date : 26 october 2011 director-general mr lionel october

Presentation to the Select Committee on Trade Presentation to the Select Committee on Trade and International Relations – the dti’s 2010/11 and International Relations – the dti’s 2010/11

Annual ReportAnnual Report

Date : 26 October 2011Date : 26 October 2011Director-GeneralDirector-General

Mr Lionel OctoberMr Lionel October

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Presentation OutlinePresentation Outline

Economic Context Strategic Objectives Achievements against planned targets

Industrial Development Trade, Export & Investment Broadening Participation Regulation Administration & Co-ordination

Auditor-General’s Report Expenditure vs Budget Key Challenges

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Economic ContextEconomic Context

The South African economy came out of recession in the second half of 2009 and showed a modest growth of 2.8% in 2010. This recovery was broad-based, with all main sectors making positive contributions to overall gross domestic product (GDP) growth in 2010.

This growth was supported by particularly strong growth rates in the first and fourth quarters at 4.8% and 4.4% respectively, with the second quarter registering 2.8% and the third quarter 2.7%.

Despite this stable recovery trajectory, unemployment was still high at 24% in 2010, though it declined by 0.1% in the first quarter of 2011.

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Economic ContextEconomic Context The manufacturing sector, after showing a steep decline of

10.4% in 2009, performed well in 2010, growing by 5% for the year with its strongest quarterly growth rates achieved in the first, second and fourth quarters at 8%, 5% and 4% respectively

The total real gross fixed capital formation declined by 3.7% in 2010 deteriorating from a 2.2% decline experienced in 2009. This overall decline was despite a positive growth of 3.7% achieved by state corporations which in itself represented a significant decline from the 26.1% achieved in 2009.

The economic decline was mainly due to persistent contraction in investment by the government which showed an aggregate decline of 10.9% for the year after showing consecutive declines in all quarters in 2010.

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Achievements against Achievements against planned targets for planned targets for

2010/112010/11

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Industrial DevelopmentIndustrial Development

Finalisation and launch of the new iteration of the Industrial Policy Action Plan II (IPAP2) covering the 2011/12 - 2013/14 period.

The revised IPAP2 consolidates and further strengthens Government’s interventions to support industrial development and employment creation and is an integral component of the New Growth Path.

The key focus areas of the revised IPAP2 are skills

development, technological innovation and public procurement.

20010/11 targets

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Clothing and Textiles

171 companies benefited from government support under the new Clothing and Textiles Competitive Programme (CTCP) and the Production Incentive (PI) programme.

40 591 jobs were supported or saved and at least 1 111 new jobs being created.

BPO

Investments of R40 million in the Business Process Services sector have resulted in the creation of 950 jobs in the 2010/11 financial year.

New investment commitments worth R42 million were approved that can be linked to 806 jobs.

Under the Monyetla II Programme, 3 400 young trainees were trained of whom 70% are guaranteed employment by the Business Process Outsourcing (BPO) consortium.

2010/11 targets and achievements - Sectors

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Implementation of Customised Sector Programmes

Automotives

Decision by automotive assemblers and component suppliers to make investment commitments of R14 billion.

Investment will create a minimum of 12 000 jobs and scale up capacity in the sector.

PPPFA Regulations

Cabinet approval of amendments to the regulations of the Preferential Procurement Policy Framework Act, 2000 (Act No. 5 of 2000) to allow for the designation of sectors for local production and alignment with B-BBEE codes.

2010/11 targets and achievements - Sectors


Enterprise Investment Programme (EIP) and Industrial Development Zones (IDZs)

• EIP approved investments amounting to R11.3 billion. • The investments are projected to create 12 394 jobs in the

manufacturing sector and 2 624 in the tourism sector.• East London Industrial Development Zone (ELIDZ) - signed

seven (7) investments worth R342 million• Coega IDZ - signed six (6) investments worth R402 million• These IDZ investments will support an estimated 4551

construction and 1 400 direct job opportunities. • Oliver Reginald Tambo International Airport Industrial

Development Zone (ORTIA IDZ) was awarded an operator permit in December 2010 which will enable the development of a jewellery manufacturing precinct in this IDZ.

2010/11 targets and achievements – Industrial Financing

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Overview of Incentive SchemesOverview of Incentive Schemes

Description

Actual

Number of firms supported Jobs supported

Investment leveragedR'000

Export sales valueR'000

EIP 759 15,018 11,300,000 AIS 36 - 7,300,000 BPO&O 3 806 - Film & Television 49 - 991,000 12i Allowance Programme 3 - 4,100,000 Co-operatives (CIS) 232 3,084 - BBSDP 1,104 1,067 - EMIA 1,753 - - 2,856,000COEGA 6 193 406,000 ELIDZ 7 521 342,000 RBIDZ 0 0 0 CIP 12 9,271 34,600,000 SPII 20 - 21,700 TOTALS 3,984 29,960 59,060,700 2,856,000

The incentive schemes and IDZ funding cumulatively supported 3,984 firms, 29,960 jobs and leveraged R59b in investments. The EMIA scheme supported R2,9b in export sales.

