The Budget Review and Recommendation
Report of the Portfolio Committee on Trade and Industry, dated 2 November 2011.
The Portfolio Committee on Trade and Industry, having assessed the
service delivery performance of the Department of Trade and Industry, reports
as follows:
PART I
1. Introduction
The purpose of this report is to provide an analysis of the performance
of the Department of Trade and Industry (DTI), and identified entities over
which the Committee performs oversight, against predetermined objectives. This
report attempts to provide an assessment of the financial performance of the Department
and the identified entities for the 2010/11 financial year, and an assessment
of the first six months of the 2011/12 allocation within the context of the three-year
Medium-Term Expenditure Framework (MTEF). In addition, it considered the
performance as reflected in the Annual Report 2010-2011 and the expenditure
trends as published by National Treasury in its section 32 reports in terms of
the Public Finance Management Act (PFMA) (No 1 of 1999).
Budgeting
is driven by the policy commitment to inclusive economic growth and sustainable
social development. This is informed by the national policy priorities. The
BRRR is a move towards increased parliamentary participation in the budgetary
process. This gives effects to the constitutional powers to amend the budget in
line with the fiscal framework.
The DTI’s
key priorities are to develop an enabling environment for industrial
development that drives strategic regional and international trade and
investment to create sustainable jobs through industrialisation. The industrial
and trade policies work towards increasing the coherence of micro- and
macro-economic policies. Micro-economic policies contribute to improving
economic efficiency and equity for individual businesses, particularly for
small, medium and micro enterprises. The industrial policy is impacted upon by
the macro-economic fundamentals (i.e. interest rates and the exchange regime) which
should be favourable relative to its key trading partners.
In terms
of international trade and regional integration, South Africa has embarked on
improving South-South relations and deepening integration in Africa. This has
been evident by South Africa joining BRICS (Brazil, Russia, India, China and
South Africa) and the developments around the Tripartite Free Trade Area[1].
However, South Africa will retain its strong links with its traditional trading
partners, in particular the European Union.
The
Department is responsible for 15 entities and 51 Acts. These include the two
newly-established entities, namely the Companies and Intellectual Property Commission
and the National Consumer Commission, which were established during the 2011/12
financial year.
The DTI’s
total 2011/12 allocated budget was R6.8 billion, which represents a 4.6%
increase. This is in line with the new focus on job creation and the
recognition of the importance of the productive sector of the economy. The
Department will be transferring R5.6 million to its entities and other
institutions.
It is important
for the Committee to ensure that the Department and its entities are adequately
funded to fulfil their respective mandates. However, as the Budget Office has
not yet been established the Committee was unable to make detailed budgetary
recommendations. The Committee looks forward to when the Budget Office becomes
operational.
1.1 The role of the Committee
The mandate of the Committee requires that
it processes legislation introduced by the corresponding Minister, or referred
to it by resolution of the House, and where necessary initiate legislation. The
Committee must oversee the work of the corresponding Department and its associated
institutions, it may make policy recommendations in its portfolio area on the
basis of wider public consultation where necessary, and engage the Executive
with respect to related international matters.
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 Budgetary Review and Recommendation Report (BRRR).
In
developing the recommendations for the BRRR, the Portfolio Committee is
informed by the macro-economic, fiscal and public expenditure considerations
proposed in the Medium-Term Budget Policy Statement (MTBPS) as a way forward
for the resourcing of service delivery and policy implementation over the next
three years. The overarching purpose of the BRRR is for the Committee to make
recommendations on the forward use of resources to address the implementation
of policy priorities and services as these may require additional, reduced or
re-configured resources for the Department.
As the
Committee deals with a large number of entities, it has decided to deal with
the Department’s annual report annually during its BRRR process, as well as a
selection of the entities’ annual reports on a rotational basis. This selection
will be driven by prioritised issues. For this year, the Committee decided to
analyse the service delivery performance of the DTI, the South African Bureau
of Standards (SABS) and the National Regulator for Compulsory Specifications
(NRCS). As part of its oversight role, the Committee engaged with the National
Consumer Commission (NCC) and the National Credit Regulator (NCR) for the
period under review, and assesses the efficiency and the effectiveness of the
Department’s use and forward allocation of available resources. Below, follows
the comments, conclusions and recommendations of the Committee reflecting its
position within this changing environment.
1.2 The Department
The DTI’s
work is governed by a broad legislative framework which includes 51 Acts[2]. The DTI’s
vision is to develop “A dynamic industrial, globally competitive South African
economy, characterised by inclusive growth and development, decent employment
and equity, built on the full potential of all citizens”. The DTI’s mission is
to promote structural transformation, towards a dynamic industrial and globally
competitive economy; provide a predictable, competitive, equitable and socially
responsible environment, conducive to investment, trade and enterprise
development; broaden participation to strengthen economic development; and
continually improve the skills and capabilities of the DTI to effectively
deliver on its mandate and respond to the needs of South Africa’s economic
citizens.
In terms of section 57(2), the DTI
is responsible for the following agencies:
·
Companies and Intellectual
Property Commission (CIPC)
·
Companies and Intellectual
Property Tribunal (CIPT)
·
Estate Agency Affairs Board (EAAB)
·
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).
1.3 Structure of the report
The report
consists of three parts. Part I introduces the Committee’s Report on the Budgetary
Review and Recommendation Report. Part II provides a detailed description and
analysis of the Department’s expenditure and the implementation of policy
priorities against identified performance indicators over the last 18 months,
as well as the oversight of the four entities identified. Part III includes the
Committee’s conclusions and recommendations.
PART II
2. Strategic Priorities and Measurable
Objectives of the Department
2.1 Strategic Plans of the Department
For the period under review, the DTI’s 2010-2013
Medium-Term Strategic Framework outlined the strategic objectives which include[3]:
·
Promoting the co-ordinated and accelerated implementation of the
government’s economic vision and priorities;
·
Promoting direct investment and growth in the industrial and services
economy, with particular focus on employment creation;
·
Raising the level of exports and promoting equitable global trade;
·
Promoting broader participation, equity and redress in the economy; and
·
Contributing to Africa’s development and regional integration within the
New Partnership for Africa’s Development (NEPAD).
2.2 Measurable objectives of the
Department
For the
2010/11 period, the Auditor-General (AG) reported that performance information
was deficient in respect of the following details[4]:
·
Measurability: The indicators are not
well-defined and/or verifiable, and nor are targets specific and measurable.
·
Validity: With respect to
reliability of information as the reported performance did not take place.
·
Accuracy: The AG raised concerns
around the accuracy of the actual amount, numbers and other data with regard to
actual performance.
·
Completeness: A further concern for
the AG was that the actual results and events were not included in the reported
performance information.
It appears
that these concerns, particularly in terms of the measurability of the
indicators, have not been addressed by the DTI. However, in certain programmes
pre-determining the outcomes of their activities is almost impossible due to
their nature. For instance, the International Trade and Economic Development
programme focuses on trade relations and negotiations. The completion of these
activities is subject to external factors and is beyond South Africa’s control
to determine the finalisation period.
As
industrial development and job creation remain the DTI’s key priorities, the
Committee has selected the performance indicators in Table 1 to focus on for
the first six months of the 2011/12 financial year.
With
respect to the performance indicators for the first two quarters of 2011/12
financial years, the Committee noted a varied level of performance. In some
cases the DTI exceeded expectations and in others the under-performance is a
matter of concern.
Table 1: Performance indicators and
achievements for the first two quarters of 2011/12
Performance Indicators |
Quarterly milestones* |
Achievementsd |
||
|
1st |
2nd |
1st |
2nd |
National Industrial Participation
Programme (NIPP) jobs created |
50 |
50 |
87 projected jobs[5] |
|
NIPP investment and
export credits |
US$130 million |
US$520 million |
US$1 billion[6] |
|
NIPP projects implemented |
4 |
4 |
Still to be verified |
|
Business Process
Services - projects supported |
3 |
2 |
10 |
2 |
Business Process
Services - jobs supported |
1500 |
1000 |
333 |
161 |
Film and TV productions
supported |
12 |
17 |
15 |
14 |
Enterprise Investment Programme
(EIP): Tourism Support Programme (TSP) - enterprises supported |
60 |
80 |
26 |
39 |
EIP: TSP- jobs
supported |
1280 |
1680 |
2554 |
590 |
Manufacturing
Investment Programme (MIP) - enterprises supported |
90 |
117 |
100 |
178 |
MIP - jobs supported |
1940 |
2520 |
10790 |
4760 |
Automotive Investment
Scheme (AIS) - projects supported |
22 |
13 |
42 |
23 |
AIS - jobs supported |
500 |
700 |
500 |
1550 |
Critical Infrastructure
Programme - number and value of enterprises supported |
2 enterprises worth R1 billion |
2 enterprises worth R1 billion |
5 projects with the
value of R4.5 billion |
2 applications worth R2 billion |
SEDA Technology
Programme - SMMEs supported |
61 |
61 |
65 |
1588 (to date) |
SEDA Technology
Programme - jobs supported |
262 |
262 |
306 |
319 |
Cooperative Incentive
Scheme (CIS) - enterprises supported |
30 |
39 |
55 |
24 |
CIS - jobs supported |
163 |
163 |
275 |
141 |
BBSDP - enterprises
supported |
300 |
452 |
13 |
104 |
BBSDP - jobs supported |
350 |
527 |
78 |
1490 |
Source: *DTI
(2011f) and dDTI (2011g)
3. Analysis of the Department’s
Prevailing Strategic and Operational Plan
The strategic objectives and key interventions as outlined in the MTEF
for 2011 – 2014 were as follows[7]:
·
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;
·
Promote a professional, ethical,
dynamic, competitive and customer-focused working environment that ensures
effective and efficient service delivery.
The
Department’s total budget allocation for the 2011/12 financial year in nominal
terms[8] was R6.8
billion, about 9.6% higher than the previous year’s adjusted allocation of R6.2
billion[9]. In real
terms[10], this
represents an increase of 4.6%. The Department’s budget as a percentage of the
2011/12 national allocation by vote is 1.36%. This compares to 1.32% in the
previous financial year. The overall budget allocation depicts an increasing
budget for the Department, in line with the renewed focus on job creation and
the recognition that productive sectors play a key role in securing economic
growth and sustainable employment opportunities.
The
allocation over the MTEF period for the financial years 2011/12 to 2013/14
increases by an average annual rate of 6.9%. The increase in expenditure over
the MTEF period reflects the continuation of the incentive measures by the
Department to promote industrial development.[11]
In terms
of the economic classification, 82.5% or R5.6 billion of the DTI’s budget
consists of transfers or subsidies, mainly to public corporations, private
enterprises and departmental agencies and accounts, compared to 81.2% in
2010/11. A further 17.3% has been allocated to current payments consisting of
the compensation of employees (51.4% of the current payments allocation), and
goods and services (48.6% of the current payments allocation).
In terms
of allocations to various programmes, The Enterprise Organisation Division
received the largest share of the budget (R3.5 billion), followed by the
Industrial Development Division (R1.3 billion) and the Empowerment and
Enterprise Development Divisions (R839.7 million). These divisions combined
constitute 81% of the total allocated budget, while the remaining five share 19%
of the total budget. The budget share allocations to the Enterprise
Organisation and Industrial Development Divisions are mainly the allocated
funding for the promotion of industrial development.
Most programmes’
budgets increased in nominal terms, with the exception of the Trade and
Investment South Africa (TISA) Division’s budget, which declined by 12.9% since
2010/11 and declined by 16.9% in real terms. Given the understanding that
foreign direct investment is important for domestic economic growth, the
Committee was concerned that TISA’s budget has declined from R351.5 million in
2010/11 to R306.1 million in 2011/12. The Division has shifted its focus to the
Export Development and Promotion sub-programme in terms of the funding for the
interest make-up scheme for exporters through the Export Credit Insurance
Corporation. However, funding has shifted from the Investment Promotion and
Facilitation, and International Operations sub-programmes. The latter
sub-programme’s budget has declined by 18.4% due to efficiency savings at some
foreign offices and the merging of certain foreign trade mission offices with
the South African embassies.
In real
terms, most programmes’ allocated budgets increased by more than 6% with the
exception of the Empowerment and Enterprise Development Division, which
increases by 1.2% from 2010/11 to 2011/12, the Administration programme, which
increases by 0.4% from 2010/11 to 2011/12, and the International Trade and
Economic Development programme, whose allocated budget declined by 1.08% from
2010/11 to 2011/12.
