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 China.

[30] National Treasury (2010)

[31] National Treasury (2011b)

[32] Department of Trade and industry (2011c)

[33] Ibid