Date : 26 October 2011 Director-General Mr Lionel October

Presentation to the Select Committee on Trade and International Relations – the dti’s 2010/11 Annual Report Date : 26 October 2011 Director-General Mr Lionel October

Presentation 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 2

Economic 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. 3

Economic 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.

Achievements against planned targets for 2010/11 5

Industrial Development 20010/11 targets

Industrial Development 2010/11 targets and achievements - Sectors

Industrial Development 2010/11 targets and achievements – Industrial Financing

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.

Gauteng: BPO: 43% Film: 33% MIP: 29% TSP: 26% CIP: 25% North West: BPO: 0% Film: 1% MIP: 2% TSP: 7 % CIP: 17% Limpopo: BPO: 7% Film: 2% MIP: 4% TSP: 11% CIP: 17% Mpumalanga: BPO: 0% Film: 0% MIP: 3 % TSP: 7% CIP: 17% Northern Cape: BPO: 0% Film: 2% MIP: 1 % TSP: 3% CIP: 8% Kwa Zulu Natal: BPO: 14% Film: 4% MIP: 20 % TSP: 10 % CIP: 8% Free State: BPO: 0% Film: 2% MIP:2 % TSP: 8 % CIP: 0% Western Cape: BPO: 36 % Film: 54% MIP: 28% TSP:13 % CIP: 0% Eastern Cape: BPO: 0% Film: 2% MIP: 11 % TSP: 15 % CIP: 8% Provincial Spread: Investment Incentives Provincial Spread

Trade, Investment & Exports 2010/11 targets and achievements

Trade, Investment & Exports 2010/11 targets and achievements 15

Broadening Participation 2010/11 targets and achievements

Gauteng: BBSDP:53% CIS: 26 % North West: BBSDP: 6 % CIS: 6% Limpopo: BBSDP:12% CIS: 28% Mpumalanga: BBSDP: 5 % CIS: 10% Northern Cape: BBSDP: 1 % CIS: 0% Kwa Zulu Natal: BBSDP: 8% CIS:6 % Free State: BBSDP: 5% CIS: 2 % Western Cape: BBSDP:5% CIS: 9% Eastern Cape: BBSDP: 4% CIS: 13% PROVINCIAL SPREAD: BROADENING PARTICIPATION INCENTIVES Provincial Spread 18

Broadening Participation 2010/11 targets and achievements

Regulation 2010/11 targets and achievements

Baseline vacancy reduction Administration & Co-ordinationVacancy report Recruitment efforts * Excludes posts additional to the establishment

Governance and Oversight on public 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 24

AG’s Report 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.. 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 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 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).

Five Year Comparison of budget vs Expenditure – R’000 28

Budget vs. expenditure for the 2010/11 financial year – economic classification ** Amounts in respect of AIS are already included under the manufacturing incentives

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

Key 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

Thank you 32

Date : 26 October 2011 Director-General Mr Lionel October