This
budget share allocation of the higher level programmes appears to be aligned to
the DTI’s key strategic priorities. The changes in budget share allocations
also reinforce the shift in focus to industrial policy that leads to strategic
trade policy. The IPAP2 resources are allocated within the DTI as well as other
lead Departments, therefore the allocation to this Plan should be considered
holistically.
4. Analysis of Section 32
Expenditure Reports (Financial Expenditure for First Half of 2011/12)
Section 32
of the PFMA requires that National Treasury publishes a statement of actual
revenue and expenditure with regard to the National Revenue Fund. Committees are required to analyse the Section
32 reports in order to determine and examine spending trends and patterns of
the Department to identify under-spending and/or over-spending (if any). This data is published at
departmental level and only gives a breakdown of expenditure in terms of economic
classification, i.e. current payments, transfers and subsidies and capital
expenditure. Therefore, the Section 32 reports offer limited information to
analyse the DTI’s financial and non-financial performance for the current year.
The Committee has thus requested the DTI to submit its quarterly management
accounts to provide a more detailed record of expenditure.
The
financial data for the period from 1 April to 30 September 2011 is considered below. This consists of the
appropriated budget for 2011/12, the projected budget for the first six months
and the actual expenditure for this period. Overall, the projected budget had
been R3.48 billion (50.9% of total appropriated funds) and the DTI had spent
R3.45 billion (50.4% of total appropriated funds), excluding commitments.
This represents an under-expenditure
of R34 million (1%)[12].
The
Department also indicated its commitments[13]
up to the end of September 2011, which were R18.1 million. This was mainly
concentrated in the Administration (R7.6 million) and Communications and
Marketing (R8.4 million) programmes.[14]
As the commitments are fairly insignificant and based on the principle that any
funds committed and not spent at the end of the financial year would return to
the fiscus or be subject to a roll-over application, the discussion below
excludes these.
The Department’s monthly funding
requirements are determined by analysing the projected expenditure as submitted
by Divisions against the actual expenditure being incurred and in instances
where under-spending is occurring, less funding is requested from National
Treasury than was projected. This is evidenced by a difference of R366 million
between the projected expenditures in the DTI’s 2011/12 Business Plan and
September 2011 Management Accounts.
4.1 Programme
Performance
4.1.1
Administration
This programme aims to provide strategic leadership to the DTI and its
agencies, and to facilitate the successful implementation of the Department’s
mandate through sustainable and integrated resource solutions and services that
are customer-centric.
The
Administration programme was appropriated R466.3 million. This budget
allocation mainly consists of current payments. The main reasons for the slight
increase in its allocation were due to an increase in the compensation of
employees, and relatively substantial increases in line items such as
advertising, communication services, business and advisory, and legal services.
An amount
of R233.6 million was projected to be spent for the first six months. The
programme spent R240.5 million with a negative variance of R6.9 million. The
overspending was mainly as a result of inter alia; an additional R2.7 million
on payments for capital assets and R2.1 million on the compensation of
employees. The payments for capital assets were related to the purchase of Microsoft Enterprise Licences
which were planned during the previous financial year, but payment was only
made this year. Additional expenditure
on compensation of employees was due to notch increases, merit awards and
improvement of conditions of salary level 1-12.
4.1.2
International Trade and Economic Development (ITED)
This
division provides leadership on trade policy in South Africa to promote
economic development by working towards building an equitable multilateral
trading system that facilitates development, strengthens trade and investment
links with key economies, and fosters African development including through
inter alia regional and continental integration, and development co-operation
in line with NEPAD.
This
programme was initially allocated a budget of R129.7 million, which is shared
between two sub-programmes, namely International Trade Development and African
Economic Development. The latter sub-programme has received a slight real
increase of 0.5%, while the former a real decrease of 2.3%. The compensation of
employees increases by 10.5% in nominal terms due to increased staff capacity,
while the expenditure on goods and services has declined by 13.2% in nominal
terms. There has been a 71% decline in the allocation for legal costs for
international legal proceedings since 2010/11.
This appropriation has been adjusted
to R149.4 million during the first six months. The year to date expenditure projection
was R52.7 million. However, R55.9 million was expended with a negative variance
of R3.2 million. The overspending on this programme was due to the hosting of
the Tripartite Council of Ministers and its second Summit in June 2011. A roll-over
request to cover this expenditure was approved by National Treasury in
September and adjusted cash flow has to still be approved.
4.1.3
Empowerment and Enterprise Development (EEDD)
This
programme seeks to provide leadership in the formulation of legislation,
policies and strategies aimed at creating an enabling environment for the
promotion and development of co-operatives and SMMEs, as well as lagging
regions in the country, in a manner that enhances contribution towards the
country’s GDP growth rate, assists in sustainably reducing unemployment and
poverty and achieves an inclusive, shared and equitable economy.
An amount
of R839.7 million was allocated to the programme, which has been moderately
increased by 6.1% in nominal terms, mainly due to increases in its Enterprise
Development and Regional Economic Development sub-programmes (94.7% of the programme’s
budget allocation). These sub-programmes deal with support to SMMEs and
co-operatives, as well as spatially balanced economic development and
productivity improvements within underdeveloped regions of South Africa. The budget
allocation of the third sub-programme, Equity and Empowerment, has declined by
0.8%. In terms of economic classification, the most substantial increase was
within transfers and subsidies (89.9% of the allocated budget), due to the transfer
to the Small Enterprise Development Agency’s Technology Programme (44.7%
nominal increase). All other institutions and programmes received minimal
nominal increases, with the exception of the Support Programme for Industrial
Innovation, which declined by 9.5%.
Its year
to date expenditure projection was R481 million, of which R473.6 million has
been spent with a variance of R7.4 million. The under-spending by economic
classification was mainly due to under-expenditure on goods and services. This related to under-spending on consultants
due to delays in finalising the Skills and Co-operatives projects as well as
some of the BEE projects that are still in the procurement process. Travelling
expenditure was lower due to fewer trips undertaken than projected.
4.1.4
Industrial Development Division (IDD)
The
purpose of the Division is to facilitate industrial development supported by
government procurement that creates an enabling environment for
competitiveness, growth and job creation.
This programme
was allocated a budget of R1.3 billion, which has been increased by 11.4% since
2010/11. This increase is due to a 32.2% increase in its Customised Sector
Programmes sub-programme’s budget (61.5% of the programme’s budget). There is a
shift in the budget from general strategies and programmes for industrial
competitiveness to more specific high-impact sector strategies. The largest
proportion of the budget is allocated towards transfers and subsidies (91.6%).
These increases mainly occur in the following programmes: the Clothing and
Textile Production Incentive (R600 million), National Cleaner Production
Centre (R40.1 million), Aerospace Industry (R20.8 million) and the standards,
quality assurance, accreditation and metrology (SQAM) institutions (R301.9 million).
The National Cleaner Production Centre is located at the Council for Scientific
and Industrial Research (CSIR). The Centre provides the Industrial Energy
Efficiency Training Programme. In 2010/11, more than 200 people were trained in
energy optimisation[15]. This programme
can play a critical role in addressing challenges around climate change
It
projected year to date expenditure for six months to be R921.3 million (72.7%
of the initial appropriation), of which R911.7 million was spent with a variance
of R9.6 million. The under-expenditure was mainly due to under-spending on
goods and services (R6.7 million) and compensation of employees (R2.5
million). In terms of goods and services, there had been savings due to the use
of internal facilities for meetings, workshops and conferences. In addition, payments
for consultants have been delayed until services have been rendered per
milestone achievements. Lower expenditure on compensation to employees was due
to 33 vacant positions out of 144 posts.
The programme
has also indicated that a payment to SABS Small Business Technical Consulting
was delayed as the remaining amount is insufficient to make the final payment. This
was due to changes in the exchange rate, and the additional funding will be
allocated through the adjustment estimate process.
4.1.5
Consumer and Corporate Regulation (CCRD)
The purpose of this programme is to
develop and implement coherent, predictable and transparent regulatory
solutions that facilitate easy access to redress, efficient regulation for
economic citizens and to promote competitive, fair and efficient markets.
This programme
was allocated R231.7 million for the year[16], which
has been adjusted downwards to R229.7 million during the first six months[17]. The
initial allocated budget was increased by 18.5%. This relatively large increase
was due to the implementation of the Consumer Protection Act and the new
Companies Act coming into effect during the 2010/11 financial year. The
National Consumer Commission received an allocation of R24.8 million for its
establishment in 2010/11, which increased by 33% to R33 million in 2011/12. The
National Consumer Tribunal is now tasked with implementing the Consumer
Protection Act over and above its legislative mandate to deal with the National
Credit Act, and as a result its budget allocation increased by 30.7% to R28.8 million
in 2011/12.
In
addition, an amount of R10 million has been allocated for the establishment of
the Companies and Intellectual Property Tribunal. These funds have not yet been
transferred, however the establishment process has been initiated and the
recruitment of Tribunal members is at the approval stage at Cabinet. A number
of institutions were consulted as a limited number of applications were
received. Furthermore, the Companies and Intellectual Property Commission’s
budget increased from R9 million in 2010/11 to R14 million in 2011/12 to
complete its conversion from CIPRO and to execute its additional functions.
CCRD’s year to date expenditure
projection was R119.6 million and R118.6 million was spent with a variance of R1
million. Under-spending in terms of economic classification, was due to 14
vacant positions out of 63 posts resulting in the low spending under
compensation of employees (R2.3 million). However, the programme overspent on
goods and services by R1.3 million. This over-expenditure included payments due
to the appointment of secretariat staff for the Copyrights Review Commission
and Anti-Piracy Campaign.
It should be noted that the
programme experienced a high level of under-expenditure during the first
quarter due to the outstanding contractual requirements with some of the
entities it oversees to ensure the DTI’s compliance with PFMA requirements.
This has subsequently been concluded and all entities and institutions have
subsequently received their allocations to date.
The CIPC was established on 1 May
2011 and incorporated the Companies and Intellectual Property Registration
Office and the Office of Companies and Intellectual Property Enforcement.
During the Committee’s oversight visit to CIPC in July 2011, several teething
problems were identified. These included new and inherited backlogs for
registrations, particularly in terms of name registrations, co-operatives and
close corporations, as well as amendments to companies and close corporations;
restoration of deregistered entities and challenges with the annual return
system and billing; maintenance of the aging, current electronic legacy system
to ensure the integrity of data; poor accessibility to CIPC; and the poor call
answer rate at the call centre and through e-mails. The CIPC has developed an
18-month turnaround plan to address its challenges, including the outsourcing
of the call centre and service level agreements by December 2011.
In a follow-up meeting on 13
September 2011, the Commissioner, Ms Astrid Ludin, informed the Committee of
progress that had been made by the end of August and a number of mechanisms
that were being implemented to address the remaining challenges. The following
progress had been made:
o
Registrations of close corporations and co-operatives were
almost up to date, only 65 outstanding (61 close corporations and 4
co-operatives).
o
Only 308 of 64 408 name reservations were still outstanding.
o
Company and close corporation changes were 98% and 97.7%,
respectively, complete.
o
All of the e-mails sent to the general e-mail address were
cleared and over 80% of the backlogged e-mails sent to the annual returns
e-mail were cleared.
o
The answered calls at the call centre increased from 28% in
May to 46% in August.
The areas that still require
attention are: improving data capturing accuracy; annual return payment
reconciliation; further improvement in the call centre performance and the IT
systems, including the website. Ms Ludin reported that the call centre would be
outsourced in future and that there was more fundamental work to be done on
strategy, organisational design and ICT systems beyond the end of the financial
year. The CIPC assured the Committee of its ability to maintain the integrity
of the ICT system.
The
Committee recognises the important role that the CIPC plays in the economy and
society, therefore its effective functioning is critical. It was impressed with
the progress that the CIPC has made since the initial engagement. However, the
Committee has resolved to continue its regular oversight of the CIPC to ensure its
effective functioning, including the implementation of the turnaround plan
within the timeframes provided.
4.1.6 The
Enterprise Organisation (TEO)
This
programme stimulates and facilitates the development of sustainable,
competitive enterprises through the efficient provision of effective and
accessible incentive measures that support national priorities. The spending
focus over the medium-term will be on funding incentive schemes, which aim to
create jobs and attract investment.
