627 695	4.9	65.1
Consumer and Corporate Regulation	277 256	138 565	137 468	0.8	50.4
Incentive Development and Administration	5 540 281	1 178 135	669 431	43.2	87.9
Trade and Investment South Africa	360 748	58 483	45 457	22.3	87.4
Total	9 835 029	2 527 360	1 908 715	24.5	80.6

Source: DTI (2014c)

In the first quarter of the 2014/15 financial year, the DTI projected spending of R2.52 billion. However, the DTI’s expenditure fell short of this projection. Expenditure totalled R1.91 billion, 24.5 per cent short of the targeted quarterly expenditure.

At a programme level, there was under-spending on all programmes. An acceptable level of deviation from the budget is an amount up to 10 per cent. However, the Administration, International Trade and Economic Development, Incentive Development and Administration, and Trade and Investment South Africa Divisions had relatively high levels of underspending during the period (see Table 10).

It should be noted that expenditure in the first quarter is usually low, this is evident from expenditure reports of previous years. However, this should pick up gradually from the second quarter onwards.

4.5.1. Expenditure by economic classification

In terms of the economic classification, under spending was as a result of 85 percent under spending on capital assets, 25.3 per cent on transfer payments, 34 per cent on goods and services, and 8.5 per cent on compensation of employees.

Table 11: First quarter (2014/15) Expenditure by economic classification

(R’000)	Revised Budget 2014/15	1^st Quarter			Available budget (%)
		Cash Flow projections	Expenditure	Variance (%)
Compensation of employees	916 869	223 088	204 069	8.5	77.7
Goods and services	612 658	163 426	107 879	34.0	82.4
Payments for financial assets	0	0	26	0.0	0.0
Capital assets	30 957	5 433	817	85.0	97.4
Transfer payments	8 274 545	2 135 413	1 595 924	25.3	80.7
Total	9 835 029	2 527 360	1 908 715	24.5	80.6

Source: DTI (2014c)

As noted in the table above, there was unbudgeted expenditure on the payments of financial assets amounting to R26 000 during the quarter.

4.5.1.1. Expenditure on Goods and Services

Within expenditure on goods and services, the largest spending was on the following line items:

· Stationery, printing and office supplies (R58.6 million);

· Travel and subsistence (R17.5 million);

· Consultants and professional services: business and advisory services (R5.3 million);

· Advertising (R3.7 million);

· Communication (R2.5 million);

· External audit cost (R2.4 million); and

· Contractors (R2.1 million).

In terms of goods, inventory and property payments had been under spent. However, there was significant over spending on advertising, consumable supplies, travel and subsistence, and consultants and professional services.

4.5.1.2. Transfer Payments

There was significant under spending in transfer payments by the DTI. Under spending in the first quarter was at 41 per cent amounting to R446.6 million. This was as a result of the following transfers not being made in the quarter:

· Industrial Development Zones (R53.5 million);

· SEZs: Investment Incentives (R130 million);

· ProTechnik Laboratories (R1.1 million);

· Isivande Women's Fund (R2.7 million); and

· South African Women's Entrepreneurs Network (R8.1 million).

In addition, there was significant under spending under the following incentive programmes:

· Manufacturing Competitiveness Enhancement Programme;

· Automotive Production and Development Programme; and

· Critical Infrastructure Programme.

In the 2012/13 financial year (previous year), there had been significant under spending in the same transfer areas.

Despite the large level of under spending in most of the transfers, it is important to note that there was over spending of R42.2 million in the EMIA incentive. However, in terms of the annual budgeted amount for this incentive, this is still within the annual budgeted allocation.

4.5.1.3. Expenditure on unbudgeted items

Payment for financial assets was not budgeted for in the 2014/15 financial year. However, in the first quarter there was an expenditure of R26 000 towards this item. Clothing material and accessories in another item that was not budgeted for in the first quarter, however, a total of R8 000 was spent.

4.6. Issues raised during the deliberations

The following concerns were raised regarding the performance of the DTI during the committee’s deliberations:

Renewable energy and/or regional development: The committee raised the issue with respect to job creation in renewable energy sector and whether government is considering the Eastern Cape and provinces other than Gauteng, KwaZulu-Natal and the Western Cape as possible destinations for future projects in this regard. Furthermore, the committee enquired whether the DTI is considering a SEZ specifically for agro-processing where certain provinces producing primary agricultural products may have a comparative advantage. The Minister informed the committee that a number of projects have been identified for the Eastern Cape and Free State provinces, including bio-fuel projects with the opportunity for the export of bio-ethanol to the EU. With respect to the SEZs, the DTI, together with provinces, is undertaking feasibility studies on the potential of establishing SEZs in the Wild Coast, which may include value-addition to cattle farming, and the platinum sector. There has been consultation around the SEZ for the platinum sector in Harrismith.

Economic impact of the DTI’s work: The committee acknowledged that the DTI is one of the best performing departments in government; however, a view was expressed that its actions had not necessarily translated into economic growth and job creation, given the decline in the manufacturing sector. The Minister acknowledged the decline in economic growth within the manufacturing sector, but disagreed with the assertion that the implementation of the IPAP had not yielded any positive results. He was of the view that progress had been achieved given the current global environment. The IPAP where it has been implemented has made a difference in the most vulnerable industrial subsectors such as the clothing and textile industry and had stabilised the sector and prevented further job losses given its economic reality. In addition, the implementation of a developmental trade policy provides a measure of tariff support for industries. The government’s decision to procure locally in support of local manufacturers, the introduction of incentives through the Manufacturing Competiveness Enhancement Programme, which saw an increase in the competitiveness of South African industries, had made a significant difference. He is further of the view that the decline in the mining sector was a major contributing factor with respect to economic growth. The Minister further implores that the challenges facing the economy must be seen against the background that South Africa has been a mining economy and that the commodity boom has passed.

Addressing constraints to sustained economic growth: The committee was of the view that a coordinated approach among all major stakeholders is critical to identify and address the constraints to sustained economic growth. The Minister agreed that a social dialogue is critical and emphasised that NEDLAC is the appropriate forum. The DTI is continuously engaging its social and economic partners to find consensus on key economic issues such as localisation, competitiveness and beneficiation.

The committee raised concerns around high administered prices, the security of the electricity and water supply and its impact on the manufacturing sector. The Minister acknowledged that high administered prices remains a challenge, especially for the manufacturing sector, and indicated to the committee that the DTI is having discussions with the National Port Regulator about port charges for manufactured goods, and hoped to address the matter through Operation Phakisa. The nuclear intergovernmental relations agreement is expected to contribute to the country’s energy supply security.

South African investors abroad: The committee was of the view that South Africa is still one of the most viable economies on the African economy which still attracts foreign direct investment. The committee enquired how the DTI was ensuring that business benefited from NEPAD projects, the impact of the rise of extremism on South Africa’s trade agreements and whether the DTI has measures in place to protect South African business globally. The Minister informed the committee that the “Code of Business Conduct for South African Companies Operating Abroad” needs to be finalised to ensure ethical business conduct on the part of South African businesses as this influences the reputation of “Brand South Africa”.

Youth enterprise development: The committee enquired about the status of the YEDS. The Minister informed the committee that the YEDS would migrate to the newly created Small Business Development Department. However, the Youth Accord requires that the DTI designates 80 per cent of jobs in the business process services sector to youth.

Development of black industrialists: The failure of black industrialist to emergence remains a major concern for the committee. The committee enquired whether the incentive programme to promote broadening participation in the mainstream economy of businesses owned by the previously disadvantaged communities has been effective and whether there is sufficient funding in the outer years to support the emergence of black industrialists. The DTI informed the committee that the bulk of incentives were paid to established companies. This did not reflect the economic reality of the need to promote the creation of black industrialists and direct incentives are required to address the emergence of black industrialists. It is important that incentives are not used to purchase imported goods but benefit local producers.

5. Financial and non-financial performance of identified entities

5.1. National Consumer Commission

The National Consumer Commission (NCC) was established by the Consumer Protection Act (CPA) (No. 68 of 2008) and became operational on 1 April 2011. The NCC’s core mandate is to assist in protecting consumer rights by increasing consumer awareness of what these rights are; investigating prohibited conduct by business; and enforcing compliance with the provisions of CPA.

This core mandate falls within the Department of Trade and Industry’s strategic objective to “create a fair regulatory environment that enables investment, trade and enterprise development in an equitable and socially responsible manner”. The NCC, therefore, has a critical role to play in empowering rural and low income consumers, who are often most affected by unfair business practices and least able to address these challenges.

According to the Act, the NCC’s functions include the:

· Development of codes of good practice relating to the provisions of the Act.

· Promotion of legislative reform through consultation with provincial consumer protection authorities, national organs of state, consumer protection groups, alternative dispute resolution agents and suppliers.

· Promotion of consumer protection within organs of state.

· Enforcement of the Act including the investigation and evaluation of any prohibited conduct and offences, issuing and enforcing compliance notices.

· Research to increase knowledge of the nature and dynamics of the consumer market.

· Promotion of public awareness of consumer protection matters.

· Liaison with other regulatory authorities on matters of common interest.

· Provision of advice and recommendations to the Minister.

The NCC’s strategic objectives are to (i) promote compliance with the Consumer Protection Act; and (ii) be a well-governed and capacitated organisation.

The NCC consists of 6 divisions, namely:

· The Office of the Commissioner

· Corporate Services: responsible for financial, supply chain, human resources, IT and records management.

· Enforcement and Investigations: responsible for the enforcement of the Consumer Protection Act through the facilitation of complaints handling and conducting investigations.

· Legal Services: responsible for the enforcement of the Consumer Protection Act through (i) applications to the National Consumer Tribunal for declaration of conduct as prohibited; (ii) the provision of legal opinions and advice to consumers, suppliers and other divisions of the NCC; and (iii) various projects related to the Opt-Out Register, the establishment of Codes of Good Practice, accreditation of Industry Codes and enforcing product labelling requirements.

· Advocacy, Education and Awareness: responsible for consumer advocacy, education and awareness and managing stakeholder relationships. It also profiles the NCC as a brand for consumer protection in South Africa.

· Research Analysis and Knowledge Management

5.1.1. Financial and non-financial performance as at end of March 2014

5.1.1.1. Non-financial performance

Seven of the 12 output areas were achieved. The five output areas not achieved were[22]:

· The percentage of complaints resolved on an average of 80 days. On average, complaints were resolved within 297 days due to large backlog of complaints from the 2012/13 financial year before the NCC changed its approach to complaints handling.

· The resolution of the backlog, 92 per cent of the initial 6 045 complaints were resolved. Non-referral letters were drafted for the outstanding complaints but had been undergoing quality control by the end of March 2014.

· Only one of the two targeted industry codes had been recommended to the Minister. The NCC was dependent on industries to approach it in this regard but will proactively identify and engage with industries to develop such codes.

· The development of the code of good practice for the return of vehicles within the motor industry had not been finalised by year end. This was dependent on the accreditation of the Motor Industry Code by the Executive Authority.

· A high level ICT (information and communication technology) strategy had not been developed due to insufficient internal capacity.

Furthermore, the NCC had adjusted some of its targets during this financial period. Targets concerning complaints handling had been adjusted upward due to improved efficiencies. Some targets related to investigations were adjusted downward to focus on investigations of trends rather than individual complaints and to accommodate capacity and financial constraints. The target to develop and implement a policy for the accreditation of consumer protection groups was deleted due to financial constraints. It was also noted that consumer protection groups required funding from the NCC, which it was unable to provide.[23]

In the 2013/14 financial year, the Auditor-General focused on the first strategic objective in terms of its usefulness and reliability. No material findings were found. However, material misstatements were found, which had been corrected.

5.1.1.2. Financial performance

The NCC received a transfer of R45.5 million from the DTI, a 5.8 per cent decrease from the 2012/13 financial year. It also received other income of R0.37 million in interest. The NCC spent R44.9 million, leaving a surplus of R0.95 million or 2.1 per cent of total revenue, which is within the accepted range of 5 per cent of revenue.[24]

Employee related costs amounted to R28 million or 62.4 per cent of total expenditure. Employee related costs increased by 22 per cent since the 2012/13 financial year.

Since its inception, the NCC had failed to provide a detailed breakdown of its operating expenditure, lumping many sub-categories within broader categories of administration and other operating costs. However, in the 2013/14 financial year, operating expenditure had a detailed breakdown under Note 18 of the financial statements. Operating expenses declined by R5.3 million or 26.1 per cent to meet the National Treasury’s call for the implementation of cost-cutting measures.

The NCC still had fruitless and wasteful expenditure of R3.6 million, mainly from that carried over since the 2012/13 financial year (R3.58 million). Irregular expenditure had been reduced from R14.9 million in the 2012/13 financial year to R6.9 million in the 2013/14 financial year. The causes of the irregular expenditure was mainly due to non-compliance with Treasury Regulations related to procurement and supply chain management. Although irregular and fruitless and wasteful expenditures remain high, these have significantly improvement from the 2012/13 financial year.

