1. Budgetary Review and Recommendation Report of the Portfolio Committee on Economic Development, dated 27October 2015

The Portfolio Committee on Economic Development (the Committee), having assessed the financial and non-financial performance of the Economic Development Department (the EDD) for the 2014/15 financial year,reports as follows:

  1. Introduction

The year 2014/15 was the last financial year of the Fourth Administration. The year was marked by economic headwinds which saw the country grappling with a low economic growth outlook because of a slowdown in the global-economy, electricity supply constraints, labour market conflict and skills shortages.

The EDD was established in July 2009. Its vision is to create decent work through meaningful economic transformation and inclusive growth. The EDD’s mandate is rooted in ensuring that the country focuses on employment creation[1]. The EDD states that unlike other national Departments that deliver services directly to the citizens and so can monitor the number of citizens/clients served, it coordinates and facilitates the integration and alignment of the economic efforts of other National Departments and SOEs, provincial economic departments and municipalities.[2]”

In 2010, Cabinet adopted the country’s economic framework called the New Growth Path (NGP) and also signed Outcome 4 of the Service Delivery Agreement. The NGP identifies key ‘jobs drivers’, with high employment creation potential and the implementation of supporting policies to take advantage of this potential. The key ‘jobs drivers’ are infrastructure, agriculture and agro-processing, mining and beneficiation, manufacturing, the ‘green economy’, tourism and productive services, knowledge-based sectors, the social economy, the public sector and African regional integration.”

The country’s long term vision on economic development is contained in the National Development Plan (NDP) which aims at eliminating poverty and reducing inequality by 2030. The plan addresses the need to grow an inclusive economy, build capabilities, enhance the capacity of the state, and promote leadership and partnerships throughout society.

According to the NDP by 2030, unemployment should fall from 24.9 per cent to 14 per cent, which will require an additional 11 million jobs, and the proportion of national income earned by the lowest earning 40 per cent should increase from 6 per cent to 10 per cent. To achieve this, the plan proposes accelerating progress by focusing on job creation across government and society, improving education, addressing regional inequality, reducing dependence on resources, and improving service delivery and governance. The NGP strategy is in alignment with these goals and aims to provide concrete programmes for growth, employment creation and equity in line with government’s commitment to prioritise employment creation in its economic policies. The EDD’s mission is to:

  • Coordinate the contributions of government departments, state owned entities and civil society on economic development;
  • Contribute to efforts that ensure alignment between the economic policies and plans of the state and its agencies and government’s political and economic objectives and mandate; and
  • Promote government’s goals of advancing economic development with decent work opportunities.

The 2014 Medium Term Strategic Framework (MTSF) 2014-19 highlights government’s support for creating decent work opportunities, encouraging investment and a competitive economy. It sets out actions government will take and targets to be achieved. The Outcomes relevant to the work of EDD are:

  • Outcome 4: Decent employment through inclusive growth;
  • Outcome 5: A skilled and capable workforce to support an inclusive growth path;
  • Outcome 6: An efficient, competitive and responsive economic infrastructure network; and
  • Outcome 7: Vibrant, equitable, sustainable rural communities contributing towards food security for all.

Social Accords that the Department facilitated and monitors and which were agreed to in order to build partnerships between business, organised labour, community representatives and government, are the following;

  • Basic Education Accord;
  • National Skills Accord;
  • Local Procurement Accord;
  • Green Economy Accord;
  • October 2012 Social Accord; and
  • Youth Employment Accord.

1.1.Mandate of the Committee:

Chapter 4 of the Constitution, 1996 sets out in detail the powers, functions and procedures of Parliament.Parliament through Committees, such as the Portfolio Committee on Economic Development, is tasked with the following functions;

a)Making laws;

b)Maintaining oversight over national executive authority and any organ of state;

c)Facilitating public involvement in the legislative and other processes of the Assembly and its committees

d)Participating in, promoting and overseeing co-operative government; and

e)Engaging and participate in international participation (participate in regional, continental and international bodies).

In line with the parliamentary oversight function, Section 5 of the Money Bills Amendment Procedure and Related Matters Act No. 9 of 2009 empowers Portfolio Committees, to annually assess the performance of each national Department through an annual Budgetary Review and Recommendations Report (BRRR). The overarching purpose of the BRR Report is for a Committee to make recommendations on the forward use of resources to address the implementation of policy priorities and services, as the relevant Department may require additional, reduced or re-configured resources to achieve these priorities and services.

The Act also gives effect to Parliament’s constitutional powers to amend the budget in line with the fiscal framework. However, the Budget Office which is responsible for fiscal oversight is still in the process of becoming fully functional.The BRRR process, nonetheless, enables a Committee to exercise its legislative responsibility to ensure that theDepartment and its entities are adequately funded to fulfil their respective mandates. The BRR Reports must be tabled in the National Assembly.