TEO was
appropriated R3.5 billion for 2011/12, which increased by 12.4% since 2010/11.
The following sub-programmes’ budget allocations have increased:
Competitiveness and Export Incentives (10.6%), Manufacturing Incentives
(43.6%), Services Sector Incentives (30.2%), Product and Systems Development
(1.9%) and Business Development and After Care (68.9%). The other two
sub-programmes’ budget allocations declined i.e. Broadening Participation
Incentives (29.4%) and Infrastructure Development Support (27.2%). The
Division’s main expenditure is transfers and subsidies (96.4% of its budget).
The main initial increases were within the following incentive programmes:
Business Process Outsourcing, Enterprise Investment Programme, Automotive
Production and Development Programme and Critical Infrastructure Programme.
Its year to date projections were R1.5
billion and R1.46 billion of this has been spent with a variance of R50.3 million.
By economic classification, the under-spending was primarily due to
under-expenditure on transfer payments of R44.8 million (or 3.1% of the
projected expenditure on transfer payments). The breakdown on transfer payments
was a payment to Enterprise Investment Programme (EIP) of R6.9 million that was
not made due to compliance issues such as invalid tax clearance certificates
and banking details verification.
There was also under-spending of R4.8
million for Black Business Supplier Development Programme (BBSDP); R72.6
million for Automotive Production and Development Programme (APDP); and R2.9
million for Co-operative Incentive Scheme (CIS) due to fewer claims being received
than anticipated. Payment to the Film Industry of about R8.3 million was
not made, as the Division is awaiting the final ruling from the National Film
and Video Foundation to pay claims according to the guidelines. On the other
hand, as more claims were received than anticipated, TEO reprioritised its spending
and made additional payments for claims in the Critical Infrastructure
Programme (R43 million) and the Business Processing and Outsourcing Incentive Scheme
(R6.9 million). The Committee remains concerned about the under-spending in the
BBSDP as it should be promoting black empowerment. Therefore it is important
that the DTI put measures in place to address this.
Other sources of under-expenditure were
R3.9 million on compensation of employees as there were 25 vacant positions out
of 243 posts; and R1.5 million under goods and services due to under-spending
on consultants due to a delay in the appointment of IT consultants as well as
in communication.
4.1.7 Trade
and Investment South Africa (TISA)
TISA is
responsible for increasing export capacity and supporting direct investment
flows through strategies for targeted markets. In addition, it manages a
network of foreign trade offices.
This programme was allocated R306.1
million in 2011/12 and an amount of R121.9 million was projected. Of the
projected amount, R146.1 million has been spent, resulting in a negative variance
of R24.2 million. In terms of the economic classification, the over-expenditure
under both goods and services and compensation of employees’ items of
approximately R26 million was due to a high volume of foreign mission accounts
received from the Department of International Relations and Cooperation,
backdated as far back as December 2010. The total budget is, however, not
exceeded, only the year to date budget. There was an under-spent amount of R2.5
million under transfer payments. This has been attributed to the September cash
flow request that failed to be transferred as the banking details verification
for the Export Credit Insurance Corporation (ECIC) had to be re-done after the
ECIC had changed its banking account details without notifying the DTI.
4.1.8
Communication and Marketing
This programme facilitates greater
awareness of the Department’s role and increases the uptake of its products and
services. This focuses on managing the DTI’s brand, running educational
campaigns for its products and services and improving media relations
management and public relations activities.
The programme was allocated R79.4
million for 2011/12. Its year to date projection was R38.7 million of which R38.4
million was spent reflecting a slight under-expenditure of R0.3 million. Spending
was balanced between an under-expenditure mainly due to vacancies against an over-expenditure
due to advertising, lease payments, travel and subsistence expenses as well as expenses
on venues and facilities.
4.2 Department’s vacancy rates
The DTI’s
vacancy rates are shown in Table 2. The DTI’s staff component has decreased by
5.3%. Some of the staff from CCRD has been transferred to the NCC and CIPC.
Table 2: DTI’s Vacancy rate as at
end of March and September 2011
Programmes |
Number of posts 31 Mar |
Number of posts 30 Sept |
Vacancies |
Vacancy rate |
||
31 Mar |
30 Sept |
31 Mar |
30 Sept |
|||
Administration |
390 |
403 |
50 |
48 |
12.8% |
11.9% |
International Trade and Economic
Development |
88 |
148 |
7 |
20 |
8.0% |
13.5% |
Empowerment and Enterprise Development |
119 |
110 |
27 |
11 |
22.7% |
10.0% |
Industrial Development |
106 |
144 |
16 |
33 |
15.1% |
22.9% |
Consumer and Corporate Regulation |
145 |
63 |
34 |
14 |
23.4% |
22.2% |
The Enterprise Organisation |
151 |
243 |
36 |
25 |
23.8% |
10.3% |
Trade and Investment South Africa |
238 |
145 |
28 |
34 |
11.8% |
23.4% |
Communication and Marketing |
147 |
55 |
36 |
7 |
24.5% |
12.7% |
Total |
1384 |
1311 |
234 |
192 |
16.9% |
14.6% |
Some of
the vacancies, especially in CCRD, have been due to new posts being created.
However, the DTI has embarked on a process where, all funded vacancies must be
filled within a maximum of three months.
5. Analysis of the Department of Trade and Industry’s Annual
Report and Financial Statement
5.1 Economic Context
The period under review takes place against a backdrop of continued
global recovery especially among the emerging and developing economies with
sluggish recovery reflected in advanced economies[18]. South
Africa emerged from recession during the second half of 2009 with GDP growth of
2.8% in 2010[19].
The improved implementation of the revised Industrial Policy Action Plan
(IPAP2) provided the impetus for improvement in the economy’s productive
capacity and competitiveness. Despite the positive growth in 2010, the job
creating capacity of the economy remained stagnant.
The
“overarching policy framework” of the New Growth Path (NGP) released in
November 2010 is to deliver on the outcome of creating decent employment
through inclusive growth. The policy’s principal target is to create five
million jobs over the next 10 years. This Framework reflects government’s
commitment to prioritising employment creation in all economic sectors. It
identifies strategies that will enable South Africa to grow in a more equitable
and inclusive manner while attaining South Africa’s developmental agenda. One
of the key drivers of the NGP is the IPAP2, which focuses on promoting the
productive sectors of the economy. The critical importance of the manufacturing
sector in the overall New Growth Path cannot be overemphasised. IPAP2 remains one
of the main drivers of the economy but its impact was limited to certain
sectors such as the automotive; basic chemicals; iron and steel; and
food and beverages industries.[20]
A slowdown in global demand is reflected in the poor export performance
of manufactured goods. The decline in investment continued and is ascribed to
the persistent contraction of public sector investment reflected in a 10.9%
decline for the year[21].
Private sector investment contracted by 4.4% in 2010. This decline was notably
in the construction sector.
5.2 Policy context for the period under review
The DTI’s
2010/11 Budget was informed by the decision to arrest the decline of industry,
accelerate the creation of decent employment opportunities and eradicate
poverty through the implementation of the IPAP2, which will drive the country’s
trade policy strategies.
In his
2010 State of the Nation Address (SONA), President J Zuma identified IPAP2 as a
flagship intervention that would address the serious structural weaknesses and
imbalances in the economy. The 2010 SONA highlighted the following strategic
priorities that are relevant to the DTI’s mandate:[22]
·
Industrial Development
and Job Creation: There was a focus on building new industries such as the green
industry and strengthening existing industries, with a particular focus on more
labour-absorbing industries. Furthermore, the President emphasised the need to
create decent employment opportunities, particularly for the youth.
·
Support to distressed
companies:
R6 billion has been set aside by the Industrial Development Corporation to help
companies in distress.
·
Corruption and fraud: The eradication of
corruption and fraud within public procurement and tender processes was
addressed.
·
International Trade
Relations: The President mentioned that the interests of
South Africa, including economic interests) will be intensively promoted
globally.
·
Strategic African
Relations:
The political and economic integration of the Southern African Development
Community (SADC) will be supported and sped up, and intra-regional trade and
investment will be promoted. Furthermore, the revitalisation of the New
Partnership for Africa’s Development (NEPAD), as a strategy for economic
development on the continent, would be a focus area for the country.
South Africa
is a developing country with aspects of a developed country in terms of certain
sectors such as its financial sector. The country is rich in resources, which
is needed by other countries. However, trade is disadvantaged due to the
country’s location in respect of its major non-African export markets. Despite
positive but narrow economic growth since 1994, the benefits of this growth
have not translated into broad economic opportunities. One of the challenges to
addressing inequalities is that the economy is characterised by a small number
of big enterprises, which limit economic growth as they create high barriers to
entry for smaller firms.
Acknowledging
that industrialisation is a key instrument to promote economic development, the
country has shifted from an export-led growth path and is now focusing on
developing domestic industrial sectors through IPAP2. The policies being
developed emphasise labour-absorption priorities and support for vulnerable
industries. However, there is a need to develop a beneficiation policy to
broaden local value-adding activities of the country’s vast resources.
Furthermore, a focus on small-scale manufacturing is lacking within IPAP2 and
must be addressed to ensure that economic participation is broadened. In this
regard, there must be a link with the Department of Rural Development and Land
Reform to promote the agro-industry value chain from a trade and industry
angle. Coordination at the Executive level, particularly in the Economic
Cluster, is crucial to ensure the success of IPAP2 but also of other economic
policies.
Another
key constraint to future economic development was the availability of
affordable development finance. In this regard, the policy for the
capitalisation of development finance institutions must be reviewed to increase
the availability of capital finance. Furthermore, the self-financing model that
has been adopted previously has led to a divergence from a developmental
approach to one similar to commercial banks. The refocusing of these institutions
through recapitalisation should enhance their ability to absorb the risk of
providing affordable financing to entrepreneurs.
The Trade
Policy and Strategy Framework would take a more dynamic approach from a pure
trade liberalisation stance to being a tool of industrial policy. In its report
on the Trade Policy Strategy Framework, the Committee concurs that a review of
tariffs to support industrial development and promote a developmental approach
to tariff reforms was essential[23]. This
strategic approach to adjusting tariffs on imports is based on evidence-based
case-by-case requirements to avoid a negative impact on local agro-processing
and manufacturing. The Committee further reported that what is required is the
reduction or elimination of tariffs on mature upstream industries to reduce the
input costs for labour-intensive manufacturing industries. This developmental
approach should stimulate industries within the economy by strategically
adjusting tariffs to enhance the competitiveness of industries both locally and
internationally. The Committee further encourages the implementation of
countervailing duties and use of WTO dispute settlement mechanism to protect
local industries.[24]
In terms
of trade in agricultural goods, there have been calls for support, as domestic
primary and processed agricultural goods are exposed to competition locally and
abroad from countries that heavily subsidise their agricultural sector. This is
leading to a situation where net imports of processed agricultural goods are increasing.
As the agro-industry is a key sector in job creation and the eradication of
poverty, particularly in rural areas, it is imperative that it is supported to
meet the Government’s objectives.
Furthermore,
the country is pursuing regional economic integration within Africa. At the
World Trade Organisation (WTO) level, South Africa is still treated as a
developed country, despite its efforts to be reclassified as a developing
country. This has severe implications on South Africa’s ability to renegotiate
its rate of tariff liberalisation, which places strain on its economy as well
as the member countries of the Southern African Customs Union (SACU), thus posing
a risk to the deepening of regional integration. The Committee recognised the
importance of integration with Africa as it offer economic opportunities and
market for value-added good produce and manufactured in South Africa.
Implicit
in the context of a developmental state and industrial development driving
trade strategies is the greater prioritisation of consumer protection which
requires a stronger regime. In this regard, the Consumer Protection Act (No 68
of 2008) came into force on 24 October 2010. It established the National
Consumer Commission, strengthens consumer rights and empowers the consumer
voice. The enforcement of this Act also places the onus on business, both local
manufacturers and local importers, to provide better quality goods and services
that are competitive and could stimulate a demand driven environment for quality
consumer goods and services.
5.3 Engagement with the DTI on its
2010-11 Annual Report
During the
briefing on the 2010-11 Annual Report of DTI the Minister of Trade and
Industry, Dr R Davies, informed the Committee that IPAP2 remains the flagship
programme for the Department. He once again emphasised the importance of the manufacturing
sector with respect to the overall New Growth Path.