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Provincial SpreadNorth West:BPO: 0%Film: 1%MIP: 2%TSP: 7 %CIP: 17%

Northern Cape:BPO: 0%Film: 2%MIP: 1 %TSP: 3%CIP: 8%

Western Cape:BPO: 36 %Film: 54%MIP: 28%TSP:13 %CIP: 0% Eastern Cape:

BPO: 0%Film: 2%MIP: 11 %TSP: 15 %CIP: 8%

Kwa Zulu Natal:BPO: 14%Film: 4%MIP: 20 %TSP: 10 %CIP: 8%

Mpumalanga:BPO: 0%Film: 0%MIP: 3 %TSP: 7%CIP: 17%

Limpopo:BPO: 7%Film: 2%MIP: 4%TSP: 11%CIP: 17%

Gauteng:BPO: 43%Film: 33%MIP: 29%TSP: 26%CIP: 25%

Free State:BPO: 0% Film: 2%MIP:2 %TSP: 8 %CIP: 0%

Provincial Spread: Investment Incentives

Trade, Investment & ExportsTrade, Investment & Exports

Africa

SACU A new Vision and Mission for the Southern African Customs Union

(SACU) was approved by the SACU Heads of State in April 2010 and South Africa hosted a SACU Summit in July 2010.

South Africa took over Chairpersonship of SACU in July 2010

SADC 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

SA Government Position on future of SADC agreed SADC has begun to forge a common position on the SADC- East

African Community (EAC) – Common Market for Eastern and Southern Africa (COMESA) Tripartite Free Trade Area (TFTA)

Work initiated on SDIs in Zimbabwe, Mozambique, Tanzania, DRC and Angola

2010/11 targets and achievements

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South-South/ BRICS: South Africa and China signed a Comprehensive Strategic

Partnership Agreement (CSPA) that included an undertaking to increase South Africa’s value added exports to China and to encourage Chinese investment in South Africa

Agreements were reached with India and Brazil to address non-tariff barriers that impede our bilateral trade

Multi-Lateral

• Participated in World Trade Organisation (WTO) Doha Development Round negotiations with a view to ensuring a developmental outcome. Negotiating positions on all key issues have been strengthened and updated as the negotiations have unfolded


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Investment and Export Promotion Five (5) Investment and Trade Initiatives (ITIs) were facilitated to

Zimbabwe, Brazil, Russia, the Democratic Republic of the Congo (DRC) and India and sixteen (16) National and one (1) Local Pavilion as well as twenty (20) Group Trade Missions took place

Substantive progress has been made in recruiting foreign direct investment in a targeted manner. 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 of R115 billion in projects. The results of the year are R 31,228,820,000 in potential investment and 14 055 jobs. The pipeline reflects R 15,546,320,000 in domestic investment and R 15,682,500,000 in foreign investment

The EMIA scheme supported R2,9b in export sales


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Investment and Export Promotion Provincial Export Fora established in all Provinces to coordinate and

enhance Provincial export development- and promotion efforts.

15 Export awareness workshops held in all 9 provinces for emerging and established exporters by 31 March 2012.

A total of 521 exporters were assisted year to date from all 9 provinces: Gauteng (224), Western Cape (143), KwaZulu-Natal (48), Eastern Cape (18), Northern Cape (7), Free State (3), Limpopo (25), North West (27) and Mpumalanga (26).

Year to date an amount of R 11,494,552.00 was spent on assisting the above mentioned 521 exporters.


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Broadening ParticipationBroadening Participation

Enterprise development Developed 100 new small scale co-operatives creating a

minimum of 500 self-generated income and employment opportunities

Legislative amendment of 2005 Cooperatives Act formulated and gazetted for public comment

The Technology Incubation Programme of the Department, which is managed by seda created 202 new Small Medium and Micro Enterprises (SMMEs)


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Enterprise development The Department through the Small Enterprise Development

Agency (seda) has to date established a network of forty two (42) branches, seventeen (17) mobile units and fifty eight (58) Enterprise Information Centres (EICs) countrywide

Close to 63 916 new clients accessed the seda branch network.