5.1.1.2.1. Auditor-General’s Report

The NCC received an unqualified audit opinion with findings. Table 12 provides an overview of the audit opinions over the last two financial years, as well as the findings the Auditor-General made in relation to the NCC’s financial statements.

Table 12: Audit opinions and key findings for the 2012/13 to 2013/14 financial years

Year	Auditor-General’s opinion	Emphasis of matters
2012/13	Qualified due to: • Irregular expenditure that could not be adequately confirmed due to supporting information being stolen from the NCC’s premises and inadequate filing of information. • Operating expenditure for the prior year was incorrectly allocated to the 2012/13 financial year.	• Significant uncertainties linked to disclosed contingent liabilities for a lawsuit and a claim for cancelling contracts and the retention of R2.8 million without Treasury approval. • The restatement of corresponding figures. • Material impairments as a result of long outstanding receivables.
2013/14	Unqualified with findings	• Significant uncertainties linked to various lawsuits amounting to R2.3 million and a disclosed contingent liabilities of R5.2 million due to the retention of funds without Treasury approval. • The restatement of corresponding figures in the 2012/13 financial year due to an error being discovered during the 2013/14 financial year.

Source: NCC (2013b) and (2014a)

Compliance with laws and regulations

Furthermore, the Auditor-General found non-compliance in terms of the following during the 2013/14 financial year:

· Accumulation of surpluses without National Treasury approval.

· Financial statements submitted for auditing was not in accordance with the prescribed financial reporting framework.

· Material misstatements of property, plant and equipment, as well as the provision for leave pay.

· The preference point system was not applied in all procurement of goods and services above R30 000.

· The accounting authority did not take effective steps to prevent irregular and fruitless and wasteful expenditure.

Internal control

The Auditor-General found that:

· The accounting officer had not exercised sufficient oversight over financial reporting and compliance with laws and regulations and related controls.

· Management had not implemented proper record keeping to ensure complete, relevant and accurate information that was accessible and available to support the procurement of goods and services.

5.1.2. Human resources

The NCC approved its new structure during the 2013/14 financial year. The structure has 182 approved posts, of which 72 (39.6 percent of all available posts) were filled at the end of March 2014. The highest vacancy rate was within the Enforcement and Investigations Programme (62 per cent). [25]As most of the vacant positions are not funded and increases in the budget over the 2014/15-2016/17 period will not be adequate to fund all the vacancies, the NCC has decided to revisit the structure and identify the critical posts. Other approved posts that are not critical may be abandoned.

Staff appointed outside of the approved structure had been incorporated into the structure based on a skills audit.

On 31 March 2014, the demographics of the staff complement is 100 per cent black employees, mainly African employees and two Indian males. In terms of top and senior management, 31.3 per cent of managers were female. The NCC also employed two persons with disabilities (2.8 per cent of the staff complement).

Although there had been no training budget allocated for the 2013/14 financial year, the NCC had held in-house training by experts within the NCC on the Consumer Protection Act to close its skills gap.

5.1.3. Financial and non-financial performance as at end of June 2014

5.1.3.1. Non-financial performance

The NCC reported that it had fully achieved 15 of its 20 first quarter targets. It highlighted a number of quarterly achievements, including[26]:

· Conducting four targeted inspections on 65 retailers within nine municipalities in two Provinces. These inspections focused on whether the following areas were aligned to the Act: returns, refunds, labelling and expired goods. The NCC found altered and falsified labelling as well as no labelling of ingredients and the name of the producer on certain foodstuffs. The NCC will conduct follow-up inspections to ensure that there is adherence to consent agreements.

· Recalling several products during the quarter for safety reasons. Some of these recalls have been due to proactive monitoring of products on global markets.

· Improving the NCC’s visibility and awareness of consumer protection matters. This has included exposure in three newspapers (City Press, Beeld and Times Media), on community and national radio stations (such as Palaborwa Radio Station, Phalaphala FM, Northwest Radio Station and SA FM) and on television (including ENCA TV, SABC Newsroom and ANN7).

The five quarterly targets that were not fully achieved were:

· The proportion of complaints analysed within eight working days of receipt: Only 76 per cent of registered complaints were analysed or assessed within 2 working days compared to the target of 95 per cent. The remaining complaints had been analysed by the end of July 2014. The NCC would endeavour to implement standard assessment criteria for different categories of complaints to improve the understanding of assessments by staff.

· The proportion of complaints resolved within 60 working days of receipt: the NCC had resolved 51 per cent of registered complaints within ten working days compared to the target of 70 per cent. The NCC explained that the delays in resolving the other complaints was mainly due to email system failure following power outages. It should be noted that the targeted time period had been lowered from 80 days to 60 working days within which complaints should be resolved in as listed in its Annual Performance Plan. However, this difference may be attributable to the non-working days in the 80 day period.

· The number of research reports completed and signed off by the executive committee: The NCC had planned to have identified a research project and have the proposal signed off by the executive committee during the first quarter. The research proposal had been submitted to the Deputy Commissioner but had not been submitted to the executive committee at the time.

· Up to date risk register and risk strategy: The NCC had planned to review its risk register and implementation strategy, present the review to the executive committee and have it approved by the Commissioner by the end of June 2014. The risk register had been reviewed and the risk assessments were done. However, the implementation strategy had not been reviewed in the first quarter. This has been finalised during the second quarter. It should be noted that there is no record of this target within the NCC’s 2014/15 Annual Performance Plan.

· Proportion of positions filled: The NCC had advertised 28 positions in the latter part of the 2013/14 financial year. The shortlisting and interviews had been finalised for 22 posts with 20 of these positions being filled. At the end of June 2014, two offers were pending and the remaining 6 positions would be finalised in the next quarter.

Furthermore, the NCC highlighted a number of challenges to it achieving its mandate, namely:

· A 60.4 per cent vacancy rate at the end of June 2014, while only 45.1 per cent of its approved positions were funded. Hence only 10 of the vacant positions could be financed. It would be undertaking a formal restructuring to potentially abandon some of these unfunded, vacant positions.

· Major skills shortages within the NCC and an inability to initiate a proper skills upgrade programme due to insufficient funding. In the interim, the NCC is providing internal training to staff.

· Occasional backlogs requiring employees within the Enforcement Division to work overtime.

· The existence of irregular expenditure arising from the lease of its premises being procured in an irregular manner. The cost of cancellation and possible relocation make it unfeasible for this to be rectified in the short term; however, the lease contract will expire within the next two years.

5.1.3.2. Financial performance

The NCC has been allocated R53.4 million for the 2014/15 financial year, a 20 per cent increase from the previous financial year, which is in line with the committee’s recommendation made within its previous BRRR. As at 30 June 2014, the NCC had received 60 per cent of its grant revenue from the DTI and interest income of R290 719. It had also spent 21.4 per cent of its annual budgeted expenditure. The NCC reported that its under spending of operating expenses is related to disputed telephone accounts and lower audit costs than in previous years.

It should be noted that the annual planned expenditure may be too low given the need for the NCC to decrease its vacancy rate, as its work is dependent on skilled labour.

Table 13: Budgeted versus actual revenue and expenditure as at end June 2014

	Annual budget	Actual 1^st Quarter	Available budget (%)
Revenue
Grant revenue from the DTI	53 376 000	32 026 000	40.0
Other income	0	290 719	n/a
Total revenue	53 376 000	32 316 719	39.5
Expenditure
Employee related costs	32 338 000	7 919 728	75.5
Amortisation and depreciation	745 000	436 360	41.4
Operating expenditure	21 038 000	3 088 073	85.3
Total expenditure	53 376 000	11 444 161	78.6
Surplus/(deficit)	0	20 872 558	n/a

Source: NCC (2014b) and (2014c) and the National Treasury (2014c)

5.1.4. Key issues raised by the committee

The following concerns were raised related to the performance of the NCC during the committee’s deliberations:

Insufficient resources: Although the committee welcomed progress made by the NCC, especially in terms of improving its governance and implementing the required systems, it was concerned about the NCC’s ability to achieve its broad mandate given the high vacancy rate, inadequate skills of existing staff and inadequate funding. It inquired what the appropriate level of resources would be so that the NCC is able to protect consumers. The Minister initially approved a structure of 132 persons. However, the former Commissioner had appointed an additional 38 employees that fell outside the approved structure. The Minister advised the NCC in September 2012 to absorb these employees by increasing the structure of the NCC for the sake of stability. A number of these were employed within the contact centre. The NCC’s new approved structure consists of 182 posts due to the situation it was facing at that time. The NCC will be engaging in a restructuring process to align its posts with its new strategy and the needs of the organisation.

Skills audit: The committee required clarity on the status of the skills audit.

Backlogs: The committee was concerned about the backlogs in the NCC given the high number of unfunded posts and the skills levels. The NCC explained that backlogs were due to the lack of human capacity to deal in combination with an influx of the complaints and its initial approach to deal with individual complaints rather than referring these to the appropriate industry bodies where they exist. The NCC has changed its strategy to collaborate and co-operate with industry. Conciliations will now be done by industries once industry codes are accredited.

Fruitless and wasteful expenditure: The committee inquired whether the NCC was able to recover this expenditure, particularly the professional legal fees paid on behalf of the former Commissioner. Furthermore, the committee sought clarity on the circumstances surrounding the interest and penalty paid to the South African Revenue Service. With reference to recovering the legal fees of personal nature, the NCC had instructed attorneys to recover funds that appeared to be recoverable. The SARS incident was an isolated case. SARS should be paid monthly and in this instance, sign-off by the former Commissioner was not received on time and the payment was late that month.

Criminal liability in relation to irregular expenditure: The committee sought clarity on the status of disciplinary action taken against officials in relation to irregular expenditure incurred or permitted under the former Commissioner and whether there are cases for criminal prosecution. In addition if any recovery processes have been initiated. Approximately 10 employees had recently been charged on omissions or commissions while serving on bid committees that had led to irregular expenditure in terms of the lease of the NCC’s premises. With regards to criminal liability, criminal complaints were being lodged with the police and the prosecution would depend on the National Prosecuting Authority.

Audit action plans: The committee sought clarity on the status of the 18 action plans that were in progress.

5.2. National Credit Regulator

The National Credit Regulator (NCR) is an entity of the Department of Trade and Industry which is aligned to two of the Department’s strategic objectives of:

· Facilitating broad-based economic participation. In this regard the NCR is tasked with promoting increased access to credit through responsible credit granting and continually enhancing a consumer credit market regulatory framework.

· Creating a fair regulatory environment that enables investment, trade and enterprise development in an equitable and socially responsible manner. In this respect the NCR is responsible for protecting consumers from abuse and unfair practices in the consumer credit market and address over-indebtedness.

The NCR’s mandate of promoting increased access to credit through responsible credit granting and continually enhancing a consumer credit market regulatory framework and protecting consumers from abuse and unfair practices in the consumer credit market and address over-indebtedness is implemented through the following activities:[27]

· Registering of credit providers, credit bureaus and debt counsellors and monitoring the compliance of these entities with the National Credit Act (No. 34 of 2005).

· Education of consumers and promotion of public awareness on the protection afforded by legislation and the role of the NCR.

· Receive and investigate consumer complaints.

· Enforce the Act and take action against parties that contravene it.

· Research on trends in the consumer credit market.

· Monitor access to credit to identify factors that might undermine access, competitiveness and consumer rights.

· Advise government on policy and legislation in relation to the consumer credit market and industry.

The NCR’s work is presented in the entity’s four strategic objectives. These are:

· The promotion of increased access to credit through responsible credit granting;

· The protection of consumers from abuse and unfair practices in the consumer credit market and address over-indebtedness;

· The continuous enhancing a consumer credit market regulatory framework; and

· Monitoring and improving NCR’s effectiveness in fulfilling its mandate.

Figure 2: Budget per Strategic Programme: 2013/14 Financial Year

Source: NCR (2014a)

5.2.1. NCR’s 2013/14 non-financial performance

The table below describes the NCR’s performance against its planned targets per strategic objective. The performance side of the table shows the NCR’s performance as per the Annual Report 2013/14.