1.2.Description of core functions of the Department:

The Department is responsible for developing economic policy with a broad, cross-cutting focus so that macro and micro-economic policy reinforce each other and are both aligned to the electoral mandate. The Department is also responsible for economic development planning and works with other Departments to ensure coordination around placing decent work at the centre of government’s economic policies. The Department executes its mandate through the following functions;

  • Developing strategies and measures to make economic growth more inclusive, especially for supporting and encouraging job creation;
  • Encouraging and helping state agencies to work together for inclusive growth and job creation;
  • Providing secretariat and technical support for the Presidential Infrastructure Coordinating Commission (by acting as secretariat to meetings; managing monitoring and evaluation; unblocking projects; and proposing cross-cutting models and guidelines);
  • Facilitating social dialogue; and
  • Undertaking other activities as required to assist investments and programmes that lead to new kinds of economic activity and job creation, for instance by speeding up bureaucratic authorisations, assisting in prioritising and identifying sources of financing infrastructure development.

TheDepartment oversaw the following entities during the year under review:

  • Development Finance Institutions –the Industrial Development Corporation (IDC) and its subsidiary, the Small Enterprise Finance Agency (SEFA). However, from 2014/15, the Minister of Economic Development issued a directive that strategic responsibilityand oversight for SEFA be moved to the newly established Department of Small Business Development. By agreement between the two Ministers, SEFA remains a wholly-owned subsidiary of the IDC.
  • Economic Regulatory Bodies – the Competition Commission, Competition Tribunal; and International Trade Administration Commission of South Africa (ITAC). The Department exercises policy oversight while the DTI is responsible for considering individual tariffapplications.

In this regard, the Department administers the following legislation:

  • The Industrial Development Corporation Act (No. 22 of 1940);
  • The Competition Act (No. 89 of 1998);
  • The Competition Amendment Act (section 16 of 2008) (section 16 was promulgated 1 April 2013);
  • The International Trade Administration Act (No.71 of 2002); and
  • The Infrastructure Development Act (No. 23 of 2014).

The Department participates in, supports or convenes the following coordinating structures:

  • The Presidential Infrastructure Coordinating Commission;
  • Ministers and Members of the Executive Council (MinMEC)/Technical MinMEC with provincial Members of the Executive Council (MECs) and economic development Departments;
  • The Outcome 4 Technical Implementation Forum and is one of the three Coordinating Departments of this outcome; and
  • Economic Sectors and Employment Cluster and the Infrastructure Development Cluster (for the year under review).

Because of the Department’s coordinating function, it works with a range of other Departments and agencies, among which are the Departments of Trade and Industry (DTI); Tourism; Agriculture, Forestry and Fisheries (DAFF); Small Business Development (DSBD); and Science and Technology (DST).

The agencies reporting to EDD now provide broad support across government and to different departments’ mandates. For example, the IDC supports investment along the agriculture value-chain, working with DAFF; in the tourism sector, working with the Department of Tourism, in manufacturing enterprises, working with theDTI. The Competition Commission,working with the Department of Health, is now doing a market enquiry into the private health-care industry. The Commission is also working with the Department of Telecommunications and Postal Services, and investigates mergers in the mobile phone industry.

1.3.Purpose of the Budget Recommendation Review Report:

Section 77(3) of the Constitution stipulates that an Act of Parliament must provide for a procedure to amend money bills before Parliament. This constitutional provision resulted in Parliament drafting the Money Bills Amendment Procedure and Related Matters Act No. 9 of 2009 (the Money Bills Act).

The Money Bills Act sets out the process that allows Parliament to make recommendations to the Minister of Finance to amend the budget of a national Department. In October of each year, Portfolio Committees must compile the Budgetary Review and Recommendation Reports (BRRR) that assess service delivery performance given the available resources; evaluate the effective and efficient use and forward allocation of resources; and may make recommendations on forward use of resources.

The BRRR also sources documents for the Standing/Select Committees on Appropriations andFinance when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTPBS). The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.

The Act makes it obligatory for Parliament to assess the Department’s budgetary needs and shortfalls through its oversight of the Department’s operational efficiency and performance.