During the
2008 global financial crisis, the manufacturing sector contracted by 10% with
200 000 jobs losses within the manufacturing sector. IPAP2 provided the impetus
for the recovery with a 5% year-on-year expansion which saw the creation of 70
000 jobs within the sector. The Minister acknowledged that although the
recovery is underway, the recovery is being challenged by the current global
economic environment, the volatile currency, continued strikes, high asset
prices which saw a contraction within the sector. The current global economic
environment is seen as a barrier to significant investment within the
manufacturing sector. It is within this context that South Africa is trying to
advance IPAP2.
Measures
that have been implemented to advance industrial policy include:
· The amendments to the
regulations of the Preferential Public Procurement Framework Act (PPPFA) were
approved in June 2011. This will enable the DTI to designate sectors for local
procurement, align the PPPFA with the Broad-Based Black Economic Empowerment
(BBBEE) and lay the foundation for the amalgamation of the National Industrial Participation
Programme (NIPP) and the Competitive Supplier Development Programme (CSDP) for
fleet, direct and indirect local procurement.
The Minister informed the Committee that seven sectors have been
identified for local procurement, as of December 2011, which will include railway
rolling stock, busses, wind turbines, and power pylons among others[25]. As a
result of the designation of the preferred sectors, manufacturers can easily recognise
opportunities within South Africa.
· New building regulations
around energy efficiency will take effect from 9 November 2011. This will
require all new buildings to have solar water heaters (SWHs). The South African
Bureau of Standards (SABS) developed a range of enabling standards for various
industries and products. The Minister is of the view that South Africa can roll-out
one million SWHs, which could potentially create 18 500 jobs.
· The draft green industry’s
Customised Sector Programme (CSP) has been finalised and draft action plans for
solar and wind were completed[26].
· The conclusion of a final
agreement with regard to the European Union-SADC Economic Partnership Agreement
(EPA) is insight.
· A review on the small,
medium and micro enterprises (SMME) is underway and once the report has gone
through all government processes, it will be submitted to Parliament.
.
The
Minister also highlighted other trade-related developments. The next
Ministerial Conference was scheduled for December 2011. However, he expected
that there would be no new developments within the Doha Development Round and
that the Round would not be completed soon. Furthermore, trade among South
Africa’s trading partners in the emerging economies had grown, especially in
relation to China. Although, South Africa was concerned that trade is
predominately in the export of primary products and the import of finished
goods. South Africa, together with China, has launched a Comprehensive
Strategic Partnership Agreement which will ensure that China buy certain value-added
products from South Africa.
The
Director-General, Mr L October, briefed the Committee on the 2010/11 Annual Report
which was underpinned by IPAP2 which led domestic recovery. The objective is to
protect South Africa’s industrial base which is currently being threatened by
the slowdown in the economies of our traditional trading partners, currency
volatility and austerity measures being implemented in Europe.
The
Committee noted that the strategic objectives of the DTI could be distilled
into five strategic priorities: 1. industrial development; 2. strategic trade, productive
investments, exports and the development of the domestic market; 3. broadening
participation; 4. regulation; and 5. administration and coordination. This
together with the Committee’s analysis during its oversight and within the
government’s policy priorities informed its deliberations regarding the
required budget recommendations.
5.3.1 Industrial Development
The
Committee welcomed the tabling of the “Progress Report on the Implementation of
IPAP2” which identifies the key achievements, as well as the constraints and
challenges that could be impediments to the implementation of industrial
policy. Not reflected in the report is whether the structural impediments that
would delay the advancement of industrialisation had been addressed. The Committee
recognised that the positive economic growth has not been due to the productive
sectors of the economy; therefore the IPAP2 seeks to address the overcome structural
impediments that are impeding effective sustainable job creation.
The key
achievements focused on by the Director-General related to industrial financing
with private credit extension to fixed investment and high cost of industrial
financing barriers to re-industrialisation of the economy[27]. The
Industrial Development Corporation (IDC) will provide the necessary funding in
terms of loan finance of R102 billion for IPAP2 and NGP over the next five
years. These investments should address the significant access to finance barrier
to halt the decline in the manufacturing sector. The DTI informed the Committee
that Phase 1 of the study on long-term Industrial Financing has been completed.
The
Committee welcomed the promulgation of the PPPFA regulations which would come into
effect on 7 December 2011. The Committee enquired into the country’s current
capacity to produce and deliver within the seven sectors identified by the
Minister that have been designated with regard to procurement. In addition,
where capacity was lacking, how this capacity would be developed, as well as
the timeframes attached to delivering on this new demand for locally produced
goods. The Minister informed the Committee that the seven sectors were identified
based on sound research and a thorough consultative process. This included an
analysis of existing capacities within particular sectors and the possibilities
to increase the local content. It was also clarified that not all busses would be
manufactured in South Africa. South Africa has enormous engineering capacity
which has been eroded over the years and this capacity should be regained. There
is recognition within State-owned enterprises (SOEs) that local suppliers must
be developed and the lost capacity must be recovered in order to increase local
procurement of products.
The DTI informed the Committee that roll-out of the Clothing and Textile
Competitiveness Programme (CTCP) is ongoing and has benefited more than 106
companies. The CTCP focuses on two aspects, i.e. local procurement and
competitiveness improvements including equipment. The support of these
companies has curtailed job losses within the industry. The Committee welcomed
the decision of the Foschini group to procure locally in support of SMME’s. A concern for the Committee was the impact of
conditionalities attached to these incentives and that the DTI should prevent the
payment of low wages. The Minister informed the Committee that incentives were designed
so that as long as a company invested to raise productivity, it would receive its
approved incentive.
With regard to the payment of lower wages to employees, the Minister
informed the Committee that through an agreement negotiated at the bargaining
council, unions agreed that new unskilled employees could be employed at a
lower wage to increase employment.
The Committee further enquired whether there is a timeframe attached for
support to the clothing and textile industry. The Minister argued that the
clothing and textile industry has a future and investment within the sector
should be encouraged. Government will support the industry until South Africa
has a competitive industry that is able to compete in a global economy. Or
Government will have to continuously assess the validity of its investment.
The Minister in his brief highlighted the importance of the green and
energy-saving industries with respect to industrialisation. Greater
inter-departmental coordination led to the issuing of water licences which lead
to progress with respect to the implementation of a plan for small-scale,
labour intensive production in forestry and wood production. The Minister
reported progress with respect to the South African Renewables initiative
(SARi) in securing global funding for renewable energy generation, downstream
manufacturing and job creation.
5.3.2 Trade, Investment and Exports
The DTI
reported on extensive work done with respect to SACU. The main focus was to
strengthen SACU but move the focus away from revenue sharing to industrialisation,
infrastructure development and the establishment of an African single market.
Currently, through the DTI, work is being initiated to develop common regional competition
and industrial policies with a concept document prepared on possible industrial
projects that could form the basis for an industrial programme for SACU.
The DTI
informed the Committee that the Southern African Development Community’s
(SADC) Ministerial Task Force approved
an action plan with nine (9) priority focus areas that will help to
consolidate the SADC Free Trade Area and provide greater impetus to regional
industrialisation. An important achievement was the development of a common
position with regard to the SADC-East African Community (EAC)-Common
Market for Eastern and Southern Africa (COMESA) Tripartite Free Trade Area (TFTA).
Strengthening
and expansion of South-South relations remains a key objective of the DTI but they
highlighted non-tariff barriers as the biggest constraints with regard to India
and Brazil. The Committee welcomed the strengthening of South-South relations
but was of the view that the pursuit of South-South relations should be in the
context of advancing the fight against poverty, underdevelopment and
marginalisation of the South. The Committee welcomed the DTI’s announcement
that agreements were reached to address the non-tariff barriers that impeded
bilateral trade.
The DTI
also highlighted the investment and export promotion within the African
continent as six of the fastest growing economies according to the latest
International Monetary Fund (IMF) report is on the African continent.
South Africa’s position remains committed to ensuring a developmental
outcome in the WTO Doha Development
Round negotiations. In the
Minister’s view, the next Ministerial meeting is not expected to deliver the
desired developmental outcome.
The DTI
informed the Committee that the approach in recruiting foreign direct
investment in a targeted manner has yielded results. Targeted countries
included China, India, Russia, Brazil, Japan, Spain, Germany, France, the UK, the
United States of America (USA) and the Middle East. The work
programme will translate over the next three years into an investment pipeline[28]
of R115 billion in projects. Current results of the year are R31.2
billion in potential investment and 14 055 jobs. The pipeline reflects R15.5
billion in domestic investment and R15.7 billion, in foreign investment.
5.3.3 Broadening participation
The DTI
informed the Committee that it has assisted in the development of 100 new small-scale
co-operatives creating a minimum of 500
self-generated income and employment opportunities. The DTI also completed the
legislative review of the 2005 Cooperatives Act which will soon be submitted to
Cabinet for approval. The Committee highlighted that the legislative review is
long overdue and it would have expected it in 2009 given the challenges faced
by co-operatives. The Minister has indicated that legislation will be submitted
for consideration early in 2012.
The Technology Incubation
Programme of the Department, which is managed by the Small Enterprise
Development Agency (SEDA)
created 202 new SMMEs.
5.3.4 Regulation
The
Director-General informed the Committee that the Companies Amendment Act and
Regulations were finalised during the period under review, as well as the
Consumer Protection Act Regulations.
The
Committee welcomed the finalisation of the Estate Agency Policy Framework and
the development of a draft bill for tabling to Cabinet. The Committee expects
that this process is finalised soon so that the DTI’s mandate is recognised and
respected. The DTI also produced draft
research reports on the review of the
Alienation of Land Act aimed to align it with the Estate Agency Affairs
Act and the Regulatory Impact
Assessment report on the Estate Agency Policy and Law reform.
The
Intellectual Property Laws Amendment Bill for the protection of Indigenous
Knowledge was tabled in Parliament in 2010. The National Assembly adopted the
Bill and it has been transferred to the National Council of Province for
consideration.
The DTI
also developed the National Liquor Licensing
Guidelines and Liquor Regulations for the 2010 FIFA World Cup to
streamline application procedures and align trading terms across the country.
The
Minister further introduced Regulations and a Directive to improve the
accessibility of funds to needy communities and causes, improve
governance structures on lottery matters and ensure optimal distribution of the
National Lottery Distribution Trust Fund for developmental purposes. Since 2009,
the Committee has raised concerns regarding the Distributing Agencies and it
has raised the need to amend the Lotteries Act. This is linked to gambling
broadly.
Interactive Gambling Regulations had been
completed. In 2009, this was submitted to the Committee, who
pointed out the need to review the gambling legislation. In response, the Gambling Review Commission was established by
the Minister to assess, inter alia, the socio-economic impact of
gambling, particularly on the poor; the proliferation of gambling, which might
result from legislative or implementation gaps; and the impact of technological
development in this industry and produce a report which was tabled in
Parliament. The Committee is currently holding public hearings in relation to
the recommendations of this report.
5.4 4.3 Key
issues raised by the Committee
The
following issues were highlighted during the Committee engagement with the
Department’s 2010-11 Annual Report:
§ Decline in government investment: The Committee enquired
how government is addressing the decline in public investment as it is viewed
as a critical element in the reindustrialisation programme. The Minister
informed the Committee that government has noticed the decline in public
investment which could be ascribed to fewer infrastructure projects after the
2010 World Cup and the inability of local government to invest due to capacity
constraints. Government has set-up a Presidential Level Commission to take
charge of the infrastructure programme in a clear attempt to raise the level of
public investment to counter the global downturn.
§ Training Expenditure: The Committee requested the DTI to
provide an explanation for the zero expenditure reflected in the human
resources oversight report with respect to training within key programmes such
as the ITED, CCRD, TEO and for Communication and Marketing. The Director-General
informed the Committee that all training has been centralised under the Administration
programme which reflects the training expenditure in all programmes in the DTI.
§ Incentives: The Committee enquired how the DTI monitors
incentive schemes as well as the cost of the incentives over the next five
years. The DTI acknowledged that the correct monitoring systems must be in
place to ensure compliance with respect to the incentives. For example, the big
programmes like the Automotive Investment Scheme (AIS), the Automotive
Investment Development Centre (AIDC) manage the incentive on behalf of the DTI.
All incentives undergo a mid-term review and independent agencies assess
incentives on a regular basis.