Table 14: Key interventions and performance for the NCC

Strategic Objectives	Key Interventions	Performance
Promoting increased access to credit through responsible credit granting.	Report on implementation of recommendations	Achieved
	Final functional specification document of the NRCA database Management system produced.	Achieved
	Establishment of NCRA Steering Committee.
	Develop proposal on affordability assessment guidelines	Achieved
Protecting consumers from abuse and unfair practices in the consumer credit market and address over-indebtedness	Consumer rights awareness strategy: Produce a report on Implementation of the strategy.	Achieved
	Enforcement Strategy: Produce a report on implementation of the strategy.	Achieved
	Stakeholder strategy: Produce a report on implementation of the strategy	Achieved
Continually enhancing a consumer credit market regulatory framework	2 credit bureau investigations conducted. Enforcement action taken in terms of section 43, 70, 71, 72 and regulations 17 to 20 of the Act.	Achieved
	On-site guidelines to be approved and 12 on site visits to be conducted.
Monitoring and improving NCR’s effectiveness in fulfilling its mandate	50% positive response rate.	Achieved
	Functional Complaints ICT	Achieved
	Go live registrations sub system.	Not achieved: Registrations sub system did not go live as planned

Source: NCR (2014a)

5.2.1.1. Registration

The total number of entities registered with the NCR as at 31 March 2014 were 5 724 credit providers with 45 508 branches; 13 credit bureaus; and 2 105 debt counsellors.

5.2.1.2. Compliance monitoring

Credit providers registered with the NCR are required to submit standardised compliance reports and assurance engagement reports on an annual basis. These reports provide the NCR with an indication of whether or not the credit providers comply with the Act. During the 2013/14 financial year, a total of 14 onsite visits were conducted.

5.2.1.3. Consumer Education and Communication

During 2013/14, the NCR addressed 316 workshops organised in partnership with non-governmental organisations, trade unions, employers, traditional authorities, government departments and organisations in the credit industry.

5.2.1.4. Investigations and Enforcement

A total of 153 investigations were approved during the year. The priority investigation issues were:

· reckless lending;

· affordability assessments;

· proper disclosure (pre-agreements and contracts);

· unlawful retention of bank cards, identity documents and pin codes;

· excessive fees and interest;

· conduct of debt counsellors; and

· credit bureaus’ compliance.

5.2.1.5. Debt Counselling

During the 2013/14 financial year, a total of 468 proactive and reactive compliance monitoring visits were conducted on debt counsellors nationally.

5.2.2. Financial performance

The NCR’s spending patterns for the 2013/14 financial year show that the NCR has underspent in all of its programmes. The underspending has been as much as 15 per cent in each of the programmes. The graph below shows spending per programme for the period under review.

Figure 3: Spending per programme: 2013/14 Financial Year

Source: NCR (2014a)

5.2.2.1. Auditor General’s Report

The NCR received an unqualified audit for the 2013/14 financial year. However, the Auditor General put emphasis on a matter pertaining to a material impairment of R9.7 million which was incurred as a result of a change in accounting estimates for provision for bad debts. Furthermore, the Auditor General raised concerns with the entity’s design and implementation of formal controls over the IT systems and the evaluation and protection of information.

5.2.3. Human Resources

The NCR had employed a total of 135 people as at the end of the 2013/14 financial year.

The demographics of the staff complement was 95 per cent black employees. Female employees accounted for 67 per cent of total employees while people with disabilities accounted for 1.4 per cent.

Table 15: Employment statistics as at end March 2014

Filled posts	135
Fixed contract	6
Learners	20
Black employees (% of total employees)	95.0
Female Employees (% of total employees)	67.0
Employees with disabilities (% of total employees)	1.4

Source: NCR (2014a)

5.2.4. Financial and non-financial performance as at end of June 2014

5.2.4.1. Non-financial performance

For the 2014/15 financial year the NCR has revised its Annual Performance Plan. The new APP accounts for a total of 13 targets. Of the 13 targets, 11 were planned to be achieved from the first quarter of the year. During the first quarter, all 11 targets were met and 4 were exceeded. The NCR highlighted the following achievements[28]:

· Implementation of a new strategy to combat unlawful advertisements. As a result of this strategy, the number of compliance notices issues for the quarter was exceeded.

· The regulations became effective from 1 April 2014 hence the target for workshops held was exceeded.

· The removal of credit information was a topical issue that resulted in the target for interviews and news coverage of the NCR to be exceeded.

5.2.4.2. Financial performance

There are two main sources of NCR’s incomes, funding from the Department and registration fees. In the first quarter, funding from the Department accounted for 83 percent of the NCR’s income and represents 67 percent of the expected annual transfer from the Department. While registration income accounted for 15 per cent of total income.

Personnel costs, premises and equipment, and Consumer education are the biggest cost items on the NCR’s expenditure.

By the end of the first quarter of 2014/15 financial year, the NCR spent 71.4 per cent of the projected expenditure for the first quarter. The NCR also received R1.3 million more income than the expected income, translating to 2.8 per cent more income for the same period. The following reasons were provided for this variance:

Income:

· Income from registration fees was 17 per cent higher than expected

· The NCR received unexpected income amounting to R370 1720 from the National Loans Register and other income from insurance claim, billboard advertising, and Bankseta amounting to R142 604.

Expenditure:

· Capital expenditure was 92 per cent less than the budgeted amount.

· There was also underspending on professional fees and debt relief costs.

Table 16: Budgeted versus actual revenue and expenditure as at end June 2014

R’000	1^st Quarter budget	1^st Quarter actual	Variance (%)
Income
Fees from registration	5 654 112	6 659 620	17.8%
DTI Transfers	38 307 066	38 307 000	0.0%
Fees from National Loans Register	-	370 172	100%
Other income	-	142 604	100%
Interest received	669 000	413 010	-38.3%
Total income	44 630 178	45 892 406	2.8%
Expenditure
Personnel Costs	15 877 986	16 610 454	4.6%
Premises and Equipment	1 356 075	2 132 949	57.3%
Communication	331 489	392 595	18.4%
Information Technology	547 875	561 177	2.4%
Professional Fees	1 004 000	868 636	-13.5%
Consumer Education	1 524 384	1 351 368	-11.3%
Stakeholder Communication	412 894	309 182	-25.1%
Debt Relief	239 737	93 307	-61.1%
General expenses	1 011 196	1 124 854	11.2%
Total expenditure	22 305 636	23 444 522	5.1%
Capital expenditure
Total Assets	3 971 263	855 988	-78.4%
Projects	7 721 454	0	-100.0%
Capital expenditure	11 692 717	855 988	-92.7%

Source: NCR (2014b)

However, expenditure on premises and equipment was 57 percent more than the budgeted amount for the quarter at R2.1 million while the budgeted amount was R1.3 million. This variance is said to be due to depreciation of assets which was not budget for.

Additional funding request:

The NCR informed the committee that it required an additional R15.7 million for the 2014/15 financial year. In order to make up this shortfall, the NCR has suspended its ICT project (R7 million), instituted budget efficiencies of R4 million and has reduced spending on professional fees by R4.7 million. The budget efficiencies is partially possible as the NCR has taken a decision to consolidate bi-annual impact assessment studies on the NCR’s effectiveness to one assessment. Apart from the current operational expenses, the NCR’s mandate will expand once the National Credit Amendment Act (No. of 2014) becomes enforceable and additional funding is required to exercise these new responsibilities.[29]

5.2.5. Key issues raised by the committee

The following concerns were raised related to the performance of the NCR during the committee’s deliberations:

Absenteeism of members serving on the board and on the audit and risk committee: The committee noted with concern the rate of absenteeism of members serving on the Board, and the audit and risk committee and requested that the NCR provide clarity in this regard. The NCR informed the committee that it had raised the issue of absenteeism with the DTI who is represented on the board. The amendments to the National Credit Act changed the NCR’s governance structure to only consist of an audit committee and not a full board. As a result of this amendment, the board members were informed that their term of office had expired. The powers that were previously vested with the board have been devolved in terms of section 49 of the PFMA and now reside with the Chief Executive Officer.

Site visits: The committee raised a concern that the target for the number of site visits planned had been set too low. The NCR informed the committee that site visits are one of the tools it utilised when monitoring credit providers’ compliance with the Act. The NCR also relied on accounting officers or auditors who are required to submit and report on any contravention of the National Credit Act annually in the course of an audit, as well as on complaints received from consumers.

Cost of credit: The committee enquired when the exercise on the reduction of the cost of credit to consumers would be completed. The NCR informed the committee that as a result of the need to comply with the supply chain management processes as stipulated in the PFMA, the process was delayed but that a service provider had been appointed. The NCR informed the committee that the NCR should be able to submit its first report on the matter by the end of the 2014/15 financial year.

Issuing of compliance notices: The committee was concerned that only six compliance notices were issued during the 2013/14 financial year.

Research recommendations: The NCR informed the committee that it had completed its implementation plan with respect to the research recommendations from its stakeholder assessment surveys. The committee enquired where it can access this. The NCR responded that the research recommendations are available on the NCR’s website.

Nature of complaints: The committee enquired into the nature of complaints received by the NCR. The NCR informed the committee that most of the complaints relate to the overcharging of interest and fees as well as additional fees which are not allowed in terms of the Act. The NCR informed the committee that they referred matters to the National Consumer Tribunal where consumers are charged service fees which are not allowed in terms of the Act. There are only three costs allowed in term of the Act, which are interest, initiation costs, and monthly service charges.

Internal control matters: The committee enquired about the audit action plans to address the findings related to internal controls. The NCR informed the committee that the necessary action plans have been implemented to address shortcomings highlighted by the Auditor General. These action plans are also monitored by the DTI on a quarterly basis.

Professional fees: The committee enquired to what constitutes professional fees as reflected in the first quarterly financial report. The NCR informed the committee that between 80 and 90 per cent consist of legal fees as the NCR is a regulator. The NCR requires the services of attorneys to represent it during hearings with the NCT.

5.3. Companies and Intellectual Property Commission

The Companies and Intellectual Property Commission (CIPC) was established through the merging of the Companies and Intellectual Property Registration Office (CIPRO) and the Office of Companies and Intellectual Property Enforcement (OCIPE). The Companies and Intellectual Property Commission (CIPC) was established by the Companies Act (No. 71 of 2008) and became operational on 1 May 2011. The mandate of CIPC is to mainly administer the country’s legislation relating to the regulation of corporate and intellectual property through registering businesses, intellectual property rights and cooperatives; promoting compliance and enforcement of the Companies Act; and promoting education and awareness on matters of company and intellectual property laws.[30]

The Companies and Intellectual Property Commission’s (CIPC) strategic objectives are:[31]

· To encourage the formalisation of South African businesses and their identity.

· Encourage the maintenance of high standards of corporate governance, transparency and brand protection.

· To promote the protection and commercial exploitation of innovations in key sectors.

· To protect our cultural heritage and support a strong competitive South African creative industry that provides benefit to local artists.

· To provide easy access to credible, reliable and relevant information and advice and secure, value-added services.

· Build an enabling and intelligent work environment anchored in a governed and sustainable organisation.

· To improve the reputation and organisational performance of CIPC.

5.3.1. Issues raised in the Budget Review and Recommendations Report (2012/13)

· Call centre management: the Portfolio Committee noted its concerns regarding number of calls not being answered by the CIPC and the low target set by the CIPC in this regard. This was a recurring as the issue of accessibility of the CIPC through their call centre, website and other media had been raised before.

· Performance: the Committee suggested that the number of calls received and answered be measured and become part job description, and will be measured against performance to ensure that staff attends to calls to ensure that people take responsibility for calls. The Swedish model that was to be roll-out is based on implemented a switch board system which will have people with knowledge of the CIPC answering the phone instead of a call centre model.

5.3.2. Performance information: 2013/14 financial year

5.3.2.1. Non-financial performance

For the financial year 2013/14, CIPC reported on a total of twelve (12) indicators and targets are in alignment with those stated in the 2012/13 Annual Performance Plan. Of the 12 performance indicators, 8 targets were achieved or exceeded and while four (4) were not fully achieved.

The performance indicators which were not achieved were the:

· Percentage of companies that have complied with the filing of annual returns as prescribed.

· Percentage of investigations completed within the published service standard.

· Percentage of copyright in film applications allocated an official application number within the published service standard.

· Percentage of calls answered during the reporting period.

Of the achieved targets, it is noteworthy that the set targets are low. Especially since those targets were exceeded in the previous financial year.

The CIPC revised its strategic plan during the financial year. This was a result of the Auditor General’s 2012/13 findings on the performance information of the entity. The Strategic Plan (2013/2014 – 2016/2017) and the Annual Performance Plan (2013/14) were then tabled as the revised plans. The APP and BP were revived to ensure that the entity’s performance information meet the SMART[32] criteria and to ensure that performance information is reliable, verifiable, well defined, relevant, cost effective and appropriate. The revision was approved by the Minister and incorporated into the 2013/14 performance (See page 28 – page 30 of the Annual Report).