1.4.Method of Reporting

The BRRR of the Committee is based on the information that it accessed and analysed through various engagements with the Department on its annual planning processes and with relevant stakeholders on legislation as indicated below:

  • The 2015 State of the Nation Address;
  • The EDD Strategic Plan and Annual Performance Plan for 2014/15;
  • The EDD Annual Report and Financial Statements for 2014/15;
  • Quarterly Reports of the Department for 2014/15;
  • Report of the Auditor General to Parliament on the Financial Statements of Vote Number 28;
  • Report of the Fiscal Finance Commission to Parliament on the Vote Number 25;
  • Presentation by the Department of Performance, Monitoring and Evaluation on the performance and evaluation of the EDD for 2014/15;
  • National Development Plan (NDP);
  • New Growth Path (NGP); and
  • National Treasury Section 32 Reports.

These analyses focused on the performance of the Department in terms of its service delivery targets and financial performance. However, the Committee did not have sufficient time to interact with the entities on their 2014/15 Annual Reports before the completion of this report. This BRRR will therefore focus on the Department’s performance only. A consolidated report will follow after the Committee has had an opportunity to engage all the entities on their 2014/15Annual Reports.

1.5.Outline of the Budget Review and Recommendations Report:

The report contains the following:

  • Recommendations from the previous financial year;
  • Summary of highlights reported on by the Department;
  • An overview and assessment of financial and non-financial performance; and
  • The committee’s observations and recommendations.
  1. ISSUES RAISED IN THE 2013/14 BRRR

During the deliberations on the Department’s performance in 2013/14, the Committee:

a)Recognised that the economy was facing challenges of unemployment, particularly among youth but also acknowledged positive development such as the growth in jobs for youth aged 18 to 34 that grew by 150000 during the year under review. The Committee welcomed the Departments efforts to unlock potential in this area through the Youth Employment Accord. The Committee emphasised the need to monitor and evaluate progress in the implementation of the six pillars of the Youth Employment Accord, namely, education and training, work exposure, youth brigades based on existing public employment, programmes set-asides for youth employment in growing industries, youth entrepreneurship and co-operatives; and private-sector initiatives;

b)Acknowledged that the Department has played a crucial role in promoting and supporting local procurement and giving greater effect to Public Procurement Policy Framework (PPPFA) act of 2011. However, the Committee identified the need to develop a mechanism to verify and ensure that 100 per cent of South African goods are indeed produced and manufactured in the country;

c)Urged the Department to intensify its efforts to achieve the 2 per cent employment target for people living with disabilities. In addition, the Committee emphasises the need to ensure that employment opportunities are created for people living with disabilities. In this regard, the Department, in collaboration with the Department of Labour, should encourage people living with disabilities to make use of the Sheltered Employment Factories. The factories employ and empower people living with disabilities, with skills that enable them to be mainstreamed into the economy;

d)Urged the Department to do more to mainstream gender balance across its programmes so as to build on early successes that have been achieved;

e)Noted with concern that the Department had revised down its vacancy target from filling 166 funded posts to 146 for the year under review. The Department had missed its revised target as only 139 posts were filled. The Committee was concerned about the high turnover rate, particularly at senior management level and called on the Department to finalise its new structure so as to address the staffing issues and ensure that the Departmentcan function optimally;

f)Expressed its appreciation to the Department for obtaining an unqualified report for the fourth consecutive time. However, the Auditor General’s findings on financial misstatement, non-adherence with Supply Chain Management processes on tax clearance needed to be addressed. The Committee noted that the root cause was a lack of monitoring and adequate internal controls to ensure compliance with relevant legislation. In addition, some of the audit findings pertaining to Supply Chain Management and Human Resource Management weaknesses had been raised in the previous years and no remedial action was taken to address them. Members were of the view that there should be punitive measures for poor performance in these areas. The Committee urged the Department to ensure that findings from the previous financial years do not reappear in the current financial year;

g)Contended that the internal auditing Committee within the Department needed to be strengthened so that it could be more effective, dependable and reliable. In addition, the Committee urged the Department to expedite the filling of audit vacancies, after two contracts expired in 2013/14;

h)Approved of the improvements in the performance of the Department as indicated in the Key Performance Assessment Tool which shows that departmental governance structures, policies and systems that had been put in place to make sure that the Department achieves its strategic objective goals. However, the Committee was concerned that the tool indicated a regression in the performance of the financial management systems. This raised concerns about the Department’s internal audit office capacity to strengthen and improve on its performance;

i)Raised concerns about signatories who lack the commitment to be active participants in the implementation of the Accords. For the Accords to succeed the Department should ensure that engagements with signatories are done on an on-going basis. Furthermore the Department should monitor and evaluate the implementation of the Accords and also conduct an assessment study to measure its impact;

j)Expressed its satisfaction with the improvement in SEFA’s disbursement rate during the year under review. The Committee believes that this is due to the fact that SEFA is addressing backlogs from its predecessors. In this regard the Committee feels that the establishment of one-stop shops for SMMEs would play a major role in attracting new clients and spreading SEFA’s footprint across the country;