§ Increase in under-expenditure of the DTI’s budget: The Committee enquired to
the reasons for the increase in the under-expenditure of DTI’s allocated budget
for 2010/11. The Minister expressed his concern in the increase in
under-expenditure as the DTI target is less than 5%. The under-spending could
be ascribed to DIRCO and the AIS. A joint Committee is being establishment
between the DTI and DIRCO to ensure receipt of and payment of invoices. The DTI
has signed a five-year contract with AIDC which would administer the automotive
incentive schemes to avoid under-spending in the roll-out of this programme.
§ Estate Agency Legislation: The Committee enquired about the
potential consequences in the delay in the tabling of legislation. The Minister informed the Committee
that the Estate Agency Affairs Board is currently being discussed by the DTI
and the Department of Human Settlements before legislation is submitted to
Cabinet. However, the protection of consumers remains the key priority.
§ SACU/SADC: The Committee enquired about the revenue-sharing agreement
and whether it is aligned to altering or improving the infrastructure
development programme. SACU, as a customs union, is currently held together
through the revenue-sharing formula. The status quo cannot remain and SACU does
not have a programme for regional industrial development. SACU must develop
into an instrument of developmental integration. The Minister informed the
Committee that the SADC taskforce on regional integration will meet to discuss
the establishment of a SADC customs union, which is a concern for SA.
§ SA trade relations with Turkey: Relations with Turkey remain a
challenge for South Africa. Turkey, although not a member of the EU, has entered
into a customs union agreement with the EU covering non-agricultural goods. As Turkey
has characteristics of a developing country it is seeking to import goods, such
as clothing, textiles and automotives into the South African market at the same
rate as the EU. However, South Africa does not want to undermine these sectors
and will only enter into trade relations with Turkey on areas of
complementarities.
§ Beneficiation: The importance of the mining sector to the SA
economy should not be underestimated. Beneficiation of primary products remains
a concern. The Committee enquired about the programmes in place to ensure that
South Africa beneficiates its primary commodities. The Minister informed the
Committee that some beneficiation is already taking place without policy
intervention. The Committee looks forward to further engagement on the matter.
§ Inter-departmental Report of Steel: The Committee enquired
into the status of the Report of the
Inter-departmental Committee on steel. The Minister informed the Committee that
inter-departmental committee has concluded its work and the report will be
tabled in Cabinet shortly. The Committee beliefs that steel plays a strategic
role in manufacturing and looks forward to this report,
§ Solar Heating: SABS informed the Committee that 95% of the
industry is foreign-owned. The DTI is more concerned with the establishment of
local manufacturing plants rather than ownership. South Africa should
eventually, like China, develop their local companies and should avoid what
happened in the cell phone industry.
§ IDZs: The Minister informed the Committee that there are few new
IDZs on the horizon, one which is Saldanha. The DTI are in the process of
developing new legislation that would broaden the concept of IDZs into special
economic zones (SEZ).
5.5 Financial
Statements for 2010/11
The actual
expenditure for the year under review was R5.797 billion against the adjusted
appropriation of R6.194 billion, an under-expenditure of 6.4%. A further
breakdown of the budget is shown in Table 3.
Table 3: Appropriation statement for
the financial year 2010/11
Programme |
Voted for 2010/11 |
Roll–overs and adjustments |
Virements |
Total voted |
Actual expenditure |
Variance |
R’000 |
R’000 |
R’000 |
R’000 |
R’000 |
R’000 |
|
Administration |
448 543 |
(5 292) |
- |
443 251 |
435 815 |
7 436 |
ITED |
131 138 |
(6 050) |
- |
125 088 |
106 949 |
18 139 |
EEDD |
777 797 |
18 237 |
18 000 |
814 034 |
801 173 |
12 861 |
IDD |
1 052 122 |
80 839 |
24 000 |
1 156 961 |
1 142 033 |
14 928 |
CCRD |
191 531 |
4 000 |
- |
195 531 |
145 021 |
50 510 |
TEO |
3 175 296 |
(89 444) |
(39 200) |
3 046 652 |
2 792 994 |
253 658 |
TISA |
291 447 |
60 029 |
2 000 |
353 476 |
328 582 |
24 894 |
Communication And Marketing |
82 234 |
(18 219) |
(4 800) |
59 215 |
44 174 |
15 041 |
Total |
6 150 108 |
44 100 |
- |
6 194 208 |
5 796 741 |
397 467 |
Source:
Department of Trade and Industry (2011b: 33)
The budget allocation for the 2010/11 financial year was R6.2 million
as compared to R6.4 million in 2009/10. The expenditure for 2010/11 was R5.8
million, i.e. 93.6% of the budget, and in 2009/10, it stood at 97.4%, i.e. R6.2
million. This spending pattern should be considered in the context of the departmental
cost drivers, comprising mainly incentive schemes and transfer payments.
Approximately 58% of the expenditure consisted of incentives and 22% of
transfers to the departmental agencies. The remaining funds were utilised for
operational expenses. The majority of the DTI’s transfer payments to business
incentive schemes, as well as the infrastructure and investment support
programmes reside within the Empowerment and Enterprise Development, Industrial
Development and The Enterprise Organisation programmes. The under-spending was
mainly in the area of International Trade and Economic Development, Consumer
and Corporate Regulation, The Enterprise Organisation, and Trade and Investment
South Africa programmes, as well as the
Communication and Marketing programme. Under-spending of R397.5 million must be
read in the context of seven requests for roll-overs, amounting to R318.2
million, of which two requests were approved by National Treasury.
Table 4
outlines the seven year period including the audited outcomes for the previous
three years from 2006/07 to 2008/09; the adjusted appropriation and the revised
estimates for 2009/10; and the MTEF expenditure estimates for the outer three
years.
Table 4:
Expenditure outcomes and estimates for 2006/07 to 2012/13
Programme |
Audited outcome |
Adjusted Appropriation |
Revised Estimate |
Medium term expenditure
estimates |
||||
(R million) |
2006/07 |
2007/08 |
2008/09 |
2009/10 |
2010/11 |
2011/12 |
2012/13 |
|
Administration |
278.9 |
310.7 |
345.5 |
468.1 |
415.6 |
448.5 |
476.8 |
497 |
ITED |
74.6 |
77.8 |
108.6 |
130.4 |
125.6 |
131.1 |
130.6 |
133.5 |
EEDD |
1 163.9 |
1 314.6 |
1 091.1 |
1 173.9 |
1 157.1 |
777.8 |
835.7 |
865.0 |
IDD |
245.2 |
331.8 |
392.7 |
426.9 |
410.3 |
1 052.1 |
1 222.5 |
1 362.8 |
CCRD |
105.9 |
106.0 |
111.6 |
165.5 |
148.6 |
191.5 |
218.0 |
229.4 |
TEO |
1 434.3 |
2 563.1 |
2 400.7 |
3 356.9 |
3 382.9 |
3 175.3 |
3 484.5 |
3 773.6 |
TISA |
197.4 |
284.5 |
310.2 |
294.1 |
295.9 |
291.4 |
309.5 |
317.8 |
Communication |
65.8 |
61.5 |
76.1 |
70.1 |
52.8 |
82.2 |
79.9 |
84.2 |
Total |
3 566.1 |
5 050.2 |
4 836.6 |
6 085.9 |
5 988.8 |
6 150.1 |
6 757.4 |
7 264.0 |
Change to 2009 budget estimate |
|
|
|
(258.3) |
(355.4) |
397.1 |
753.6 |
1095.9 |
Source: Adapted from National Treasury (2010)
It is pertinent in going forward with the BRRR process to analyse the
2010/11 expenditure to track this.
5.5.1 Administration
5.5.1.1 Programme overview and
expenditure
The
initial appropriated funds for this programme were R448.5 million and R5.3
million was deducted through adjustments leaving the programme with the total
voted budget of R443.3 million. Actual expenditure of R435.8 million was
recorded with a variance of R7.4 million. The variance
can be attributed to 50 vacant positions out of 389 posts resulting in
under-spending of R3.4 million under Compensation of Employees due to the staff
turnover and vacancy rates. Under-spending of R134 000 under goods and services
was as a result of most of the projects being kept on hold as a result of
suppliers who had not met the procurement requirements. Savings of R1 million
under transfers and subsidies to households were as a result of provision made
for bursaries which could not be claimed as most employees used alternative
sources of funding for their studies.
In 2009/10, this programme was allocated a total budget of R480.2
million with an actual expenditure of R416.8 million and a variance of R63.5
million. A comparison of budget appropriation and programme expenditure between
the two financial years – 2009/10 and 2010/11 – indicates a decrease in the
total budget from R480.2 million to
R443.3 million and the respective expenditures of R416.8 million
(R63 million variance) and R435.8 million (R7.4 million variance) respectively and a significantly improved level of expenditure.
The under-spending of R2.7 million for capital assets is as a result
of changes in the procurement process, which delayed the ordering and delivery
of computer equipment. The service delivery objectives of this programme included
inter alia: provision of credible and customer-centric
services that enhance service delivery; attract, develop and retain
professional and skilled officials; implement transformation through employment
equity and BBBEE; ensuring value-adding business resource management that
enhances efficiency; strengthening the DTI’s corporate governance; and ensuring
intra-divisional excellence.
Expenditure
increased strongly from R278.9 million in 2006/07 to R468.1 million in 2009/10
(see Table 4), at an average annual rate of 18.8% due to the increase in the
number of posts from 853 in 2006/07 to 1 140 in 2009/10. The number of posts
will increase to 1 320 in 2012/13. Over the medium term, expenditure is
expected to increase to R498 million, at an average annual rate of 2.1%. This
is due to operational costs associated with the public-private partnership
accommodation project, which provides head office accommodation and facilities
management services to the Department and some of its public entities. Spending
in the Office of the Director-General sub-programme increased from R28.1
million in 2006/07 to R71 million in 2010/11, at an average annual rate of 16.7%.
This is due to the expansion of the strategic planning unit and the increased
capacity of the Office of the Director-General. The largest allocation goes to
the Corporate Services sub-programme, which amounts to R2.2 billion over the
7-year period. Expenditure will increase from R221.1 million in 2006/07 to
R379.9 million in 2012/13, an average annual rate of 9.4% over the 7-year
period. The main cost drivers of this sub-programme are compensation of
employees (30%), and goods and services (70%).
5.5.1.2 Summary of key achievements
in relation to planned targets
The Department
reportedly reduced its vacancy rate by 16.9% against the planned target of 17%
and the standard deviation in this regard is insignificant. However, the
programme improved on its 11% target for staff turnover reduction with a
turnover rate of 9.1%. The programme also deviated from the target of procuring
65% of goods and services from historically disadvantage individuals (HDIs) and
SMMEs, as it only spent 41% of total procurement on HDIs and 64% of total
procurement on SMMEs. The reported motivation for this deviation has been
attributed to the current uncertainties around the alignment of the PPPFA and
the BBBEE legislation. The ICT infrastructure has been upgraded to induce
intra-departmental efficiency. On the corruption front, the programme reviewed
and implemented an anti-corruption strategy which saw the Department attaining
an 86% rating in the independent Minimum Anti-Corruption Audit and only coming
second to the South African Revenue Service which achieved 87%.
5.5.2 International Trade and
Economic Development
5.5.2.1 Programme overview and
expenditure trends
The funds
appropriated to this programme in 2010/11 amounted to R131.1 million and after
adjustments R6.1 million was deducted resulting in a total budget of R125.1
million. The actual expenditure was R106.9 million, translating into a variance
of R18.1 million. The level of under-expenditure in this programme equalled 15%.
In
2009/10, this programme achieved a 6% variance from its R195.6 million budget
with an actual expenditure of R183.9 million. The variance in the year under
review could be partially attributed to 36
vacant positions out of 152 posts which resulted in the low spending of R8.3
million under Compensation of Employees due to the higher vacancy rate.
Under-spending of R8.5 million under goods and services was mainly related to advertising
and contractors due to delays in receiving invoices from service providers and
consultants. Under-spending of R1 million under transfer payments to the WTO is
due to exchange rate fluctuation.
5.5.2.2 Summary of key achievements
in relation to planned targets
The DTI’s
Trade Policy and Strategy Framework was approved by the Cabinet in July 2010.
This Framework is informed by the industrial policy in the form of the National
Industrial Policy Framework (NIPF) and the IPAP2.
Negotiations
on the Trade, Development and Cooperation Agreement (TDCA) were successfully
reopened with the SA-EU (South Africa-European Union) cheese agreement being
finalised and submitted for ratification.