5.3.2.2. Human Resources Performance

The CIPC’s key employment statistics are reflected in the table below:

Table 17: Employment statistics as at end March 2014

Total posts	640
Total Employment	450
Number of vacant posts	190
Vacancy rate (% of total available posts)	29.7
Black employees (% of total employees)	84.4
Female Employees (% of total employees)	60.9
Employees with disabilities (% of total employees)	1.6

Source: CIPC (2014a)

The CIPC restructured its organisation at the end of June 2013 and its new approved posts total 640. By the end of the 2013/14 financial year, 450 people were employed, and 190 posts were vacant. This results in a vacancy rate of 29.7 per cent. This rate is high given that the CIPC is a service delivery entity and its main resources are its employees.

The demographics of the staff complement is 380 black employees. Female employees accounted for 60.9 per cent of total employees while people with disabilities accounted for 1.6 per cent, lower than the target of 2 per cent.

5.3.2.3. Financial performance

For the 2013/14 financial year, CIPC’s revenue amounted to R455 million, showing a 14.6 percent increase from the 2012/13. Revenue from exchange transactions[33] contributed 47 percent to total revenue, while revenue from non-exchange transactions[34] accounted for 53 percent. Revenue from exchange transactions had been increasing by 9.4 percent and revenue from non-exchange transactions increased by 20.2 percent in the 2013/14 financial year when compared to the 2012/13 financial year.[35]

In terms of expenditure, the CIPC spent R309 million, an increase of 7.3 per cent from the previous financial year. Employee costs amounted to R186.8 million and 60 percent of total expenditure, followed by consulting and professional fees at R34.3 million and operating leases for property at R24 million.

In the last financial year’s engagement with the CIPC, it was noted by the entity that it was intending to invest in improving its ICT systems. In this regard, CIPC indicated that it will be investing R30 million in the 2013/14 financial year. For the current financial year, CIPC has spent a total of R21.4 million on computer hardware (R17 million) and on computer software (R4.3 million).

5.3.2.4. Auditor General’s report

The Auditor General’s opinion was unqualified with emphasis of matters, however, raised concerns in the area of leadership, financial performance and management, and governance.

In terms of leadership, the areas of concern are:

· The oversight responsibility regarding financial and performance reporting and compliance and related internal controls.

· The establishment and communication of policies and procedures to enable and support understanding and execution of internal control objectives, processes, and responsibilities.

· Developing and monitoring of the implementation of action plans to address internal control deficiencies.

In terms of financial performance and management, the area of concern is the implementation of proper record keeping in a timely manner to ensure that complete, relevant, and accurate information is accessible and available to support financial and performance reporting.

This concern is articulated in the Auditor General’s report which is on page 55 of the Annual Report where the Auditor General notes that he was unable to obtain the necessary information to verify the reliability of reported performance information.

On page 56, the Auditor General notes that “…management did not data validation processes and implement corrective action in order to ensure that performance information is supported by reliable reports. Furthermore, management did not have sufficient controls to ensure that source documentation supporting actual achievements was available”.

Furthermore, the Auditor General noted that the CIPC’s management did not take effective steps to timeously monitor compliance with applicable laws and regulations to prevent irregular expenditure.

In terms of governance, the areas of concern are the design and implementation of formal controls over IT systems to ensure the reliability of the systems and the availability, accuracy and protection of information.

5.3.3. Financial and non-financial performance as at end of June 2014

5.3.3.1. Non-financial performance

The CIPC’s revised Annual Performance Plan identifies 23 targets for the 2014/15 financial year. During the first quarter, 78.3 per cent or 18 of the targets were met. The CIPC highlighted the following achievements[36]:

· Growth in the proportion of online transactions for company registrations, director changes, trademarks, patents, designs and copyright in film applications. New systems have been introduced to facilitate online transactions. These increased transactions include those via First National Bank and the elf-service terminals.

· 1 211 business rescue notices had been filed since May 2011. For the first quarter of the 2014/15 financial year, 84 notices were filed. Only 447 businesses (36.9 per cent of total number of notices) have ended their business rescue proceedings, of which 169 businesses (37.8 per cent of ended business rescue proceedings) had substantially implemented their business rescue plan over the previous three financial years leading to their financial rehabilitation.

The CIPC provided the following explanations for underperformance[37]:

· Percentage of companies registered manually within 25 working days: The CIPC underperformed by 2 percentage points. The delays were due to the implementation of the e-mail indexing solution.

· Percentage of cooperatives registered manually within 21 working days: The CIPC underperformed by 2 percentage points. This was due to system down times.

· Percentage of online design applications: The CIPC underperformed by 2 percentage points. The big firms, namely Spoor and Fisher and Adams & Adams, have not been utilising the electronic system.

· Percentage of calls answered that come through the call centre number during the reporting period: The CIPC targeted that 60 per cent of calls would be answered; however, only 21 per cent were answered during the first quarter. The low answer rate was due to staff adjustment challenges and the need to balance answering calls and ensuring normal production.

· Number of self-service terminals installed and operational: twelve of the 13 planned terminals were operational, although the CIPC had installed 13 terminals. The thirteenth terminal had been installed at Maponya Mall in Soweto in partnership with the National Youth Development Agency. However, the Department of Home Affairs was reluctant to provide access to its biometric fingerprint database, which is essential for the terminal to work. The National Youth Development Agency is responsible for acquiring this authorisation for the terminal to be activated.

The CIPC intends to implement a query resolution strategy to improve its service to business. This should address:

· The capacity of call takers to resolve queries in terms of their skills and workloads.

· The ICT and telephony challenges.

Furthermore, a dedicated office is planned at the Johannesburg Stock Exchange for listed companies and their subsidiaries, which is expected to be operational in November 2014. A dedicated e-mail service is currently available for these companies for their share capital changes, name changes and other Memorandum of Incorporation amendments.

5.3.3.2. Financial performance

The CIPC earns revenue from its business activities including the registration of companies and cooperatives, annual returns from companies and closed corporations and registration and administration of intellectual property rights. For the 2014/15 financial year, the CIPC projected earnings of R393.4 million. More than half of the revenue is expected to be derived from annual returns of companies and closed corporations (35.8 per cent and 19.3 per cent respectively), while registration and administration of intellectual property rights forms 23.6 per cent of its projected income.

At the end of June 2014, the CIPC had earned R101.1 million, 25.7 per cent of the projected annual revenue and 2.8 per cent more than the projected income by the end of the first quarter. Revenue from annual returns exceeded the first quarter target by 25.6 per cent. However revenue from trademarks and copyright lagged behind by 60.8 per cent and 77.2 per cent respectively. Other income was generated from recovery of expenditure for private telephone calls from staff, bursary debt and the sale of tender documents. Furthermore, the CIPC has also retained earnings to the value of R1.4 billion, of which R453 million will be used for special initiatives or projects over the MTEF period.

The CIPC spent less than 56 per cent of its projected expenditure as at the end of June 2014. The following reasons were provided for this large variance:

· Remuneration cost: Compensation of employees was 23 per cent lower than projected as advertised posts were provided for but had not been filled.

· Audit fees: 77 per cent of the projected audit fees for internal and external audit, performance and computer audits were not spent. Only the internal audit services had been paid for.

· Communication costs: Communication costs have been underspent by 93.6 per cent in the first quarter. There has been some savings under this line item as the cost of private phone calls are recovered from staff. However, for this financial year, about R9.2 million has been committed to posting Annual Return deregistration letters.

Table 18: Budgeted versus actual revenue and expenditure as at end June 2014

R’000	Total budget	1^st Quarter budget	1^st Quarter actual	Variance (%)	Available budget (%)
Income
Revenue	393 444	98 361	101 123	2.8	74.3
Other income	0	0	51	n/a	n/a
Interest	43 000	10 750	19 950	85.6	53.6
Total income	436 444	109 111	121 124	11.0	72.2
Operating expenditure
Operating expenditure	402 607	104 069	73 997	28.9	81.6
Special projects – OPEX[38] allocation	22 043	5 511	183	96.7	99.2
Total expenditure	424 650	109 580	74 180	32.3	82.5
Capital expenditure
Operational: Capital Expenditure	26 100	6 425	2 901	54.8	88.9
Total: operating and capital expenditure	450 750	116 005	77 081	33.6	82.9
Closing surplus/(deficit) – OPEX Budget	-14 306	-6 894	44 043	738.9

Source: CIPC (2014b)

5.3.4. Key issues raised by the committee

The following concerns were raised related to the performance of the CIPC during the committee’s deliberations:

Turnaround times for application processing: The committee welcomes the continuous improvement in service delivery but was still concerned that it takes five working days to allocate an application number and 25 working days for manual registration of a company. While the CIPC has achieved 92 per cent of the service delivery standards, the committee is of the view that the service delivery standard is still too long and should be reduced over time. The committee noticed that the baseline targets of 2013 had been reduced which has allowed the CIPC to over-achieve on those targets. The CIPC informed the committee that the matter regarding the low targets has been discussed but that the main concern was the need to balance the target against the need to provide the necessary scope to stabilise and improve query resolution and call taking within the organisation, hence the low targets. Although the CIPC has shown improvement with respect to the registration of businesses, the name reservations process required more innovation and improvement with respect to the turnaround time. The CIPC informed the committee that the target for manual registration was specifically set to encourage movement towards electronic transactions with more resources allocated to the latter process.

Dispute with staff related to new query resolution function: The committee was alarmed by a note on page 27 of the Annual Report, which indicated that staff were being discouraged from taking calls by one of the representative trade unions which would have a negative impact on business trying to access the CIPC. The CIPC informed the committee that the central issue with staff has been around change management. The change in the job descriptions which added query resolution as a result of the redesigning of the organisation impacted on the job grade. The CIPC staff were now required to not only to capture information but also to provide resolutions to queries as a result of the move towards digital resolutions. This change in job grading required further discussion with the staff and unions to find an amicable resolution.

Ease of doing business: The committee enquired about the World Bank’s “Doing Business 2013” report which ranked South Africa eight places lower to 64 and whether it could be related to long service delivery standards. The CIPC informed the committee that the reference to the international ranking is relative and not necessarily indicative of company registration only but includes value-added tax registration and other licences. The CIPC is of the view that as a country there is always room for improvement. The CIPC indicated that it was currently in discussions with other departments on ways to improve turnaround times for registrations. Since 12 September 2014, the CIPC has a direct link with the SARS which is expected to improve future rankings.

Cost of services: The committee enquired whether the move towards self-service centres and the new website would make services provided by the CIPC cheaper or whether it would increase the cost to maintenance of the CIPC’s infrastructure. The CIPC informed the committee that it received approval from the National Treasury to increase its fees by five percent annually but would likely move towards providing free services to consumers. A recent study done by the Swedish Office indicates that offices that are expected to be self-sustaining, such as the CIPC, fall within the lowest quartile in the world with respect to fees.

Presence of “runners”: The committee enquired about the “runners” operating as agents and intermediaries when the public is registering their companies at the CIPC and whether the CIPC had addressed the matter. The CIPC acknowledged the existence of “runners” but has put systems in place to increase the public’s awareness and to mitigate against the use of “runners”. It is also important that the CIPC’s staff are educated around ethical behaviour supported by a fraud prevention plan which are currently being implemented. A whistle blowing campaign had been launched.

Resolution of governance challenges: The committee noted certain challenges raised by the Auditor General with respect to governance, such as the design and implementation of formal controls over IT systems and the occurrence of irregular expenditure. The CIPC acknowledged the challenges raised but informed the committee that it had brought these issues to the Auditor General’s attention. There has been continuous engagement with the Auditor General’s office to address these shortcomings. The CIPC has implemented an audit matrix that reflects the issues that requires to be addressed with specific timelines. Monitoring mechanisms are built into the process overseen by an internal risk committee.

5.4. National Gambling Board

The National Gambling Board (NGB) is mandated through the National Gambling Act (No. 7 of 2004) to oversee gambling activities within South Africa. Legalised gambling activities are gambling at casinos, bingo halls and on limited payout machines, as well as betting with a bookmaker and wagering on horse racing and other sport.

According to the Act, the NGB’s functions include:

· Monitoring and investigating the issuing of national licences by provincial licensing authorities for compliance.

· Investigating, monitoring and evaluating the compliance monitoring by provincial licensing authorities of licensees.

· Ensuring that national norms and standards established by the Act are uniformly and consistently applied by provincial licensing authorities.

· Establishing and maintaining a national register of excluded persons, a national central electronic monitoring system to monitor gambling activity on limited payout machines, and a national register of gambling machines and devices.

· Advising the National Gambling Policy Council on licensing of gambling activities, matters of national policy and on the determination of national norms and standards regarding any matter in terms of this Act.

· Monitoring socio-economic patterns of gambling activity within the Republic relating to the socio-economic impact of gambling, and addictive or compulsive gambling.

· Providing a broad-based public education programme about the risks and socio-economic impact of gambling.

· Monitoring market share and market conduct in the gambling industry for any concerns regarding market share or possible prohibited practices in terms of the Competition Act (No. 89 of 1998).