Black Business Supplier Development Programme (BBSDP) – 1 104 enterprises supported under the incentive

Co-operatives Incentive Scheme (CIS) – 232 cooperatives have been supported under the CIS incentive in various provinces


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Provincial Spread

North West:BBSDP: 6 %CIS: 6%

Northern Cape:

BBSDP: 1 %CIS: 0%

Western Cape:BBSDP:5%CIS: 9%

Eastern Cape:BBSDP: 4%CIS: 13%

Kwa Zulu Natal:

BBSDP: 8%CIS:6 %

Mpumalanga:

BBSDP: 5 %CIS: 10%

Limpopo:BBSDP:12%CIS: 28%

Gauteng:BBSDP:53%CIS: 26 %

Free State:BBSDP: 5%CIS: 2 %

PROVINCIAL SPREAD: BROADENING PARTICIPATION INCENTIVES

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B-BBEE and Women Empowerment B-BBEE Advisory Council operational. Presidential Council

recommendations formulated, developed, tabled in Cabinet, resulting in a reorientation of B-BBEE and alignment to broader government priorities (IPAP, NGP). Work-plan and subcommittees for Council approved

PPPFA regulations aligned to B-BBEE Act Support was given to 1 209 SMMEs, 35% of which are women

owned and 91% black-owned The Bavumile Skills development programme supported

close to 80 women in two Provinces namely the Northern Cape and the Eastern Cape in the clothing and textile and arts and craft sectors


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Enterprise Finance and Technology Support

Through the Support Programme for Industrial Innovation (SPII) supported 20 projects with total SPII contribution of R22,7m and industry contribution of R21,7m.

Total value of projects assisted was R44,3m

Through the Technology and Human Resources for Industry Programme (THRIP) supported 235 projects and 1664 students


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RegulationRegulation

Finalised the Companies Amendment Bill and Regulations which introduces simplification of business registration processes, reduces red tape and enhances the transparency of companies

Finalised the Consumer Protection Act Regulations which give effect to the Consumer Protection Act

Finalised the Estate Agency Policy Framework and the draft Bill was produced for tabling to Cabinet which provides a framework for drafting of the new Estate Agents Act to sufficiently protect consumers

Finalised the Intellectual Property Laws Amendment Bill for the Protection of Indigenous Knowledge

Developed National Liquor Licensing Guidelines and Liquor Regulations for the 2010 FIFA World Cup to streamline application procedures and align trading terms across the country


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RegulationRegulation

Minister introduced Regulations and a Directive to improve accessibility of funds to needy communities and causes, improve governance structures on lottery matters and ensure optimal distribution of lottery fund for developmental purposes

Interactive Gambling Regulations has been completed

Gambling Review Commission assessed and produced a report on, inter alia, the socio-economic impact of gambling particularly on the poor, proliferation of gambling which might result from legislative or implementation gaps and the impact of technological development in this industry

Draft research report produced on the review of the Alienation of Land Act aimed to align it with the Estate Agency Affairs Act and draft RIA report on the Estate Agency Policy and Law reform were finalised


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Administration & Co-ordinationAdministration & Co-ordinationVacancy report Vacancy report

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Baseline vacancy reduction

Recruitment efforts

* Excludes posts additional to the establishment

2010/11Quarter 4

(1.1.11 – 31.3.11)

2010/11Quarters 1 - 4

2011/12Quarter 1

(1.4.11 – 30.6.11)

Posts filled through appointments

19 138 42

Posts filled through promotions

29 97 27

Total recruitment efforts * 48 235 69

Governance and Oversight on Governance and Oversight on public entitiespublic entities

Out of 13 agencies, 12 had unqualified audit reports with one, namely CIPC (formerly CIPRO) , being qualified

CIPC received a qualified audit due to lack of a management system to accurately account for revenue and debtors from annual returns. The new Companies and Intellectual Property Commission (CIPC) is addressing this issue

Increased capacity and strengthened processes to assist with entity oversight

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AG’s ReportAG’s Report

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Audit Opinion - Unqualified

Emphasis of matters• Irregular Expenditure - This relates to single source procurement where in most instances

the service provider was a sole supplier of such service (e.g. SABC Radio, training, etc.).

Remedial Action - Additional controls introduced – new internal control unit being established and additional capacity approved: Group CFO & deputy CFO posts created.

• Material Impairments -This impairments largely relate to the General Export Incentive Scheme, which was in existence pre 1994. These debts are in a litigation process and in terms of prudent accounting provision has been made for impairment.

Remedial action - Full report on this matter was presented to SCOPA.

• Asset Management - Asset verifications to be continued on a bi-annual basis. This will include reconciliation between the fixed asset register on LOGIS and count sheets. An analysis will be performed at a more senior level to ensure accuracy of the asset register.