On
strengthening economic relations with the dynamic economies of the South,
leading global economic recovery which saw China and South Africa signing a
declaration for the establishment of a CSPA in which the Partnership for Growth
and Development are encapsulated within the Agreement. However, South Africa
did not achieve the intended target[29]
of signing a Preferential Trade Arrangement (PTA) due to the Chinese’s
unwillingness to commit to a binding agreement.
On the
promotion of regional integration in both SACU and SADC, the Rules of Origin
(RoO) were ratified and the Tripartite Free Trade area’s non-tariff barriers to
trade monitoring system were also established. Discussions on the future of
SACU were held and culminated in an agreement to amend the SACU Agreement to
institutionalise the SACU Summit.
5.5.3 Empowerment and Enterprise
Development Division
5.5.3.1 Programme overview and
expenditure trends
The
division was appropriated R777.8 million and additional amounts of R18.2
million and R18 million were added in the form of roll-overs and virements
respectively. The programme ended with total voted funds of R814 million with
actual expenditure of R801.2 million and a variance of R12.9 million (1.5%)
which is slightly higher than that of 2009/10. In the previous financial year,
the programme was appropriated a total budget of R1.33 billion and managed to
spend R1.31 billion with a variance of R16.2 million (1.2%).
The division had 16 vacant positions out of 106 posts, as well as a
higher staff turnover than expected, which resulted in the under-spending of R1
million of compensation to employees . Under-spending of R10.2 million under
goods and service is due to a delay in the payment for the database project as
a result of the expiry of the contract in the beginning of February 2011, as
well as some projects that commenced later than anticipated due to the
departmental processes to appoint service providers for travel and subsistence
and venues and facilities which were being closely monitored as a cost-saving initiative.
Between 2006/07
and 2009/10 (see Table 4), expenditure remained unchanged at approximately R1.2
billion. Over the medium term, the expenditure declined to R865 million.
In 2010/11, expenditure decreased by 33.7% from R1.2 billion to R777.8 million
due to the phasing out of funding to the National Empowerment Fund, which
became fully capitalised in 2009/10, and the transfer of Khula Enterprise
Finance and the South African Micro-Finance Apex Fund to the Department of
Economic Development from 2010/11. Transfer payments to these entities are no
longer provided for on this programme[30].
Spending over the medium-term focuses mainly on transfer payments to the SEDA
and the Technology for Human Resources for Industry Programme (THRIP).
5.5.3.2 Summary of key achievements
in relation to planned targets
The Department
reported that the amendment Bills for the Co-operative Act (No 14 of 2005) and
the Cooperative Strategy have been approved by Cabinet for further
consultation. This regulatory framework is aimed at supporting service delivery
and reducing the administrative burden and the cost of doing business
particularly in the rural areas where unemployment and underdevelopment is rife,
reflecting the structural imbalances of the South African economy.
On
enterprise development, the Department reported an exceeded target of
developing 100 new small-scale cooperatives instead of ten. The BBBEE Advisory
Council is now operational with presidential council recommendations developed
and tabled in Cabinet to align to NGP and IPAP2. The PPPFA regulations have been
successfully aligned to the BBBEE legislation.
On the
Support Programme on Industrial Innovation (SPII), which targeted to assist 80
new projects to the total value of R100 million, only managed to support 20
projects. There had been a total contribution of R22.7 million by the
Department and the industry contribution was R21.7 million. This short fall of
projects assisted has been attributed to insufficient funding.
Isivande
Women’s Fund (IWF) targeted to assist 40 projects. However, only six
women-owned enterprises were assisted to the value of R5 million and the main
challenge was appointing a suitable fund manager.
On
regional economic development, 56 new companies were assisted through the
Workplace Challenge Programme. This exceeded the initial target of 51 new
companies.
5.5.4 Industrial Development
Division
5.5.4.1 Programme overview and
expenditure trends
During the
year under review, the programme was appropriated a total budget of R1.16
billion with an actual expenditure of R1.14 billion and a variance of R14.9
million. In 2009/10, the division was allocated a total budget of R427.1
million and spent R413.1 million with a variance of R14 million (3.3%) in the
form of savings. The total budget vote increased by 63% between 2009/10 and
2010/11 which clearly indicates the policy shift towards supporting job
creation imperatives. This programme endured 4 vacant
positions out of 145 posts resulting in the under-spending of R3 million due to
a higher vacancy rate in management positions. Under-spending of R9.6 million
under goods and services was due to the late appointment of consultants during
the financial year, and the expenditure will only occur during the 2011/12
financial year.
The use of internal facilities for meetings, workshops and conferences
has led to a decline in expenditure. Under-spending of R1.5 million under
transfer payments is as a result of deferring a project with the University of
Stellenbosch due to the lack of funding over the MTEF period. The motivation for this
under-spending is attributed to eleven vacancies and that there were fewer
consultants that were contracted.
Four of the DTI’s 15 institutions, namely the South African Bureau of
Standards, the National Regulator for Compulsory Specifications, the National
Metrology Institute of South Africa, and the South African National
Accreditation System (Standards, Quality assurance, accreditation, and
metrology - SQAM), report to this division. Its expenditure increased from R413
million in 2009/10 to R1.142 billion in 2010/11, resulting in an expenditure
increase of 176.5%. Between 2007/08 and 2010/11 (see Table 4), expenditure increased
significantly from R330.9 million to R1.1 billion, at an average annual rate of
50.9%. Much of this growth is responsive to the demands of IPAP2 and is accounted
for by the introduction of the Customised Sector Programmes and the Clothing
and Textile Production Incentive schemes, which are administered by the
Industrial Development Corporation[31].
5.5.4.2 Summary of key achievements
in relation to planned targets
The IPAP2 for 2011/12 – 2013/14 was approved by Cabinet in February
2011 and introduced to Parliament in March 2011. Other key sectoral
achievements included Cabinet approval of the amendments to the regulations of
the PPPFA. The amendments are aimed at fast-tracking Government’s localisation
and employment creation drive, allowing for the designation of sectors for
local production and alignment with BBBEE codes. Proof of the efficacy of this
type of policy instrument is illustrated in the awarding of the recent R4.2
billion ARV (Anti-retroviral vaccine) government tender, 72% of the value went
to South African manufacturers with significant price reductions relative to the
2008 ARV tender[32].
Monitoring and evaluation of the NIPP demonstrates that since its
inception in 1997 more than 220 projects have been implemented, with the
accumulative creation of an estimated 25 000 direct jobs and 85 000 total jobs.
The Committee would have appreciated a breakdown of job created in relation to
NIPP’s and will be engaging the DTI on the matter in 2012.
In the sphere of industrial financing, the IDC has committed R66
billion over the next five (5) years towards more labour-intensive sectors
identified by the NGP and IPAP2.
In the clothing and textile sector, 171 companies benefited from
government support under the new Clothing and Textiles Competitive Programme
(CTCP) and the Production Incentive (PI) Programme with 40 591 jobs being
supported or saved and at least 1 111 new jobs being created.
5.5.5 Consumer and Corporate
Regulation Division
The
division was allocated a final appropriation of R238.9 million and of this
amount R227.6 million was spent with a variance of 4.7% amounting to R11.3
million. This under-spending originates from 24 vacancies and savings on
compensation of employees and operational expenditure.
5.5.6 The Enterprise Organisation
5.5.6.1 Programme overview and
expenditure trends
In terms
of the 2010 Estimates of National Expenditure (see Table 4), expenditure
increased from R2.6 billion in 2007/08 to R3.1 billion in 2010/11, at an
average annual rate of 6.4%, mainly due to the implementation of new schemes,
such as the Automotive Incentive Scheme and the Enterprise Investment
Programme. In real terms of adjusted estimates, TEO received a total vote of R3
billion and spent R2.8 billion with a variance of R253.7 million. Funds to the
value of R89.4 million (roll-overs) and R39.2 million (virements) have been
redirected from TEO to the EEDD and TISA programmes respectively.
Over this
period, the East London Industrial Development Zone received R850.3 million,
the Richards Bay Industrial Development Zone received R88.4 million and the
Coega Industrial Development Zone received R3 billion for infrastructure
development.
Over the
MTEF period, expenditure is expected to increase to R3.8 billion, at an average
annual rate of 7.1%, mainly due to the continuous improvement of the Enterprise
Investment Programme’s guidelines, the implementation of the Automotive
Incentive Scheme (AIS), the revised Black Business Supplier Development
Programme, and the revised Business Process Outsourcing Services Programme
(BPO), which will attract more applications. The
Division’s expenditure decreased from R3.3 billion in 2009/10 to R2.8 billion
in 2010/11, resulting in a decrease of 16.5%. The decrease in expenditure is as
a result of fewer claims being received from the Small and Micro Enterprise
Development Programme (SMEDP), BPO and the Film and Television incentive
schemes.
The under-spending of R5 million under Compensation of Employees due
to a higher staff turnover and vacancy rate is specifically attributed to 29
vacant positions out of 240. Under-spending of R2.6 million under goods and
services is due to four (4) IT consultants being due to start in the beginning
of the financial year but only starting in September 2010, as well as the
service for product development which is still under investigation.
Under-spending of R245 million under transfer payments is due to
ministerial consultations with industry and late approvals for the AIS. Although,
the finalisation of the Automotive Investment Scheme (AIS) has catalysed
commitments by the automotive industry to the value of R14 billion, the
effective starting date for the AIS was only in the second quarter of 2010/11.
Commitments have been made in the allocated budget and 3 claims were paid in
March 2011. The AIS has been conservatively estimated to create a minimum of 12
000 jobs.
5.5.7 Trade and Investment South
Africa
The amount
of R353.5 million was allocated and R328.5 million was the amount actually
spent with a variance of R24.9 million (7.04%). Explanation
of variance: 36 vacant positions out of 140 posts resulted in the
under-spending of R4.6 million due to staff turnover and vacancy rates. The
under-expenditure of R19.9 million under goods and services is due to
outstanding invoices from the Department of International Relations and
Cooperation for the operation of foreign missions. The expenditure under
Capital expenditure of R320 000 is due to a delay in the procurement of
computer equipment.
5.5.8 Human Resource Oversight
Report
The
programme performance analysis presented above provides a clear indication that
most under-spending and overall impairment on service delivery is due to high
levels of vacancies and the staff turnover rate in the Department in spite of
achieving the target of reducing the vacancy rate to 17% as reflected in the
2010 Strategic Plan[33]. On
employment and vacancies by salary bands, the 20.9% vacancy rate for the highly
skilled supervision staff (510 posts filled out of 645 posts) and 15.3% vacancy
rates for both senior management (166 posts filled out of 196) and highly
skilled production staff members (338 filled posts out of 399) respectively are
also unacceptably high and contribute to delays in service delivery. Key programmes in terms of this vacancy rate
were Consumer and Corporate Regulation Division (CCRD) with 22.7%; Industrial
Development Division (23.4%) and 23.8% in the International Trade and Economic
Development (ITED) programme.
5.5.9 Auditor-General Report
In
2010/11, the Department once again achieved an unqualified audit statement with
emphasis on specific matters as highlighted below:
o
Irregular expenditure: The Department incurred irregular expenditure of R28.3 million as the
expenditure incurred was in contravention of the PFMA and the Public Service
Act (promulgated under Proclamation 103 of 1994) relating to supply chain
management and compensation of employees.
o
Usefulness of information presented for auditing: The reported performance information was deficient in respect of the
following criteria: Measurability - the indicators are not well defined and/or
verifiable, and targets are not specific, and measurable.
o
Procurement and contract
management: Certain goods and services with a transaction value between R10 000
and R500 000 were procured without inviting at least three written price
quotations from prospective suppliers as per the requirements of TR 16A6.1 and
National Treasury Practice Note 8 of 2007/08. In addition, certain
employees performed remunerative work outside their employment in the
Department without written permission from the relevant authority as per the
requirements of section 30 of the Public Service Act.
o
Expenditure management: The accounting officer did not take effective and appropriate steps to
prevent and detect irregular expenditure as
per the requirements of section 38(1) (c)(ii) of the PFMA and Treasury
Regulations 9.1.1.
o
Asset management: The accounting officer did not implement proper control systems for
the safeguarding and maintenance of assets to prevent theft,
losses, wastage and misuse as required by Treasury Regulations 10.1.
o
Leadership: The DTI leadership did not exercise appropriate oversight in ensuring that the
planned and reported indicators and targets were in accordance with the National
Treasury’s Framework for Managing Programme Performance Information.