The NGB has three programmes, namely[39]:

· Stakeholder Liaison and Legal: responsible for providing strategic co-ordination and promoting liaison at local and international levels with various stakeholders.

· Corporate Services: responsible for providing support functions such as human resources, financial management and information technology infrastructure support.

· Compliance and Monitoring: responsible for implementing the core functions set out in the National Gambling Act, namely oversight and evaluation of the performance of provincial licensing authorities, maintenance of national registers and assistance of provinces with the detection of illegal gambling activities.

The NGB lists five strategic objectives in its Annual Performance Plan. These are:

· Strategic objective 1: Harmonisation in a dynamic environment

· Strategic objective 2: Compliance oversight of provincial licensing authorities and gambling industry

· Strategic objective 3: Integrated strategic information portal

· Strategic objective 4: Leading debate on new forms of gambling

· Strategic objective 5: Organisational excellence

5.4.1. Financial and non-financial performance as at end of March 2014

5.4.1.1. Non-financial performance

5.4.1.1.1. Stakeholder Liaison and Legal Programme

Achieved targets in terms of the first strategic objective. However, it had not reported on targets in terms of strategic objective 4 and 5, which it should contribute to.

The programme listed delays in the National Gambling Policy Council meeting as a challenge for it to conclude some of its advisory functions.

5.4.1.1.2. Corporate Services Programme

This programme only lists performance related to strategic objective 5; although it indicates that it should contribute to strategic objective 1.

A number of targets were not achieved and these were largely attributed to insufficient funding. These targets included the development of process maps to standardise various areas such as human capital, internal controls, budgetary controls, supply chain management, information technology operations and/or procedures. Furthermore, there had been underspending on training of employees.[40]

5.4.1.1.3. Compliance and Monitoring Programme

All the targets for this programme were reported to be achieved. However, the Auditor-General raised a concern about the reliability of the reported performance information.[41]

5.4.1.1.4. Auditor Generals findings pertaining to predetermined objectives

In the 2012/13 financial year, there had been no material findings in terms of the usefulness or reliability of the NGB’s overall performance against its predetermined objectives.

For the year under review, the Auditor-General focused on performance within two programmes, namely Stakeholder liaison and legal, and Compliance and monitoring. In terms of Stakeholder liaison and legal, none of the reported indicators and targets was consistent with those in the approved annual performance plan. This was attributed to a lack of proper implementation of the overall performance process of planning, budgeting, implementation and reporting. However, there were no material findings in terms of the reliability of the reported performance information.

In terms of Compliance and Monitoring, there were no material findings in terms of the usefulness of the reported performance information. However, the reliability of the reported performance information was questionable, as this was found to be inconsistent with source documents provided. There had been no standard operating procedures or documented system descriptions for the accurate recording of actual achievements, recording and monitoring of performance.

5.4.1.2. Financial performance

The NGB received a transfer of R27.7 million from the DTI, a 6.4 per cent increase from the 2012/13 financial year. In addition, it received R1.9 million from exchange transactions, compared to R0.8 million in the 2012/13 financial year (a 121.2 per cent increase). This was mainly from rental income (89.5 per cent of revenue from exchange transactions) and licence fees for limited payout machines (9.2 per cent of revenue from exchange transactions).[42]

The NGB spent R33.7 million, leaving a deficit of R4.1 million or more than 13.7 per cent of total revenue, which is outside the accepted range of 5 per cent of revenue. In the 2012/13 financial year, the loss had been R4.9 million or 17.5 per cent of total revenue. Spending increased by 3.5 per cent since the 2012/13 financial year. A breakdown of the expenditure for the 2012/13 and 2013/14 financial years is provided in Figures 4 and 5 below[43]:

Figure 4: Expenditure percentage share for the 2012/13 financial year

Source: (NGB 2014a)

Figure 5: Expenditure percentage share for the 2013/14 financial year

Source: (NGB 2014a)

Personnel costs decreased from 33.2 per cent of expenditure to 23.3 per cent of expenditure from 2012/13 to 2013/14, as remuneration for temporary staff was moved to other operating expenses in the 2013/14 financial year. Executive managers’ remuneration was 23.1 per cent lower than in the 2012/13 financial year, as three of the four executive managers’ contracts terminated between May and September 2013 and only the CEO and CFO were replaced fairly late in the financial year.

Furthermore, board members’ remuneration appeared to be relatively high and had increase from R1.1 million in 2012/13 to R1.6 million in 2013/14 (a 46.1 per cent increase). Cumulatively, the committees of the board appear to have met 27 times during the financial year, mainly for the Audit and Risk (10 meetings) and National Central electronic Monitoring System Project (8 meetings) Committees[44]. In 2012/13, the committees collectively met 14 times[45].

The NGB entered into a second operating lease for premises as of 1 December 2012, as there were space challenges at the DTI’s campus. However, its initial lease at the campus will continue to run for the next six years. The DTI had agreed to sub-let and pay the NGB for the use of this space. The second lease is purported to have led to the NGB’s deficit since the 2012/13 financial year and that it is financially over-committed. In addition, the current size of the NGB’s workforce may also imply that the new premises may be more than the entity requires. Furthermore, the two leases have led to the NGB’s commitment in terms of operating leases increasing by about R4 million from the 2012/13 to the 2013/14 financial years.

5.4.1.2.1. Irregular expenditure

The NGB had accumulated irregular expenditure of R3.9 million at the end of the 2013/14 financial year. This was initially R0.3 million in the 2012/13 financial year. Irregular expenditure incurred was due to a lack of compliance in terms of the procurement of goods and services. This included the retention of the services of three board members to comply with required submissions and duties while awaiting approval from the Minister on the matter.

5.4.1.2.2. Fruitless and wasteful expenditure

In the 2013/14 financial year, the NGB incurred fruitless and wasteful expenditure to the value of R28 829. This was primarily due to travel and accommodation of R24 946 for an international conference not being utilised. Further amounts were due to an over-payment of PAYE to the South African Revenue Service (R2 312), fees paid to the bank to honour debit order payments when the NGB had no funds in its bank account (R520) and additional accommodation paid for a conference stay (R1 051). All of these amounts are irrecoverable except for the additional accommodation (R1 051) which is being pursued.

5.4.1.2.3. Auditor-General’s Report

The NGB received an unqualified audit opinion with findings. The table below provides an overview of the audit opinions over the last two financial years, as well as the findings the Auditor-General made in relation to the NGB’s financial statements.

Table 19: Auditor-General’s opinion for the 2012/13 and 2013/14 financial years

Year	Auditor-General’s opinion	Emphasis of matters/Key findings
2012/13[46]	Unqualified opinion	· Financial statements were not prepared in accordance with the prescribed reporting framework. · Material misstatements of revenue and disclosure items.
2013/14[47]	Unqualified opinion	· Restatement of figures for 31 March 2013. · A net loss of R4.1 million at 31 March 2014 with current liabilities exceeding current assets by R8.2 million. · Financial statements were not prepared in accordance with the prescribed reporting framework. · Material misstatements in terms of contingent liabilities, related parties, irregular expenditure, the comparison of budget and actual amounts and in the cash flow statement. · Procurement of goods and services below R500 000 occurred without the required price quotations. · Irregular expenditure was not prevented. · The bank overdraft was not approved in writing by the Minister of Finance. · Certain board members continued to serve without the appropriate approval as required in section 67 of the Act.

There appears to have been a deterioration in the state of the NGB’s internal controls to ensure compliance with legislation and complete and accurate financial statements since the 2012/13 financial year. This may be due to instability in its leadership with the chief executive officer’s (CEO), Ms B Tyawa, resigning on 31 May 2013 and the new CEO, Mr T Dlamini, resigning after three months of taking office. He was appointed on 1 January 2014 and resigned on 31 March 2014. Furthermore, the chief operations officer’s contract expired on 31 July 2013, as well as the chief financial officer’s (CFO) resigning on 30 September 2013. A new CFO was only appointed on 17 March 2014.

5.4.2. Human resources

The table below provides a breakdown of the employment equity status of the permanent employees at the NGB.

Table 20: Employment statistics as at the end of March 2014

Total approved posts	28
Total permanent employees	16
Vacancy rate (% of total posts)	57.1
Black employees (% of total employees)	81.3
Female employees (% of total employees)	62.5
Black senior management and specialists	66.7
Women senior management and skilled	55.6
Employees with disabilities	0

Source: Own calculations based on correspondence from the NGB on 16 October 2014

5.4.3. Financial and non-financial performance as at end of June 2014

5.4.3.1. Non-financial performance

The NGB’s board had been placed under temporary suspension in September 2014 and two co-administrators had been appointed to manage the day-to-day operations of the NGB. The co-administrators reported on progress made in 12 of the NGB’s 25 annual targets during its engagement with the committee. According to the NGB’s first quarter report, it appears that about 36 per cent (seven) of its targets were met. The co-administrators highlighted the following achievements:

· Communication Strategy and Plan was reviewed.

· Stakeholder Management Strategy and Plan was reviewed.

· The advisory report on policy and legislation for tabling with NGPC and consideration by the Minister was completed.

· Assistance was provided to provincial licensing authorities in detecting unlicensed gambling activities.

· The National Central Electronic Monitoring System was in operation.

· The national register was maintained.

· A functional illegal gambling operator register was produced

· The NGB served as secretariat to the Gambling Regulators for Africa Forum (GRAF). This was coordinated by the head of compliance. The GRAF conference was held on 11 to 14 May 2014.

· The task team on illegal gambling, a joint initiative between the South African Police Service, the Hawks and the NGB was resuscitated.

The NGB highlighted the following challenges:

· There was a need to enhance the NGB’s technological capacity to oversee an ever advancing industry.

· There was a lack of punitive measures which the NGB may impose for matters of non-compliance.

· There was a high staff turnover rate and a high vacancy rate.

5.4.3.2. Financial performance

The NGB has received R18.5 million or 49.4 per cent of its annual budgeted revenue at the end of June 2014. This was mainly from the DTI grant and income from the DTI for the sub-letting of the office at the DTI campus.

During the first quarter, the NGB spent about R7 million of the budget expenditure of R8.1 million. This was a 14 per cent underspending for the quarter. The main expense was personnel costs of R3 million, which was lower than the budgeted expenditure of R4.5 million. This was as a result of a high vacancy rate, particularly among top management and critical vacancies within the Compliance and Monitoring Programme.

Table 21: Budgeted versus actual revenue and expenditure as at end June 2014

R’000s	Annual Budget	Budget 1st Quarter	Actual 1^st Quarter	% Variance	% of total budget
Revenue
DTI Grant	29 797	17 800	17 878	0.4	60
Other income	7 700	0	656	100	8.5
Total Revenue	37 497	17 800	18 534	4	49.4
Expenditure
Personnel costs	17 704	4 497	3 017	49	17
Travelling and Subsistence	979	245	155	58	15.8
Administrative expenses	8 161	2 045	2 174	-6	26.6
Professional and consulting fees	5 500	606	841	-28	15.3
Board Members’ Remuneration	325	81	199	-59	61.2
Depreciation	2 111	528	516	2	24.4
Other operating expenses	641	126	83	52	12.9
Total Expenditure	36 421	8 128	6 985	14	19.2

Source: NGB (2014b)

The higher than expected expenditure on professional and consulting fees was due to higher than anticipated external audit fees and unbudgeted LPM consultant's fees. Furthermore, board members' remuneration was 59 per cent higher than the budgeted expenditure due to an increased number of meetings for the NCEMS project’ these additional meetings had not been budgeted for.

5.4.4. Key issues by the committee

The following concerns were raised related to the performance of the NGB during the committee’s deliberations:

Rationale behind the temporary removal of the board: The committee enquired to the reasons for the temporary removal of the NGB’s board. The co-administrators informed the committee that they would not be in position to respond to questions around the suspension of the board as it was an executive decision. The DTI informed the committee that Grant Thornton had been appointed as the forensic auditor and that a protected disclosure was made to the Minister in this regard. In a letter dated 16 October 2014, the Minister informed the committee of his decision to temporarily suspend the NGB’s board as a precautionary measure pending an investigation into the following allegations as reported in the 2013/14 Annual Report of the NGB. The allegations relate to the:

· “Contravention of section 51 of the Public Finance Management Act (PFMA), 1999 as amended, by the Accounting Authority of the NGB, acting either individually or jointly, by among others; failing to prevent irregular, fruitless and wasteful expenditure, and making overdraft the entity’s bank account without the approval of the Minister;

· Contravention of section 66(5) of the PFMA, 1999, as amended, by the Accounting Authority of the NGB, acting either individually or jointly, by amongst other; making bank overdraft on the entity’s bank account without the approval of the Minister of Finance; and;

· Contravention of section 67 of the National Gambling Act, 2004 by the Accounting Authority, acting either individually or jointly, by allowing members whose term of office expired to continue participating in the board activities and representing the NGB.”

