Date: 12/06/2012

Source: IFP

Title: IFP: Mtshali: Address by Inkatha Freedom Party Shadow KZN MEC for Economic Development and Tourism, on the KZN Budget Debate, Pietermaritzburg

Honourable Speaker

The focus of the provincial Department of Economic Development and Tourism is on job creation and economic growth through promotion of trade and industry. Despite the provincial government’s latest pledge to support small businesses, this department has consistently been unable to channel its resources effectively through Ithala, the KZN Growth Fund, Tourism KZN and other public entities under its aegis towards sustainable job creation on a scale that is needed to make a dent on the unemployment rate hovering at around 25 percent and youth unemployment standing at a staggering 73 percent in KwaZulu-Natal.

The immediate challenges faced by the department and the public entities attached to it include:

1. The delays in the implementation of the KZN Liquor Licensing Act 2010 stemming from the delay in the publication in the Government Gazette of the repeal of certain provisions of the national Liquor Act, 1989 by the national Minister of Trade and Industry in relation to KwaZulu-Natal.

2. The slow progress made by Ithala to offer the required business support and arrest the non-payment of SMME loans. Coupled with these challenges is another problematic audit report for the entity which gives an account of substantial material losses.

3. The reported budgetary constraints experienced by the KZN Sharks Board whose 25 percent budget cut is preventing this public entity from performing its core functions.

4. The lack of a detailed strategy on how to make KwaZulu-Natal South Africa’s province of choice for business and the lack of a credible policy to roll out broad-based support for emerging business owners in the province.

The IFP has long supported the principle of job creation though public investment which is a stated objective of the Department of Economic Development. This is particularly true of state-funded investments in the small businesses where jobs are of a more sustainable nature compared to the long-running Extended Public Works Programme, which by its very nature is largely temporary and where little or no training and skills transfer can possibly take place

On the face of it, both Ithala and its subsidiary, the KwaZulu Natal Growth Fund, are programmed to do just that – to fund small business initiatives that train individuals for the job market, develop and transfer practical skills and ultimately create sustainable jobs. In practice, however, much of the investment that these entities provide is bad investment with grossly inflated overheads and insufficient return. Very often, decisions to grant start-up loans are driven by political concerns rather than merit. This could be good politics, but it is bad economics.

The reason why many state-funded projects do not materialise and fail to turn out a profit without continued financial backing is the same as the reason why private investors would think twice about funding them in the first place. Private investors tend to look at the big picture and what they see is mostly disheartening.

There is the inflexible labour legislation, the poor educational system, the high incidence of corruption, low productivity, high crime levels, the tendency of government to move more and more towards centralisation and threats of expropriation of assets and property - as evidenced by renewed debate about nationalisation - most of these issues filter down from the national government, some – such as the major red tape obstacles to do business in KwaZulu-Natal could be successfully addressed by the provincial government.

If we are serious about creating sustainable jobs where they are needed most, we must provide tax incentives for new investments in the manufacturing industry, particularly in rural areas. We must also reform or even abolish Setas, introduce training incentives for businesses, readjust the mostly unworkable and costly Black Economic Empowerment and affirmative action initiatives and do away with the policy of providing loans and jobs for pals. In other words, we must do away with much of the current practice behind the free enterprise façade of our public entities.

Another thing KwaZulu-Natal needs is a detailed strategy on how to make our province South Africa’s province of choice for business. One way of doing this is by cutting red tape that would make it easier to do business in KwaZulu-Natal. The time period for registering new businesses needs to be cut. Compliance with a multitude of regulations also needs to be eased.

One issue that can be taken up directly by the Office of the Premier and the Department of Economic Development is looking into options for the formalisation of informal businesses in this province. These measures could include incentives and concessions for informal businesses to register and enter the formal economy.

Rather than attempting to micromanage the affairs of individuals and communities, our proposals seek to inspire self-help and self-reliance while equalising opportunity for all. We recognise that participation of greater numbers of citizens of KwaZulu-Natal in the province’s economy cannot happen without a radical expansion of opportunity and that effective service delivery by government can only be made possible through a growing and prosperous private sector.

The greatest difference between this and past provincial budgets and our proposals for the Department of Economic Development and the public entities attached to it lies in the purpose and size of government our plan would achieve over time.

Another going concern is the pervasive lack of accountability in this department. One example are the delays incurred in the publication of forensic reports stemming from the department to the relevant committees of the Legislature. Honourable Speaker, let me give you an example. It has now been two years since the awarding of a R169-million contract by Ithala Bank to construction company Bombe Chitey Construction Projects which subsequently became the subject of a forensic investigation.

In spite of this long period, the Standing Committee on Public Accounts has yet to be presented with a copy of the investigation by the Department of Economic Development. As Members of this House, we need an explanation as to why the department had indicated previously that the report was so confidential that the document could only be provided to the SCOPA chairperson and not the rest of the committee. At present, following the adoption of the joint SCOPA and Finance report into the release of forensic reports which has changed the circumstances under which our committees can gain access to the outcomes of forensic investigations.

The joint report, which we in the Official Opposition warmly welcomed, is intended to address a situation where the relevant portfolio committees do not have access to forensic investigations which means they cannot interrogate instances of fraud and corruption in the government departments and whether action taken against the perpetrators was adequate. Our hope is that the new rules governing the release of forensic reports will radically improve our oversight function which has long suffered as a result of the evasive attitude of the political leadership in the provincial government in matters of accountability.

This joint report has been designed to address exactly the issue we have encountered in connection with the forensic investigation into the Bombe Chitey saga. The response this Legislature received from the department upon repeated enquiry was that the matter was “highly sensitive, complex and required a commission of inquiry to be set up in order to get the details of the forensic investigation”. Surely, such an attitude from the Executive is not conducive to effective parliamentary oversight.

Yet, the matter at hand is at the heart oelopment and Tourism. We will recall that in 2010, controversy erupted when news broke that the head of Ithala at the time, Sipho Shabalala, had contravened tender regulations in the awarding of work for the construction of schools to Bombe Chitey.

The subsequent investigation recommended that Shabalala face 23 disciplinary charges. Instead of implementing the recommendations in the forensic report, the Honourable MEC Mabuyakhulu gave Shabalala a mere written warning. We contend that Shabalala would not have emerged from such a serious crisis of confidence with a slap on the wrist had this Legislature been able to interrogate the forensic report into Bombe Chitey tender irregularities in time to ensure that its recommendations are implemented in full.

On a more positive note, we wish to give credit where it is due as far as this department is concerned. One such instance is the performance of the CEO of Richards Bay IDZ. Among his many achievements is the successful reorganisation of the IDZ, including its administration and operations. The CEO also deserves praise for the IDZ’s business and strategic plans, expansion of the professional staff and, most importantly, the work that has gone into nurturing investors in the IDZ’s operations. We would certainly like to see such successes replicated across all the operations of the Department of Economic Development and Tourism and beyond.

I thank you.