Furthermore, the DTI leadership did not have sufficient monitoring controls to
ensure compliance with applicable laws and regulations.
o
Financial and performance
management:
Management did not have adequate controls to ensure that the financial
statements submitted for audit are accurate and complete.
Furthermore sufficient appropriate audit evidence with regard to the
reported performance information could not be obtained, as the
system used for generating performance information was
not appropriate to facilitate the preparation of accurate and complete actual
performance information.
6. South African Bureau of Standards
(SABS)
6.1 Overview of the South African Bureau of Standards
The South African Bureau of Standards (SABS) Group includes SABS and
SABS Commercial (Pty) Ltd. SABS Commercial focuses on providing conformity
testing and certification services for products and systems to domestic and
foreign customers.
The SABS is mandated under the new Standards Act (No 8 of 2008) to:
1.
Support South African industry’s competitiveness
by developing, promoting and maintaining South African National Standards.
2.
Promote quality in connection with
commodities, goods and services.
3.
Provide conformity assessment
services and matters related to this.
This mandate is critical for industrial development and to ensure South
Africa’s ability to engage in sustainable trade relations while creating an
environment for job creation and protecting the domestic market from poor
quality and harmful goods and services.
The IPAP2 has identified several areas where the SABS, as part of the SQAM
technical infrastructure, would support the country’s industrial development
objectives. Specifically, standards for renewable energy and automotives and
other goods using alternative energy sources had been identified for
development.
In terms of international trade, the SABS supports exports of goods and
services by developing harmonised standards and quality and assuring that
exported goods meet the quality standards imposed elsewhere. This is particularly
important for regional trade, as many African countries do not have the
necessary technical infrastructure or skills.
On the other hand, the SABS plays a role in supporting the Consumer
Protection Act. It achieves this by developing national standards that promote
the safety and quality of goods and services. It also, tests consumer goods and
services for compliance with these standards.
The SABS has identified
seven industry sectors and has housed its services according to these sectors’
requirements. These sectors are:
1.
Chemicals
2.
Electro-technical
3.
Food and Health
4.
Mechanical and Materials
5.
Mining and Minerals
6.
Services
7.
Transportation
The Chief
Executive Officer briefed the Committee on SABS performance for 2010/11
financial. The presentation focused on the legislative framework; the strategic
plan objectives; performance against business targets.
Some of
the key challenges faced by the SABS were industry complaints due to equipment
or human resource failures. SABS also informed the Committee that it lost
revenue as a result of the failure to secure the necessary contract with mining
sector.
6.2 Key issues
The
following issues emerged during the Committee’s deliberations:
·
Competition: The Committee enquired
about the role of SABS given the establishment of similar entities in the
private sector. SABS informed the Committee that it is the only body mandated
to develop national standards and it is the body working with the International
Standards Organisation (ISO). All other bodies must comply with either national
or international standards. Currently there seems to be a lack of cohesion
between government departments and SABS as it work outside the quality
assurance system offered by SABS. During the procurement process of goods
government department must be obliged to insist on SABS compliance of all
products purchase.
·
China: SABS informed the
Committee that it has closed its office in China due the challenges faced with
its business model. The office was responsible to address the issue of quality
of goods entering into South Africa. No proper due diligence could be exercised
which compromised the independence of the office.
·
Role on the African
Continent: SABS informed the Committee that it is the process of assisting African
countries developing standard bodies but has been facing challenges in terms of
expectations. The capacity in the region remains a challenge for SABS and SABS
is currently assisting in the areas of certification and training.
·
Role of SABS and NRCS: The Committee enquired on
how SABS is addressing the confusion within the manufacturing industry around
the reporting authority with respect to assurance and standards. The SABS
acknowledge that confusion does exist around the role of SABS and NRCS
authorities at that this should be addressed. The failure of the NRCS reflects
poorly on the SABS brand, but international trend is to separate the regulatory
from the accreditation role.
·
Funding: The Committee enquired
about the funding model of other international standard bodies and to what
extend are they funded by the state. SABS informed the Committee that funding
varied with bodies either fully funded by the state or through private funding.
SABS informed the Committee that self-funding would require SABS to be mandated
as the only testing and accreditation body within the country.
The Committee wants to re-emphasised the importance of the SQAM entities
underpinning industrialisation and trade and ensuring the consumer safety in
the domestic market.
7.
The
National Regulator for Compulsory Specifications
7.1 Overview
of the National Regulator for Compulsory Specifications
The National Regulator for Compulsory
Specifications of South Africa (NRCS) was established by the NRCS Act (No 5 of
2008). It forms part of South Africa’s standards, quality assurance,
accreditation and metrology (SQAM) technical infrastructure. In September 2008,
it has taken over the regulatory functions previously performed by the South
African Bureau of Standards (SABS).
The NRCS’ mandate is to administer compulsory
specifications in the interests of public safety and health or for
environmental protection for imported, manufactured, sold and some exported
products. It does this primarily in terms of three Acts, namely:
1. National Regulator for Compulsory Specifications Act (No 5 of 2008),
2. Trade Metrology Act (No 77 of 1973), and
3.
Building Regulations and
Building Standards Act (No103 of 1977).
Its core functions are to:
1. Approve regulated products and issue test reports or certificates of
conformity before these may enter the market.
2. Inspect and if needed sample products at the manufacturers, importers and
retailers.
3. Sample and test products on suspicion or proof of non-compliance and
issue directives to stop sales where compulsory specifications are not met.
4. Enforce recall, corrective action, destruction and/or notification of the
media and public if non-compliance is proved.
Its main divisions and departments relate to
its core functions and/or regulated industries. These are the:
1.
Legal
Metrology division,
2.
Regulatory,
Research and Development division,
3.
Perishable Products, Food
and Associated Industries division, and
4.
Non-perishable Products
division, which includes the Automotive; Chemicals, Mechanical and Materials;
and Electrotechnical departments.
The Chief
Executive Officer, Mr M Moeletsi briefed the Committee on NRCS performance for
2010/11 financial. The presentation focused on the NRCS Business Model, its
strategic goals and performance against its core functions.
7.2 Key issues
The
following issues emerged during the Committee’s deliberations:
·
Testing
and approval: The Committee enquired about the testing and
approval process within the NRCS. The NRCS informed the Committee that no
product can be sold in South Africa unless it meets the compulsory specifications
requirements. Not all recalls falls within the NRCS’s mandate, but the NRCS
would be liable if it approved the product. The NRCS calls for an establishment
of a regulatory forum to address the issue of regulations holistically.
·
Staff
complement: The Committee enquired about the number of acting
personnel and the potential link to the effectiveness of the inspection
process. The NRCS Board was only recently appointed and had not yet approved
the staff structure after the split with the SABS. The staff structure, that
would meet the requirements of the new strategy, is in the process of being
completed. The NRCS informed the Committee that the targets for inspection have
been met, but there are concerns with respect to the effectiveness of the inspection.
·
Registration
of vehicle: The Committee enquired whether vehicles registered
in neighbouring countries automatically comply with registration requirements
in South Africa. The NCRS informed the Committee that all vehicles must be
approved by the NRCS before it can be registered in South Africa.
·
Serial
non-compliers: The Committee enquired whether the NCRS has
considered the establishment of a register to name and shame serial offenders
of non-compliant of products: The NRCS informed the Committee that
non-compliant products are destroyed or sent back to the country of origin.
Legal action is instituted against offenders with any profits from such illegal
activities is forfeited to the State.
8. National
Consumer Commission
The
National Consumer Commission (NCC) was established on 1 April 2011, in
accordance with the Consumer Protection Act (CPA) (No 68 of 2008). The Consumer
Protection Act seeks to promote a fair, accessible and sustainable marketplace
for consumer goods and services and to provide national norms and standards to
protect consumers and improve consumer information. Furthermore, it seeks to
prohibit unfair marketing and business practices, to promote responsible
consumer behaviour and a consistent legislative and enforcement framework for
consumer transactions and agreements. In this regard, the NCC plays a
regulatory and implementation role on consumer protection related matters,
having jurisdiction over all economic activities subject to limitations set in
Section 5 of the Consumer Protection Act.
The NCC
highlighted a number of challenges it faced in implementing its mandate during
the Committee’s oversight visit in July 2011. These challenges, among others,
ranged from the capacity of the NCC to fulfil its mandate, the location of the
NCC, consumer protection groups, the NCC website, to the NCC being underfunded.
In light of these challenges, the
Committee agreed that it would invite the NCC to further engage the Committee during
its Budget Review and Recommendation Report’s final process phase to ascertain
what measures had been implemented to address these challenges. The NCC is in its establishment phase and the DTI
has confirmed that there is adequate funding available and that it would meet
any legitimate shortfall.
The Commissioner, Ms Mohlala, reiterated
her position and the Committee was given a detailed budgetary request. She also
provided an update on the issues identified by the Committee during its
oversight visit. The update provided a
progress report on the issues identified during the oversight visit in July
2011.
8.1 Key issues raised by the Committee
·
Public awareness/Outreach programmes: The Committee enquired about the NCC’s outreach
programmes and raised a concern that it appears that the focus is once again on
urban areas at the expense of the rural poor.
The Committee also emphasised the need for the NCC to empower the
consumer through appropriate education and awareness programmes and enquired
what strategies are in place to address this. The NCC informed the Committee that through
the NCC’s Ambassadors programme ten graduates are tasked with the
responsibility to educate consumers and receive complaints in provinces. The
Commissioner also informed the Committee that the Izimbizo programme
specifically focus on the rural areas and use existing traditional structures to
spread consumer awareness. However, the NCC is reliant on invitations from
provinces to host awareness workshops and to date few provinces have been
willing to fund these workshops. The NCC has also been using television as a
vehicle to raise consumer awareness.
·
Jurisdiction: The Committee expressed
concern that the major role-players in the economy may attempt to undermine the
jurisdiction of the NCC by taking cases directly to the courts for review. Members
of the Committee suggested that Parliament should consider amending the CPA to
ensure that when a case is referred to the NCC, a court of law cannot intervene
in the process. The Commissioner informed the Committee that the NCC would
welcome an amendment that would prevent anyone going to the courts while the
matter is still before the NCC. The current provision in the CPA does not
explicitly reflect this.
·
Opt-out registry: The Committee enquired
when the process with regard to the opt-out register will be concluded. The
Commissioner informed the Committee that the NCC received an unsolicited offer
from a service provider to provide the necessary service. In response to this,
the NCC issued an expression of interest to solicit companies that are able to
provide the service as indicated by the unsolicited bid. Three companies
responded to the expression of interest including the company that made the
unsolicited bid. After an assessment, it was concluded that the unsolicited bid
would be the preferred candidate as they would not charge for providing the
register. Before appointment, the NCC decided to gazette both the application
and the intended decision. The NCC received complaints from the public
regarding the decision and after review concluded that the preferred service
provider could not be appointed. The NCC informed the Minister of the decision
not to appoint and requested a budget as the NCC opted to host the opt-out
register internally. The NCC is awaiting for a response in this regard.
·
Budget/Financial requirements: The Committee raised numerous concerns
around the funding with respect to the NCC and its ability to fulfil its
mandate. An amount of R33 million was appropriated with the NCC receiving R19.7
million thus far. The Commissioner
informed the Committee that since its inception the DTI processed all payments for
the NCC until September 2011. This was due to the NCC not having the general
financial management systems in place as required in terms of the PFMA.
Therefore, this money could not be transferred by the DTI to their accounts
until September 2011.
The DTI through its Consumer and Corporate Regulation
Division (CCRD) paid for the NCC’s operational expenses from its own budget
during this period with the agreement (administered through a Memorandum of
Understanding) that the NCC would reimburse these funds once the transfer of
R32.9 million was effected. In response to concerns raised by the Committee, the DTI informed it that a
thorough analysis of the proposed budget and its underlying assumptions would
be required to appropriately advise the Committee. The DTI’s initial impression
is that the figures appear to be over-ambitious but it would provide the
Committee with a financial report on the matter. The DTI further indicated that
it would provide the necessary funding and will reprioritise its finances if a
shortfall occurs in the NCC, as per its usual practice with newly-established
entities.