Furthermore, the Minister received a protected disclosure in terms of section 6 of the Protected Disclosures Act, 2000, which contains the allegations listed below that are also part of a forensic investigation:

· “Contravention of section 68 of the National Gambling Act, 2004, by the Chairperson and Deputy Chairperson who are members and executive director, respectively of the National Responsible Gambling Foundation but never disclosed to the Minister, as legally required;

· Disrespecting lawful instruction by the Minister of expiry of terms of board members;

· Non-disclosure of/failure to audit the trust fund as required in terms of the PFMA and its regulations;

· Apparent corrupt activities regarding the National Central Electronic Monitoring System (NCEMS);

· Contravention of the National Gambling Act, 2004, and of the PFMA, 199 and incurred fruitless, wasteful and irregular expenditure by illegally appointing of expired member of the Board as consultants;

· Unlawful appointment of staff;

· Intimidation / bullying / disregard of the Constitution / witch hunt; and

· Theft of evidential material”.

Matters related to internal control measures: The committee is of the view that some indicators highlighted as successes are basic governance and internal control measures and should not be listed as performance targets. The NGB’s co-administrators were in agreement that these are basic internal control matters. Although internal control governance structures, such as the management committee, internal audit committee and board subcommittees, exist; a number of matters of emphasis had been raised in terms of their functioning and it appeared as if these were not fully functional. The co-administrators therefore have the responsibility to determine whether the current policies are being implemented and are compliant with the PFMA and other guiding documents as it relates to the issue of governance.

Rental obligations with respect to lease agreements: The committee raised concerns around the significant increase in rental obligations stemming from the new lease agreements and enquired to the reasons for the sharp increase. The co-administrators informed the committee that they had submitted an initial observation report to the Minister which highlighted that the NGB’s second lease agreement was an area of concern. It would appear that the lease agreement commits the NGB in future years to a possibly unaffordable lease. This new lease significantly contributed to the deficit in the 2012/13 and 2013/14 financial years with a similar outcome expected in the 2014/15 financial year. The co-administrators have subsequently been engaging with the DTI on the matter, and looking at options of subletting.

The DTI informed the committee that the initial NGB office is located on a part of the DTI campus that is privately-owned (Block G). As the DTI was expanding, it requested a number of entities to relocate to free up office space on campus. The NGB had agreed to do so; however, the landlord refused to transfer the lease obligation to the DTI. A cession was agreed to between the NGB and the DTI where the NGB would pay for the lease and recover this from the DTI. Therefore, the NGB’s financial statements reflect two leases concurrently. The DTI is in consultation with the National Treasury to incorporate Block G as part of the public-private partnership under which the DTI Campus is managed. This would release the NGB from the additional lease obligation. With respect to whether any unlawful activities could be associated with the second lease agreement, the co-administrators informed the committee that they would not be in a position to comment whether unlawful activities took place until an investigation on the matter is completed. The Group Chief Finance Officer informed the committee that the DTI has engaged with the NGB on its finances, notwithstanding that they have overcommitted on the operating leases, and produced a balanced budget. With regard to the R4 million deficit, the DTI was of the view that the actual deficit is around R2 million, once the non-cash expenditure of depreciation and amortization is removed.

Proliferation of gambling: The committee is of the view that the NGB had been inward-looking, not focusing on the protection of consumers, and has called for a moratorium on the proliferation of gambling. The committee enquired whether the NGB has taken the necessary steps to stop the proliferation of electronic bingo terminals. The co-administrators informed the committee that with regard to the NGB being inward-looking, its key mandate is oversight of gambling within the Republic which cannot be effectively executed due to human resource constraints and inadequate funding. They were in the process of addressing these shortcomings. A key issue for the NGB in executing its mandate is to address its relationship with the provincial licensing authorities (PLAs). In this regard, they have appointed a stakeholder manager. A concern for the NGB is the proliferation of bingo licences with some provinces rolling out electronic bingo terminals in the absence of a national regulatory framework in this regard. The failure of the National Gambling Policy Council to meet due to a lack of a quorum meant that the issue of compliance with respect to electronic bingo machines could not be finalised. Steps are being put in place to ensure that the Council becomes more efficient and effective and that binding decisions can be taken.

Repositioning of the NGB: The committee noted in the presentation that “certain measures have been embarked upon to strategically reposition the NGB”. Furthermore, the outcomes of the Agency Rationalisation Project (ARP) had been communicated to the NGB. The committee enquired to the measures undertaken and the nature of outcomes of the ARP in relation to the NGB. The co-administrators informed the committee that with respect to the repositioning of the NGB the policy direction of government reflects the need to ensure that all regulatory bodies are effective and efficient in executing its mandate. With regard to the outcomes of the ARP process, the NGB informed the committee that the report made certain proposals in relation to the NGB. Currently, there is a policy review underway which may lead to amendments to the Gambling Act.

Funding over the MTEF period: The committee enquired whether the NGB has budgeted for additional staff over the MTEF period. The co-administrators informed the committee that they have identified staff shortages as a major constraint and may request the DTI for financial assistance. In particular, assistance with strengthening the compliance and monitoring inspectorate is needed. In order to address the shortage of staff, the co-administrators, in conjunction with the DTI, are looking at the option of temporarily seconding staff from the DTI with regulatory experience. The DTI informed the committee that it is currently engaging the NGB on funding over the MTEF period but as a result of the irregular expenditure, the NGB must first ascertain the value of irregular expenditure and then develop a budget accordingly.

Remuneration of Board members: The committee enquired about the reasons for the increase in the board members’ remuneration and whether the NGB had an approved travel and expense policy in line with National Treasury regulations. The co-administrators informed the committee that board members were remunerated according to the National Treasury circular, which categorises emoluments for different categories of listed public entities. The NGB is a category 3A public entity and members are remunerated in terms of this category. Board members are reimbursed for travel expenses incurred when attending official meetings. Accommodation, travel (flight and other transport-related expenditure) and meal costs are borne by the NGB. With regard to the travel expenses, the DTI informed the committee that due to the increased number of committee and board meetings there had been a significant increase in this line item. The DTI further informed the committee that the Auditor General’s report had highlighted irregular expenditure which had only been identified at the end of the financial year.

Auditing cost: The committee enquired to the reason for the additional cost associated with auditing. The co-administrators informed the committee that this was due to the additional time it took to provide the auditors with the requisite documentation. However, they assured the committee that the necessary measures have been implemented such as an audit matrix to ensure compliance in future.

5.5. National Regulator for Compulsory Specifications

The National Regulator for Compulsory Specifications (NRCS) is a national regulatory agency. Its core mandate is contained in the National Regulator for Compulsory Specifications Act (No. 5 of 2008) and other pieces of legislation including the Trade Metrology Act (No. 77 of 1973), the National Building Regulations Standards Act (No. 103 of 1977), the Foodstuffs, Cosmetics and Disinfectants Act (No. 54 of 1972) and the Public Finance Management Act (No. 1 of 1999). The NRCS is mandated to promote the safety of the public and protect consumers by developing and enforcing compulsory specifications.

To achieve its goals as set out by its mandate, the NRCS provides the following products and services:

· Developing and amending of compulsory specifications

· Issuing approvals/ homologations

· Conducting Market Surveillance

· National building regulation application.[48]

The NRCS’ five strategic objectives are to:

· Utilise a risk-based approach to maximise the potential compliance with all specifications and technical regulation falling under the mandate of NRCS.

· Optimise the scope of NRCS regulatory activity to protect people in South Africa and the environment.

· Inform and educate industry and consumers regarding their rights and obligations with respect to specifications and technical regulations.

· Ensure that highly engaged, competent people are in the right place at the right time to enable effective execution of NRCS strategy.

· Ensure that the NRCS is a capable organisation with “fit for purpose’ resources available to support decision making and action.

The NRCS’ strategy is in line with the IPAP. According to the IPAP, “the technical infrastructure institutions will continue to reprioritise their activities to support the development, accreditation and enforcement of standards that can create, scale up and resuscitate industries, while simultaneously contributing to broader social benefits”. In this regard, the NRCS’ work is done in various units of the entity as depicted in the figure below.

Figure 6: Responsibilities of the various Business Units within the NRCS

Source: NRCS (2014a)

5.5.1. Financial and non-financial performance for the 2013/14 financial year

5.5.1.1. Non-financial performance

Most of the NRCS’ planned targets were achieved with the exception of one target in strategic objective 1, strategic objective 3, strategic objective 4, and strategic objective 5 (see Table 22).

Table 22: Planned targets not met for the 2013/14 financial year

Strategic Objective	Outcome	Outputs	Performance Indicator	Annual Performance
1	Increase compliance to compulsory specifications and regulations.	Pre-market approvals to lock out non-compliant products	Number of working days to issue approvals or to evaluate an application for approval.	Target for application approval: 21 working days. However, for the 2013/14 financial year, only 43.9 per cent of application approvals were approved within 21 working days
3	Increase consumer awareness of non-compliant products, sub-standard products and services.	Increase consumer awareness of NRCS regulatory mandate and NRCS regulated industries and regulated commodities	% increase in the awareness score as per the benchmark survey.	NRCS conducted a consumer baseline survey. The survey found that awareness of the NRCS is at 23 per cent.
4	Increase effectiveness of human resources (NRCS employees)	Increase in NRCS organisational performance	% implementation of HR strategy	The target ensure 100 per cent implementation of the HR Strategy, however, there was 50 per cent implementation of HR strategy
5	An enabling enterprise information architecture	Correct and relevant information available at the right time to inform intelligent decision making and action	% implementation of the IT Plan – IT readiness	Target: 100 per cent implementation of the IT Plan. Actual Performance: 91.25 per cent implementation of the IT Plan

Source: NRCS (2014a)

Some performance highlights for the 2013/14 financial year were:

· 100 per cent of all relevant recalls for non-compliant products were issued and six media alerts were issued on products recalled and confiscated products that did not meet the minimum safety requirements.

· 4 287 inspections within the Trade Metrology domain being conducted (exceeding the targeted number of inspections by 8.5 per cent).

· A total of 6 199 domestic inspections within the food and fisheries regulated industries were conducted. This included 13 124 import inspections, and 13 793 export inspections.

· 5 192 chemicals, materials and mechanical products, 4 054 automotive products and 4 338 electro-technical products were inspected.

5.5.1.2. Financial performance

In the 2013/14 financial year, the NRCS’s income totalled R283.6 million, an increase from the previous financial year’s income of R256.9 million. The DTI funding was the second largest source of funds for the NRCS. For the 2013/14 financial year, according to the DTI, an amount of R103 million was transferred to the NRCS. This amount makes up 36.3 per cent of the NRCS’ income. The largest share of its revenue income is acquired from services rendered by the NRCS, levies for compulsory specifications with an amount of R139.2 million and acquired through the provision of services amounting to R33.5 million.[49]

The NRCS spent R248.2 million, leaving a surplus of R35.4 million or 12.5 per cent of total revenue, this amount is not within the accepted range of 5 per cent of revenue. The largest expenditure item for the NRCS is employee costs which amounts to R180.7 million (72.8 per cent of total expenditure) followed by Office rentals and other operating lease expenses at R13.7 million.

The NRCS incurred irregular expenditure of R5.83 million; however, this amount has significantly decreased from the 2012/13 financial year amount of R33.18 million. This was mainly due to non-compliance with Treasury Regulations related to procurement and supply chain management.

5.5.1.2.1. Auditor General’s report/ findings

Over the 2013/14 financial year, the NRCS had a qualified audit. The Auditor General raised a number of issues pertaining to the audit of the NRCS. These were related to the leadership of the NRCS in terms of their oversight responsibilities and management of human resources. Furthermore, the Auditor General was concerned about the financial and performance controls, particularly in relation to IT system controls.

The table below provides details of the Auditor General’s findings during the NRCS’s audit for the 2013/14 financial year. In addition, provided in the table are the root causes of the finding as articulated by the Auditor General in the report.