Remedial Action - The department is considering procuring an asset management system to address the LOGIS limitations, which include fields not being able to capture the full serial number and specific location of an asset

AG’s Report – cont..AG’s Report – cont..

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Emphasis of matters

• Management of Performance Information – Concern regarding the measurability of performance targets, not complying to “SMART” criteria in terms of National Treasury requirements

Remedial Actions –Started an engagement with NT and AGSA to agree on methodology for SMART criteria. – Developed internal Policy and procedural guidelines on how to manage performance of the Department and fully comply with Treasury requirements

-Strategic planning session convened and led by Minister Davies to discuss key priorities set for each area.

- Formal performance review sessions held to assess progress against approved plans

-at Departmental and divisional levelsnd progress is reported and assessed quarterly.

Unauthorised expenditure (Note 12.1 of the AFS)Unauthorised expenditure (Note 12.1 of the AFS)• Unauthorised expenditure to the amount of R37 380 million was incurred in the 2004/05 financial

year.• R31 075 million relates to the General Export Incentive Scheme (GEIS) debts (pre 1994), which

were written off.• R6,1 million relates to claim from an investor for loss of investment.• Full report on this matter was presented to SCOPA.

Overview of expenditureOverview of expenditure The budget allocation for the 2010/11 financial year was

R6,194,208 million as compared to R 6,402,076 million in 2009/10. The expenditure for 2010/11 was R5,796,741 million, i.e. 93,6% of the budget.

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 under spending was mainly in the division responsible for Incentive Administration, viz, The Enterprise Organisation division, by 4.09%, which is mainly attributable to the Automotive Investment Scheme (AIS).

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Five Year Comparison of budget Five Year Comparison of budget vs Expenditure – R’000vs Expenditure – R’000

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Economic classification 2010/11 Unspent as % of final

appropriationFinal

AppropriationActual

Expenditure Variance Expenditure as %

of final appropriation

R’000 R’000 R’000

Compensation of Employees 551,748 514,935 36,813 93.33% 6.67%

Goods & Services 545,826 474,830 70,996 86.99% 13.01%

Interest and rent on land 276 275 1 99.64% 0%

Transfers to: 5,073,868 4,789,206 284,662 94.39% 5.61%

Departmental agencies 872,762 838,980 33,782 96.13% 3.87%

Manufacturing incentives, including:

1,389,176 1,144,261 244,915 82.37% 17.63%

**Automotive Production & Development Programme

538,000 294,252 243,748 54.69% 45.31%

Programme payments 1,216,984 1,216,225 759 99.94% 0.06%

Infrastructure incentives 1,224,374 1,224,337 37 100% 0%

Export Incentives 274,636 274,511 125 99.95% 0%

Other 95,936 90,892 5,044 94.74% 5.26%

Payments for capital assets 20,183 15,189 4,994 75.26% 24.74%

Payment for financial assets 2,307 2,306 1 100% 0%

Total 6,194,208 5,796,741 397,467 93.58% 6.42

Budget vs. expenditure for the 2010/11 financial year – Budget vs. expenditure for the 2010/11 financial year – economic classification economic classification

29** Amounts in respect of AIS are already included under the manufacturing incentives

Reasons for under spending

Item Amount unspent

Reasons

R’000

Automotive Production & Development Programme (AIS)

243,748 The Automotive Investment Scheme (AIS) only became operational in December 2010. 53 projects have been approved by the Adjudication Committee with the total concession amount of R1,861 billion as at 31 March 2011. R293,918 million was paid during the first quarter of the new financial year.

Goods & Services

70,996 • Outstanding foreign mission accounts from DIRCO. The account for March 2011 was only received on 19 May 2011 and charged against the budget for 2011/12• Postponement of the SADC Tripartite Summit from February to June 2011• Payments for funds earmarked for variation orders for a building currently occupied by CIPC could not materialise pending their move to new premises • Cost savings initiatives on venues and facilities as well as on travel contributed to the under expenditure

Compensation of Employees

36,813 Vacancies

Departmental agencies

33,782 Delays in the establishment of the National Consumer Commission and the Companies and Intellectual Property Commission.

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If the AIS under spending excluded, the percentage underspent would be 2%

Key ChallengesKey Challenges Global economic climate

Challenges to job creation and skills for economy

Growing the manufacturing sector

Funding and business support for informal sector and establishing new innovation incubators

Strengthening corporate governance of some agencies

Substantive application within BBEEE Framework, characterised by opportunistic fronting and lack of punitive measures

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Thank you

date : 26 october 2011 director-general mr lionel october

Documents

positive growth

new jobs

economic decline

new growth path

modest growth

overall decline

steep decline

significant decline