Subsequently, the National Consumer Commission submitted its
Expenditure report from 01 April 2011 to 30 September 2011 to the Committee. In
November 2010, the Commissioner of the NCC was appointed to lead the
establishment and operation of the Commission. The Sector-wide Enterprise,
Employment and Equity Programme Fund (SWEEEP) fund was utilised by CCRD to
finance the initial start-up costs of the Commission, such as purchasing
computers and awareness campaigns. In addition, it allocated an amount for the
first year’s lease of a building for office accommodation. In the 2011 Estimate
of National Expenditure (ENE), the NCC was allocated R32.9 million and because
the NCC did not have the general financial management systems in place as required
in terms of the PFMA, this money could not be transferred by the DTI to their
accounts until September 2011. The DTI through its Consumer and Corporate
Regulation Division (CCRD) paid for the NCC’s operational expenses from its own
budget during this period with the agreement (administered through a Memorandum
of Understanding) that the NCC would reimburse these funds once the transfer of
R32.9 million was effected.
Table 5 below describes the NCC’s expenditure until the end
of September 2011, as well as a forecast of its expenditure until the end of
March 2012 based on its existing capacity to spend its budget. This information
is based on the quarterly report submitted to the DTI in October 2011.
Table 5: National Consumer
Commission’s Expenditure to the end of September 2011 and Expenditure Forecast
for the 2011/12 year-end
Description of item |
Year to Date Budget |
YTD Actual Expenditure |
YTD Variance |
Year-end Forecast |
INCOME |
19 792 000 |
19 826 257 |
(34 257) |
33 022 257 |
Departmental Transfers |
19 792 000 |
19 792 000 |
- |
32 988 000 |
Interest Income |
|
34 257 |
(34 257) |
34 257 |
OPERATIONAL COSTS |
16 450 000 |
10 964 224 |
5 485 776 |
27 414 224 |
Compensation of
Employees |
12 465 968 |
9 016 464 |
3 449 504 |
21 482 432 |
Goods and Services |
3 984 032 |
1 947 760 |
2 036 272 |
5 931 792 |
Surplus/(deficit) for
the period |
3 342 000 |
8 862 032 |
(5 520 032) |
5 608 032 |
Source:
NCC (2011b)
The operational expenses were R10.9 million for the six
month period. Towards the end of September 2011, the NCC’s financial management
systems were implemented and the R19.7 million was transferred into their
account. Thus, the NCC has at its disposal R8.9 million plus the R13.2 million from its allocation that has not yet
been transferred.
In its quarterly report as at 30 September 2011, the NCC
projected that year-end spending would be R27.4 million, leaving it with a
surplus of R5.6 million. This forecast is based on the current rate of
expenditure. However, it will increase if additional employees are appointed,
allowing the NCC to increase its activities. The projected surplus will provide
a buffer for this eventuality. Therefore, although the NCC is motivating for an
increase in funding, it has a remaining allocation of R22 million for the
remaining 6 months of the 2011/12 financial year and has not yet shown a
significantly increased capacity to spend additional funds.
The NCC submitted a detailed budgetary
request to the Committee. The Committee further requested the NCC and the DTI
to engage regarding the detailed budgetary request, as well as additional
information on its request. After engaging with the NCC, there were outstanding
matters which the NCC had not yet responded to. The issues raised by the
Committee on the budget were clarified by the DG at a subsequent meeting in
which the allocations were further explained. However, the Committee is still awaiting
certain responses from the NCC.
The Committee will engage with the NCC in
2012 to follow-up on the challenges identified by the Commissioner.
9. National Credit Regulator
The
National Credit Regulator was established in 2005, in accordance with the
National Credit Act (NCA) (No 34 of 2005). The NCA requires the regulator to
promote a fair and non-discriminatory marketplace for access to finance; to
promote responsible credit granting and use and for that purpose to prohibit
reckless credit granting; and to provide for debt re-organisation in cases of
over-indebtedness.
Recent
developments within the NCR prompted the Committee to request an urgent meeting
to discuss matters of mutual concern. The Acting Chief Executive Officer, Ms Nomsa Motshegare, briefed the Committee and provided
a statistical overview of the consumer credit market in South Africa,
highlighted the achievements of the NCR and also informed the Committee about
the challenges facing the NCR (see presentation). These challenges relate to
the interpretation of the Act, especially among the judiciary, shortage of
skills within the NCR, and debt counsellors.
9.1 Key issues raised by the
Committee
·
Board of the NCR: The Committee expressed
a concern with the delay in the appointment of the NCR Board as it impacts on
delivery and accountability. In response, the DTI informed the Committee that
the names of Board members had been submitted to Cabinet for approval on 26
October and it is awaiting the outcome of the Cabinet process.
·
Jurisdiction: A concern for the Committee is that it
appears that creditors of consumers under debt counselling are using the courts
in an attempt to undermine the mandate and jurisdiction of the NCR. The
Committee is of the view that the necessary provisions within the NCA should be
reviewed to ensure the credibility of the NCR.
·
Registration of credit
bureaus:
The Committee enquired about the number of credit bureaus in operation and the
norms and standards that govern credit bureaus. Currently 11 credit bureaus are
currently registered. The NCA limits the number of bureaus accredited.
·
Provincial structures: The Committee enquired
about the status of provincial regulators and whether provincial offices have
been established as required by the NCA. The NCR informed the Committee that
currently only the national office is operational. The NCA makes provision for
the establishment of provincial offices. The NCR is considering establishing
satellite offices to increase its coverage and accessibility and will discuss
the matter with the DTI.
·
Alignment of legislation: The Committee enquired
about the alignment or lack thereof between the NCA and CPA. The NCR informed
the Committee that it would engage with the National Consumer Commission to
identify provisions that would require alignment and make a submission to the
Committee in this regard.
·
Debt counsellors: The Committee enquired
about the qualification of debt counsellors as currently 2027 are registered.
The NCR acknowledged that the shortage of the necessary skills among debt
counsellors remains a challenge. Currently the requirement to be a debt counsellor
is a matric qualification with three years of experience. The NCR developed a
short course for debt counsellors to address the skills challenge, but
recognised that a more comprehensive course is required.
PART III
10. Conclusions
10.1 The
Committee commended the DTI and its entities in the manner they are managing
their finances as evident in all but one of Auditor-General’s reports, (with
the exception of Companies and Intellectual Property Registration Office, which
has been replaced by CIPC).
10.2 The
Committee considered the Department’s Strategic Plan and Annual Report, as well
as its section 32 reports. The Strategic Plan is broadly in line with national
priorities and the Department’s strategic priorities.
10.3 The
under-expenditure that has been noted has largely been related to the DTI’s
vacancy rate. The DTI has made a commitment that all funded vacancies will be
filled within three months.
10.4 The
Committee believes that the level of the public’s awareness about the DTI and its
entities’ product and service offerings should be improved to make it more
accessible to the people.
11. Acknowledgements
The Committee would like to thank participants from the Ministry of Trade
and Industry, the DTI and its entities at the meeting. The Committee also wishes to thank
its Committee support staff in particular the Committee Secretary, Mr A
Hermans, the Content Advisor, Ms M Herling, and the Researcher, Mr Z Ngxishe,
for their professional support and conscientious commitment to their work. The Chairperson thanks all Members of the
Committee for their active participation during the process of engagement and
deliberations and their constructive recommendations made in this report.
12. Recommendations
Informed by its deliberations, the Committee recommends that the House
request that:
Administration
12.1
The Department’s quarterly reporting should include:
a.
The status of the Department’s vacancy rate as well as plans and
timeframes to fill these vacancies.
b. Work
related to departmental co-ordination as flagged in the 2010 Strategic Plan and
on the success of interventions aimed at improving co-ordination.
12.2
The Committee once again noted the Auditor-General’s concerns with respect
to performance information submitted by the DTI. The DTI should implement strategies that
would improve the performance information in respect of Measurability,
Validity, Accuracy and Completeness and provide the Committee with a report
comparing the 2011/12 Auditor-General's report with the 2010/11 report.
Industrial development
12.3
The DTI should undertake a review of the IPAP2 on its achievements of the strategic
objectives with a view to enhance its budget capacity within six months of the
tabling of this report.
12.4
The DTI should undertake a strategic review of the performance of the
National Industrial Participation Programme in terms of the investment and
sales milestones and the number of direct and indirect jobs created, from the
inception of the programme to the present time, and recommendations for the
programme to promote industrialisation, within six months of the tabling of the
report.
12.5
The DTI should submit a report on the "Return on Investment" of
the spending on Industrial Development Zones in terms of investment made and
jobs created (direct and indirect) within six months of the tabling this report.
Trade, Investment and Exports
12.6
The DTI should submit a report on the "Return on Investment" of
the spending on trade promotion activities in the medium term and its
measurable effect on trade levels, specifically trade with the rest of the
African continent, within six months of the tabling of the report.
Regulation
12.7
The DTI should ensure that capacity and resources of the regulatory bodies
and SQAM institutions be increased to enable them to address the challenges
that they are experiencing.
Report to be considered.
References
Department of
Trade and Industry (2010) Medium Term Strategic Framework 2010 -
2013
Department
of Trade and Industry (2011a) Annual report presentation
Department
of Trade and Industry (2011b) Annual Report 2010-2011.
Department of
Trade and Industry (2011c) Progress report on the
implementation of IPAP2.
Department of
Trade and Industry (2011d) Management Accounts: 30
September 2011.
Department of
Trade and Industry (2011e) Management Accounts: 30
June 2011.
Department of Trade and
Industry (2011f) Departmental Business Plan for 2011/12 Financial Year
Department of Trade and
Industry (2011g) the dti’s 2011/12 First Quarterly Report
Department of
Trade and Industry (2011h) Medium Term Strategic Framework 2011 -
2014
National Consumer Commission (2011a) Presentation to the Portfolio
Committee on Trade and Industry, 19 October.
National Consumer Commission (2011b) Expenditure 01 April 2011 to 30
September 2011.
National Regulator for Compulsory Specifications (2011a) Annual Report
National Regulator for Compulsory Specifications (2011b) Annual Report
presentation
National Treasury (2010) 2010 Estimates of National Expenditure.
National Treasury (2011a) 2011 Budget Review.
National Treasury (2011b) 2011 Estimates of National Expenditure.
Portfolio Committee on Trade and Industry (2010) Report on the Portfolio
Committee on Trade and Industry on South African Trade Policy and Strategy
Framework.
South African Bureau of Standards (2011a) Annual Report.
South African Bureau of Standards (2011b) Annual Report presentation.
South
African Reserve Bank (2010) Annual Economic Review.
Zuma, J.
(2010) State of the Nation Address at the Joint Sitting of Parliament. Cape
Town, 11.February.
[1] The
Tripartite Free Trade Area will be between the Southern African Development
Community (SADC), the East African Community (EAC) and the Common Market for
Eastern and Southern Africa (COMESA).
[2] DTI Medium Term Strategic Plan outline the different Acts (DTI
2011h)
[3] DTI (2010)
[4] DTI (2011b) Report of the AG for the period ending 31 March 2011
[5] Projected jobs are from April 2011 to Sep 2011.
[6] Off a baseline of US$15 billion (DTI 2011f: 7), an additional US$1
billion has been invested as at 31 October 2011 (DTI 2011g)
[7] DTI (2011h)
[8] Nominal terms refer to the actual or absolute value of the number,
while real terms removes the effect of inflation from the value.
[9] National Treasury (2011b)
[10] When taking the forecasted Headline CPI (Consumer Price Index)
inflation for the 2011/12 financial year (4.8%) into account (National Treasury
2011a).
[11] National Treasury (2011b)
[12] DTI (2011d)
[13] Commitments
are generated orders that have not yet been paid, as either goods or services
are yet to be delivered or invoices have not yet been received.
[14] DTI (2011d)
[15] (DTI 2011)
[16] National
Treasury (2011b)
[17] DTI (2011d)
[18] DTI (2011b)
[19] South African Reserve Bank (2010)
[20] DTI (2011a)
[21] DTI (2011b)
[22] Zuma (2010)
[23] Portfolio Committee on Trade and Industry (2010)
[24] Ibid
[25] DTI (2011c)
[26] DTI (2011c)
[27] DTI (2011c)
[28] Investment that will still be generated in the future.
[29] The DTI targeted in its Strategic plan – Medium term strategic
framework 2010-2013 to conclude a procurement Preferential Trade Arrangement
with
[30] National
Treasury (2010)
[31] National Treasury (2011b)
[32] Department
of Trade and industry (2011c)
[33] Ibid