Table 23: NRCS 2013/14 audit findings and root causes

Finding	Root cause
Non-exchange revenue and receivables from levies for compulsory specifications: The internal control environment for non-exchange revenue for compulsory specification was not supportive to ensure that all levies due to NRCS has be collected and accounted for. This also has a direct impact on the receivables from levies for compulsory specifications.	Inadequate oversight in terms of the leadership’s responsibility regarding financial and compliance with laws and regulations. Management did not monitor the daily controls over the processing of transactions and reconciliations as designed for NRCS business processes, specifically in the areas of property plant and equipment, receivables and payroll processes.
Employee cost, Employee benefit obligations for long service leave awards, Trade and other payables from exchange transactions for salary related accruals, Provisions for leave pay The calculations and supporting evidence for the implementation of the wage settlement (new salary packages) were found to be inaccurate and in some instances no source document available to corroborate the information with. This impacted all amounts in the financial statements which use the salary packages as basis of calculation: employee cost, employee benefit obligations for long service leave awards, trade and other payables from exchange transactions for salary related accruals and the provisions for leave pay.
The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework as required by section 55(1) (b) of the Public Finance Management Act. Material misstatements of non-exchange revenue and disclosure notes identified by the auditors in the submitted financial statements were subsequently corrected but the uncorrected material misstatements resulted in the financial statements receiving a qualified audit opinion.	Inadequate oversight in terms of the leadership’s responsibility regarding financial and compliance with laws and regulations. Management did not in all instances monitor the controls designed to ensure accurate and complete financial statements and compliance with laws and regulations.
The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework as required by section 55(1) (b) of the Public Finance Management Act. Material misstatements of non-exchange revenue and disclosure notes identified by the auditors in the submitted financial statements were subsequently corrected but the uncorrected material misstatements resulted in the financial statements receiving a qualified audit opinion. The accounting authority did not take effective steps to prevent irregular expenditure as required by section 51(1)(b)(ii) of the Public Finance Management Act.
The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework as required by section 55(1) (b) of the Public Finance Management Act. Material misstatements of non-exchange revenue and disclosure notes identified by the auditors in the submitted financial statements were subsequently corrected but the uncorrected material misstatements resulted in the financial statements receiving a qualified audit opinion. The accounting authority did not take effective steps to prevent irregular expenditure as required by section 51(1)(b)(ii) of the Public Finance Management Act. Effective and appropriate steps were not taken to collect all money due, as required by section 51(1)(b)(i) of the Public Finance Management Act and Treasury Regulations 31.1.2(a) and 31.1.2(e).

Source: Auditor General (2014)

5.5.2. Human resources

The NRCS’ key employment statistics are reflected in the table below:

Table 24: Employment statistics as at the end of March 2014

Total posts	325
Total Employment	293
Vacancies	32
Vacancy rate (% of total available posts)	10.9
Black employees (% of total employees)	61.8
Female employees (% of total employees)	26.6
Employees with disabilities (% of total employees)	0.3

Source: NRCS (2014a)

The NRCS approved posts total 325. By the end of the 2013/14 financial year, 293 people were employed, during the year a total of 13 vacancies were filled and 12 staff members left the entity. This results in a vacancy rate of 10.9 per cent.

The demographics of the staff complement is 181 African employees, 40 Coloured, 15 Indian and 57 White. In terms of top management, there are 2 employees none of which are Black employees and senior management, there were 57 people employed of which 22 are black males and 9 are black females.

5.5.3. Financial and non-financial performance as at end of June 2014

5.5.3.1. Non-financial performance

The NRCS reported on all its core areas’ targets for the first quarter in its presentation to the committee. The non-core strategic goals being “to inform and educate our stakeholders about the NRCS” and “to ensure an optimally capacitated institution”.[50]

The NRCS highlighted that it had conducted 13 604 inspections across all regulated industries by the end of June 2014. It had met and/or exceeded its overall targets for inspections on all declared fisheries and associated consignments and productions; the automotive industry, and the electro-technical sector, as well as within the legal metrology domain. However, it under-achieved on its targets within the chemicals, mechanicals and materials industries.

During the quarter, 69 directives for non-compliant products were issued within the automotive, electro-technical, and chemicals and materials sectors. Furthermore, it issued 22 non-compliance certificates for fishery products and consignments that had not complied with all the relevant compulsory specifications, as well as 48 non-compliance certificates for fishery products not fit for human consumption. In terms of legal metrology, 1 688 non-compliant prepacked goods were found at local manufacturers; 277 non-compliant prepacked goods were found at importers; and 418 non-compliant instruments were found. The main non-compliant products were short mass/measured imported seafood products and whisky.

The NRCS highlighted the following key challenges:

· Inadequate testing facilities in South Africa for some regulated products, e.g. motor cycle helmets and compact fluorescent lights, resulted in long turnaround times due to capacity constraints that compromised the NRCS’ effectiveness.

· Lack of qualified staff and the inability to recruit the required specialist resources, in particular the evaluator capacity in electro-technical approvals continues to be a major concern.

· The continued application and regulation of products covered under compulsory specifications that are outdated.

· High transportation and storage costs for confiscated goods.

· The generation of revenue is reliant on trends and markets.

· Internal control weaknesses including procurement, asset management and human resource management.

· Labour relations and a range of staff and human resource issues.

5.5.3.2. Financial performance

The NRCS receives funding from the DTI (core funding); R109.7 million was allocated for the 2014/15 financial year. This forms about 35 per cent of its budget. Other key funding is from levies paid, 47.7 per cent of the 2014/15 budget. As at the end of June 2014, the NRCS had received R67.8 million from its various revenue sources, which was only 42.1 per cent of the projected revenue. The main reason for this variance was under recovery of levy income, as levy payments are expected to be paid in the second and fourth quarters of the financial year.[51]

Table 25: Budgeted versus actual revenue and expenditure as at end June 2014

R’000	Total budget	1^st Quarter Budget	1^st Quarter Actual	% Variance	Available budget (%)
Revenue
Levies	149 515	49 838.3	-117	100.2	100.0
Levy Audit	4 500	1 500	0	100.0	100
Service revenue	39 424	9 856	11 588	-17.6	70.6
Core funding	109 734	54 897	54 867	0.1	50.0
Other revenue/funding	7 000	0	0	n/a	100.0
Interest income	3 585	896.3	1 429	-59.4	60.1
Total revenue	313 758	116 957.6	67 770	42.1	73.9
Expenditure
Compensation of employees	206 452	51 613	43 394	15.9	79.0
Goods and services	90 537	23 209.3	11 235	51.6	87.6
Depreciation and amortisation	4 025	1 006.3	479	52.4	88.1
Unclassified current expenses	12 400	3 100	434	86.0	96.5
Total expenditure	313 414	78 928.5	55 542	29.6	82.3
Surplus	344	38 029.1	12 228	67.8

Source: NRCS (2014b)

Actual expenditure was also lower than planned expenditure by 29.6 per cent, with only 17.7 per cent of the total planned expenditure being spent. The main reasons for this under-expenditure was due to vacancies that were budgeted for but had not been filled during the first quarter and underspending on contractual services, travel and subsistence, as well as on testing.

5.5.4. Key issues raised by the committee

The following concerns were raised related to the performance of the NRCS during the committee’s deliberations:

Enforcement capacity: The committee noted with concern that the enforcement targets for the first quarter of the 2014/15 financial year remained a challenge. The NRCS informed the committee that it did not have enough enforcement agents/regulatory inspectors but that it would reach its targets within the financial year. Currently, there is no formal tertiary training available for the types of inspectors required. The NRCS has a seven year programme to develop technically qualified individuals into regulatory inspectors. It is working closely with the institutions of higher learning to develop specific courses that would address these shortages.

Textile industry: In response to a question on whether the NRCS is responsible for regulating the textile industry, it informed the committee that the textile industry is not regulated by any compulsory specifications in terms of the safety of the products and is therefore not included within the NRCS’ mandate.

Effectiveness of risk profiling: The committee expressed reservations regarding the effectiveness of risk profiling and detaining containers for inspection at ports of entries which may result in a delay of products being placed on shelves. The committee was of the view that the current system of 120 days to issue letters of authority (LOAs) is too long. There was also a suggestion that the NRCS should consider a system to fast-track the clearance of products of known, compliant importers. The NRCS together with the DTI and a major retailer are busy with a pilot project that would ensure the “locking in” of compliant products and the “locking out” of non-compliant products by the retailer agreeing to only stock products compliant with the necessary health and safety regulations. In return, the NRCS would fast-track approval of the retailers’ purchased products with spot checks to ensure continued compliance. The NRCS wants to “lock out” non-compliant products to ensure effective regulation of the market. The NRCS is of the view that if the pilot project proves to be a success it would be rolled-out to other major retailers, and would have attended to 70 per cent of the market. Effective risk profiling is to ensure that the majority of products on shelves complies with the necessary health and safety regulations and reduces delays at ports. The NRCS informed the committee that its presence at ports of entry saw the number of LOA applications for pre-market approval of products increasing. The NRCS may consider an appropriate system of fast-tracking compliant importers in the future.

Increase in unclassified current expenses: The committee noted that the unclassified current expense shows a dramatic increase from R132 000 in 2012/13 to a budget of R12.4 million in 2014/15. The NRCS informed the committee that the R12.4 million refers to the non-cash provisions such as bad debt, and bonuses which was not allocated in the 2013/14 budget.

Inadequate ICT infrastructure: The committee noted with concern that issues relating to the ICT infrastructure has not been resolved. The committee enquired to the steps taken to address these shortcomings. The NRCS informed the committee that the Auditor General had highlighted a number of issues relating to governance in relation to ICT infrastructure, and with respect to policies and procedures. The NRCS has established an ICT steering committee to oversee the implementation of the necessary strategies to overcome the ICT challenges facing the institution. The NRCS’ primary consideration in managing its ICT infrastructure is its sustainability, its performance assurance and the ability of the Information and Systems Management Section to execute the identified NRCS priorities. The NRCS has embarked on the implementation of a customer relations management system and IT infrastructure for the organisation.

Compliance with legislation: The committee noted with concern that the NRCS was not aware that regulations with respect to certain levies had been repealed. The committee enquired whether the NRCS had taken the necessary steps to ensure compliance with the Act and other Treasury regulations. The NRCS informed the committee that it has published the periods by which levies must be paid for all products or service for which compulsory specification are in place in the Government Gazette, as required by the new legislation. The NRCS has also taken the necessary steps to ensure that it complies with all relevant legislation and regulations.

Compliance with building regulations: With respect to compliance with the necessary building regulations, the NRCS informed the committee that the implementation of building regulations falls within the ambit of local government authorities. Building inspectors have the responsibility to ensure compliance but challenges remain in relation to their capacity and compliance of home owners when extending their buildings.

6. Conclusions

Based on its deliberations, the committee drew the following conclusions:

6.1 Energy supply constraints remain a major barrier to industrialisation and economic growth. Government should create an enabling environment to mitigate negative implications for industrial policy.

6.2 The committee welcomes the government’s plans to improve its energy mix in order to provide a more reliable supply of energy. The current energy pricing, particularly electricity within certain municipalities, is excessive for industry and the success of industrialisation in South Africa. Ideally, the price of energy, including municipal electricity surcharges and the potential price of nuclear energy, should not, at any stage, compromise the success of industrialisation. Therefore, government should ensure that the financing model should not inadvertently burden end users, particularly agricultural and industrial users. However, the committee is of the opinion that all stakeholders should consider the full range of alternative energy solutions.

6.3 The committee welcomed adjustments to the port tariff structure in favour of value-added exports. However, port charges remain excessive for manufactured and processed goods and the delays experienced in the movement of goods in the ports compromises efficiency. 

6.4 The committee acknowledged the increasing global pressure from developed countries for products with lower carbon footprints. However, the possible imposition of a carbon tax poses a significant threat to industrialisation. The committee encourages government and business to invest in carbon emission reducing technologies.

6.5 Labour unrest arising from poor working conditions and the rising wage gap has resulted in protracted and sometimes violent labour strikes in recent years. This has become an impediment to inclusive economic growth and industrialisation. South Africa needs to remain attractive to foreign direct investment. Therefore, the committee believes that South Africa needs a stable labour environment with decent wages and working conditions to improve productivity as an integral part of the Social Compact.

6.6 The committee welcomed the additional allocations to the Export Promotion and Marketing sub-programme within Trade and Investment South Africa which has received a nominal increase of 36 per cent in the 2014/15 budget.

6.7 Investment promotion is essential for technology transfer, job creation and economic growth. The Trade and Investment South Africa Division currently has 45 foreign missions in traditional and strategic markets. However, the DTI should ensure the presence of an adequate number of officials with the requisite expertise at these foreign missions. 

6.8 The service delivery performance of the CIPC is not yet optimal, particularly the accessibility of the call centre and the availability of the CIPC’s new website. This matter needs to receive greater attention and focus from the CIPC and continued oversight by the DTI. The committee supports the roll out of additional walk-in centres to assist the move towards a paperless electronic system, and to improve turnaround times.  Given that the CIPC is self-funding and does not receive transfers from the DTI, the committee supports its request for permission from the National Treasury to use some of its surplus for special projects such as IT improvements.

6.9 A critical part of a successful industrialisation drive is domestic demand for locally manufactured products. There is a need to raise awareness and promote the purchasing of local products among South African consumers. In addition, National Treasury should promote and enforce local public procurement of designated products to achieve the 75 per cent target set by the President. The committee is also of the view that to ensure compliance with local procurement requirements, the audit opinion should reflect the purchase of locally produced goods by departments and entities.

6.10 The capacity to verify local content will underpin the ability of the National Treasury to monitor this and the Auditor General to audit this information. Therefore, the committee supports the review of the resource allocation to entities responsible for providing local content verification capacity.

6.11 The committee emphasised the need for broadening economic participation, particularly the development of black industrialists and rural areas. The committee further acknowledged the development of an incentive for black industrialists, which should promote the emergence of more black-owned manufacturing businesses. It also welcomed the creation of the Department of Small Business Development, which will more intensely support small enterprise and co-operative development, which is internationally acknowledged as significant employment generators.

6.12 Several pieces of new or amended legislation have been assented to recently, such as the Broad-based Black Economic Empowerment Amendment, the Intellectual Property Laws Amendment, the National Credit Amendment, and the Special Economic Zones Acts. The committee awaits the finalisation of the related regulations and the implementation of these pieces of legislation. Furthermore, the committee awaits the tabling of the Promotion and Protection of Investment Bill and the Gambling Amendment Bill, which is critical to close legislative gaps and create an optimum and robust regulatory environment for business and consumers.

6.13 The committee recognises that as part of the implementation of new legislation certain entities, including the NCR and the NRCS, will have additional functions. Consequently, their budgets should be adjusted to reflect these revised mandates.

6.14 The committee is concerned that the leadership vacuum due to vacancies in three of the top four executive positions at the NGB compromises its ability to exercise its mandate effectively. However, the committee welcomes the intervention by the Minister to suspend the NGB Board, the forensic investigation related to activities of the board and effectively address any governance and other issues, as well as the appointment of the two co-administrators to attend to the daily operational matters in the meantime. The committee is of the firm view that the current administrators of the NGB should speedily resolve the pressing matters relating to the leases and reduce the burden imposed on the NGB due to these operating leases. The committee is of the considered belief that matters of this nature should also form part of the terms of reference for the forensic investigation.

6.15 Previously, the committee called for the rationalisation of the boards of the technical institutions to ensure harmonisation of their mandates, more effective use of human resources and increased allocative efficiency. More recently, there has been several concerns raised about the effectiveness and management of boards of entities. The DTI has indicated that it is engaging on the Agency Rationalisation Project to look into the matter. The committee welcomed this development and agreed with the Auditor General that the DTI should exercise closer oversight of its entities.

6.16 It is pertinent that the Executive takes into account that when functions are migrated that resources follow functions seamlessly, as well as ensuring that dedicated support is provided.

6.17 A collaborative spirit among the departments within the Economic Cluster should be encouraged.

7. Appreciation

The committee would like to thank the Minister of Trade and Industry, Dr R Davies, and his Deputy, Mr M Masina, as well as the Director-General, Mr L October, the Group Chief Operating Officer, Ms J Scholtz, and all other senior managers of the DTI, as well as the entities and their management, for their cooperation and transparency during this process. The committee also wishes to thank its support staff in particular the committee secretaries, Mr A Hermans and Mr N Mkhize, the content advisor, Ms M Herling, the researcher, Ms Z Madalane, the committee assistant, Mr D Woodington, and the executive secretary, Ms T Macanda, for their professional support and conscientious commitment and dedication to their work. The Chairperson wishes to thank all Members of the committee for their active participation during the process of engagement and deliberations and their constructive recommendations reflected in this report. The committee acknowledged the presence of Mr X Mabasa, the whip of the Portfolio Committee on Small Business Development, during its deliberations.

8. Recommendations

Informed by its deliberations, the committee recommends that the House requests that the Minister of Trade and Industry should consider:

8.1 Increasing resources with the requisite skills to promote South Africa as an investment destination, as well as providing increase of resources for Proudly SA to encourage South Africans to buy locally manufactured products.

8.2 Increasing the financial resources to the National Credit Regulator over the MTEF period, given their additional functions and the critical role it plays in our socio-economic environment.

8.3 Consulting the Minister of Finance to develop mechanisms to verify and enforce the public procurement of designated products so that the 75 per cent public procurement decision is implemented to underpin the Industrial Policy Action Plan.

Report to be considered.

References

Auditor General of South Africa (2014) PFMA audit outcomes of the 2013-14 financial year for Trade and Industry 2013/14.

Companies and Intellectual Property Commission (2013) Strategic Plan 2013/14 - 2017/18.

Companies and Intellectual Property Commission (2014a) Annual Report 2013/14.

Companies and Intellectual Property Commission (2014b) CIPC Annual Report 2013/4 and 1^st Quarter financial and non-financial performance. Parliament. Cape Town: 19 September.

Department of Trade and Industry (2013a) Strategic Plan 2013/14.

Department of Trade and Industry (2013b) Annual Performance Plan – 2013/14 – 2015/16.

Department of Trade and Industry (2013c) Annual Report (2012/13).

Department of Trade and Industry (2013d) Presentation to the Portfolio Committee on Trade and Industry – the dti’s 2013/14-2015/2016 Annual Performance Plan. Parliament. Cape Town: 23 April.

Department of Trade and Industry (2014a) Annual Performance Plan (APP) – 2014 – 2017.

Department of Trade and Industry (2014b) Annual Report (2013/14).

Department of Trade and Industry (2014c) First quarter report for the 2013/14 financial year.

Gordan, P. (2014) Budget Speech to joint sitting of Parliament. Parliament. Cape Town. 26 February.

Madalane, Z. (2014) The Department of Trade and Industry’s Perspective on the 2014 State of the Nation Address.

National Consumer Commission (2013) Annual Performance Plan (2013/14 to 2015/16).

National Consumer Commission (2014a) Annual Report 2013/14.

National Consumer Commission (2014b) Presentation to the Parliamentary Portfolio Committee: Trade and Industry on the First quarter report (2014-2015) of the National Consumer Commission. Parliament. Cape Town: 16 September.

National Consumer Commission (2014c) Annual Performance Plan (2014/15 to 2016/17).

National Credit Regulator (2014a) Annual Report 2013/14.

National Credit Regulator (2014b) Quarter reporting on 1^st quarter ending on 30 June 2014.

National Gambling Board (2013a) Annual Report 2012/13.

National Gambling Board (2013b) Annual Performance Plan April 2013 to March 2016.

National Gambling Board (2014a) Annual Report 2013/14.

National Gambling Board (2014b) First Quarter Performance Report.

National Regulator for Compulsory Specifications (2013) Annual Performance Plan 2013 - 2016.

National Regulator for Compulsory Specifications (2014a) Annual Report 2013/14.

National Regulator for Compulsory Specifications (2014b) 1^st Quarter 2014/15 Financial year Report.

National Treasury (2013a) Estimates of National Expenditure.

National Treasury (2013b) Budget Review 2013.

National Treasury (2014a) Budget Review 2014.

National Treasury (2014b) Response of the National Treasury to the Portfolio Committees.

National Treasury (2014c) Estimates of National Expenditure.

National Planning Commission (2011) National Development Plan – vision for 2030.

Portfolio Committee on Trade and Industry (2013) Budgetary Review and Recommendation Report of the Portfolio Committee on Trade and Industry. Announcements, Tablings and Committee Reports 141: 21 October.

Portfolio Committee on Trade and Industry (2014a) Fourth Parliament Legacy Report 2014.

Portfolio Committee on Trade and Industry (2014b) Report of the Portfolio Committee on Trade and Industry on Budget Vote 36: Trade and Industry.

Zuma, J.G. (2014a) State of the Nation Address by His Excellency Jacob G. Zuma, President of the Republic of South Africa on the occasion of the Joint Sitting of Parliament. Cape Town, 13 February.

Zuma, J.G. (2014b) State of the Nation Address by His Excellency Jacob G. Zuma, President of the Republic of South Africa on the occasion of the Joint Sitting of Parliament. Cape Town, 17 June.

Appendix 1: List of Abbreviations and Acronyms

ARP	Agency Rationalisation Project
B-BBEE	Broad-Based Black Economic Empowerment
BBSDP	Black Business Supplier Development Programme
BITs	Bilateral Investment Treaties
BRICS	Brazil, Russia, India, China and South Africa
BRRR	Budget Review and Recommendation Report
CIPC	Companies and Intellectual Property Commission
CIPRO	Companies and Intellectual Property Registration Office
CIS	Co-operative Incentive Scheme
COMESA	Common Market for Eastern and Southern Africa
CPA	Consumer Protection Act
CT	Companies Tribunal
DPSA	Department of Public Service Administration
DTI	Department of Trade and Industry
EAC	East African Community
ECIC	Export Credit Insurance Corporation
EDD	Economic Development Department
EFTA	European Free Trade Association
EMIA	Export, Marketing and Investment Assistance
EPA	Economic Partnership Agreement
EU	European Union
FTA	Free Trade Agreement
ICT	Information and Communication Technology
IDC	Industrial Development Corporation
IPAP	Industrial Policy Action Plan
IT	Information Technology
ITAC	International Trade Administration Commission of South Africa
LOA	Letter of Authority
MCEP	Manufacturing Competitiveness Enhancement Programme
MHCV-AIS	Medium and Heavy Commercial Vehicles Automotive Investment Scheme
MTEF	Medium-Term Expenditure Framework
NCC	National Consumer Commission
NCR	National Credit Regulator
NCT	National Consumer Tribunal
NDP	National Development Plan
NEDLAC	National Economic Development and Labour Council
NEF	National Empowerment Fund
NEPAD	New Partnership for Africa’s Development
NGB	National Gambling Board
NIBUS	National Informal Business Upliftment Strategy
NLB	National Lotteries Board
NMISA	National Metrology Institute of South Africa
NRCS	National Regulator for Compulsory Specifications
OCIPE	Office of Companies and Intellectual Property Enforcement
PAYE	Pay As You Earn
PFMA	Public Finance Management Act
PTA	Preferential Trade Agreement
REIPPP	Renewable Energy Independent Power Producer Procurement
SABS	South African Bureau of Standards
SADC	Southern African Development Community
SACU	Southern African Customs Union
SANAS	South African National Accreditation System
SAPS	South African Police Service
SARS	South African Revenue Service
SDI	Spatial Development Initiatives
SEDA	Small Enterprise Development Agency
SEFA	Small Enterprise Finance Agency
SEZ	Special Economic Zone
SMART	Specific, Measurable, Attainable, Realistic and Time bound
SMME	Small, Micro and Medium Enterprise
SONA	State of the Nation Address
SPII	Support Programme for Industrial Innovation
T-FTA	Tripartite Free Trade Agreement
THRIP	Technology and Human Resources for Industry Programme
VAT	Value-added Tax
WCP	Workplace Challenge Programme
YEDS	Youth Enterprise Development (YED) Strategy

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[1] DTI (2013b)

[2] Zuma (2014b)

[3] Zuma (2014a)

[4] Zuma (2014b)

[5] DTI (2014a)

[6] Extracts from Zuma (2014b)

[7] Brazil, Russia, India, China and South Africa

[8] Department of Trade and Industry (2013a)

[9] DTI (2013a)

[10] DTI (2013b)

[11] DTI (2013b)

[12] DTI (2013b)

[13] Portfolio Committee on Trade and Industry (2013)

[14] National Treasury (2014b: 13)

[15] Portfolio Committee on Trade and Industry (2014b)

[16] DTI (2014c)

[17] National Treasury (2013a)

[18] Auditor General (2014)

[19] Public Finance Management Act (No. 1 of 1999) (PFMA)

[20] Auditor General (2014)

[21] The DTI had name changes for two of its programmes in the 2014/15 financial year. The Industrial Development: Incentive Administration Division has become the Incentive Development and Administration Division and the Industrial Development: Policy Development Division has become the Industrial Development Division.

[22] NCC (2014a)

[23] NCC (2013) and (2014a)

[24] NCC (2014a)

[25] NCC (2014a)

[26] NCC (2014b)

[27] National Credit Regulator (2014a)

[28] NCR (2014b)

[29] NCR (2014 – correspondence)

[30] CIPC (2013)

[31] Ibid

[32] SMART principles refer to setting Specific, Measurable, Attainable, Realistic and Time bound objectives or indicators.

[33] Revenue from exchange transactions includes fees for corporate information, company, cooperatives and intellectual property registration and maintenance, data sales, and increases in company share capital.

[34] Revenue from non-exchange transactions includes Annual return fees and penalties

[35] CIPC (2014a)

[36] CIPC (2014b)

[37] Ibid

[38] Operating expenditure

[39] NGB (2013b)

[40] NGB (2014a)

[41] Ibid

[42] Ibid

[43] Ibid

[44] NGB (2014a)

[45] NGB (2013a)

[46] NGB (2013a)

[47] NGB (2014a)

[48] NRCS (2013)

[49] NRCS (2014a)

[50] NRCS (2014b)

[51] NRCS (2014b)